From Tractors to Tanks Europe’s SMEs Embrace the Dual-Use Shift

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Transatlantic and European initiatives are converging on civil-military synergies: dual-use innovation is now central to strategic autonomy and industrial competitiveness.

Dual-use technologies, designed for both civilian and military applications, are reshaping Europe’s defence innovation ecosystem. From NATO’s DIANA accelerator to the EU’s multi-billion euro support schemes, public and private players are leveraging dual-use potential to speed up deployment, scale deep tech, and enhance strategic autonomy.

What Are Dual-Use Technologies – and Why Do They Matter?

Dual-use technologies refer to systems or innovations with both civilian and military utility. They enable a more agile, cost-effective approach to security by leveraging civilian innovation for defence needs and vice versa. In an era defined by power shifts and rapid technological change, dual-use becomes both a resilience strategy and a force multiplier for security.

NATO’s DIANA: Accelerating Deep-Tech for Defence

NATO’s Defence Innovation Accelerator for the North Atlantic (DIANA), operational since June 2023, is a flagship dual-use initiative. It provides startups with funding, access to accelerator sites and over 180 test centres, mentorship, and a pathway into defence markets across the alliance. In 2025, DIANA launched new challenge areas to expand its dual-use tech pipeline, underscoring NATO’s commitment to mobilising civilian innovation ecosystems for security applications. 

EU Instruments Supporting Dual-Use R&D

The European Union has mobilised multiple tools to back dual-use innovation. The European Innovation Council supports breakthrough technologies; the European Defence Innovation Scheme (EUDIS), within the European Defence Fund (EDF), channels fresh funding to lower barriers for innovators; and the Hub for EU Defence Innovation (HEDI) promotes military-focused R&I cooperation. The Commission’s dual-use guidance frames a “dual-use by design” approach that bridges civil and defence innovation.

From Concept to Market: Building Scale

The NATO Innovation Fund complements DIANA by investing in European deep-tech with defence applicability (robotics, AI, aerospace, energy). Investor sentiment has shifted markedly since 2022, with defence-oriented venture activity and scale-up funding accelerating across Europe.

The Mittelstand’s Dual-Use Pivot: SMEs from Classical Industries

Beyond startups, Europe’s dual-use momentum increasingly draws on traditional industrial SMEs that are re-tooling for defence demand:

• In Germany’s engine sector, Deutz, a historic maker of industrial and off-highway engines, has begun to cultivate defence business lines. Management expects defence-related revenues in the mid double-digit million-euro range in 2025; longer-term, projects under discussion include specialised hybrid powertrains for tracked vehicles. This marks a cultural shift for a firm rooted in civilian powertrains but now aligning with rearmament and resilience priorities.
• In chemicals, Alzchem, traditionally known for guanidine derivatives for agriculture and industry, has pivoted into energetics. The company secured €34.4 million under the EU’s ASAP instrument and plans to double nitroguanidine capacity (a key ingredient for modern propellants), with the first new capacities slated from H2 2026. It’s a clear case of a civilian chemical producer scaling into defence-critical materials with EU co-funding. 
• In fluid power and machinery, Hawe Hydraulik, a classic Bavarian hydraulics specialist supplying industrial machinery, has broadened its footprint in defence programmes, leveraging dual-use components (valves, manifolds, power packs) that migrate from machine tools and mobile hydraulics into military platforms. 
• In advanced materials and machining, Europe sees precision engineering SMEs moving from civil aerospace and energy into defence supply. Castle Precision Engineering (Glasgow) is a long-standing precision machinist for turbines and aerospace components that today manufactures parts for defence systems, an illustration of how established civil suppliers can scale into defence with existing 5-axis and metrology assets.

At the macro level, Germany’s rearmament drive is also repurposing automotive capacity: defence primes are converting former auto parts plants and absorbing skilled labour from tier-1 suppliers like Bosch and Continental to accelerate output in radars, munitions and vehicles. While many car and prime contractors are not SMEs, the spillovers extend down the supply chain -opening doors for Mittelstand subcontractors in machining, wiring harnesses, PCB assembly, castings and coatings. 

These cases illustrate the dual-use ladder in practice: civilian component know-how → qualification to defence standards → scale-up via public demand and EU/NATO frameworks. For many Mittelstand firms, the entry points are components and materials rather than full systems, making certification, compliance and delivery cadence the decisive differentiators.

Real-World Example: Innovation from Civil to Combat

Ukraine’s rapid adaptation of agricultural drones for battlefield use shows how civilian technologies can be repurposed at speed, validating the premise of dual-use pipelines under crisis conditions.

Policy Imperatives and Challenges

Regulatory ambiguity around what counts as “dual-use” can blur priorities, funding remains fragmented across EU and national tools, and ESG concerns complicate capital formation. The task ahead is to simplify pathways for SMEs—from export controls and security clearances to procurement and testing—so civil suppliers can qualify faster without compromising compliance.

Outlook

Dual-use technologies are increasingly central to Europe’s defence and industrial strategy. The coming years will test whether initiatives such as DIANA and EUDIS can scale into enduring innovation ecosystems, whether regulatory frameworks can be streamlined for SMEs, and whether Europe can institutionalise dual-use thinking—from classical industrial supply chains to frontier deep-tech—across security, industrial and technology policy.