PARIS — A new generation of defense startups is taking on the world’s biggest arms-makers in a cutthroat competition — and gaining ground.

The West’s defense industry has long been dominated by giants such as Lockheed Martin, Boeing, Thales and BAE Systems. Now, companies founded only a few years ago are snatching defense ministry contracts — sometimes at the expense of incumbents.

“There is a kind of contest playing out between legacy players and new entrants,” Adm. Pierre Vandier, NATO’s supreme allied commander transformation, said in an interview.

Last month, American defense tech firm Anduril signed a 10-year contract with the U.S. Army for hardware, software and infrastructure that could be worth up to $20 billion. In Germany, the government locked in a multibillion-euro drone deal with German companies Stark and Helsing — which were founded in 2024 and 2021, respectively.

As Europe and the U.S. rush to counter the threat from Russia and the war in the Middle East, the competition from newer firms poses yet another test for military contractors already scrambling to scale up production, says Vandier, who is in charge of innovation and preparing NATO for the future of warfare.

“On one side, the legacy companies say they are going to change. On the other, the startup world brings fierce energy and venture capital money, with young people who aren’t afraid to fail because they know they can always try again,” he told POLITICO. “It is a clash of two worlds.”

That clash was on full display last month when Rheinmetall CEO Armin Papperger dismissed Ukraine’s drone industry as “how to play with Legos.” Gulf countries looking to fend off Iranian counterattacks, however, are looking to sign deals with Kyiv and purchase Ukrainian systems, which are cheaper and more effective at knocking down drones.

“There are two possible outcomes,” Vandier predicted. “Either the startups eventually get absorbed into the legacy world, which itself decides to accelerate. Or the clash turns more violent, with new entrants growing fast enough to think they can take down the big ones.

“That’s why we are in a Darwinian moment. It is too early to tell which kind of reckoning is coming,” he added.

American legacy firms are under greater pressure than their European rivals, the top commander argued. That’s because there’s less venture capital money available in Europe, and some European governments are more reluctant than the U.S.’s to take a chance on newcomers.

Dark — a French space defense startup founded in 2021 that developed a robot to fight against low Earth orbit threats — had to shut down last year, partly blaming the lack of support from French authorities.

“The key difference is that appetite for risk in Europe is far lower than in the United States,” Vandier said.

Teaming up with automakers

Four years after the Ukraine war started, military contractors still aren’t building enough weapons, Vandier stressed.

That’s an observation echoed in several NATO countries, including France and the United States. As Washington remains embroiled in the war it launched against Iran, the Pentagon signed a deal with American military contractors to expand production.

“The way our defense industry is structured still reflects a post-Cold War mindset. It knows how to develop products, but struggles to produce them at scale,” Vandier said. “The civilian and military industrial worlds need to reconnect — this is something that has happened before throughout history.”

One example from the past, he pointed out, is the World War II Sherman tank. It wasn’t necessarily the best equipment on the market, but was compatible with mass production by American carmakers, namely Ford and Chrysler.

“The lesson is simple: A somewhat less perfect system, but one that can be produced in large numbers, can have greater military value than an excellent system that cannot be manufactured at scale,” Vandier said.

Some NATO countries have started to explore collaborations between the civilian and defense sectors. France’s carmaker Renault is looking at manufacturing military drones, while Germany’s Volkswagen is said to be in discussions with Israel’s Rafael to make heavy-duty trucks to carry the system’s missiles, along with launchers and electricity generators.