Rheinmetall shares plunged as much as 17%, the largest intraday drop in more than a year, after the Financial Times reported that Berlin has scrapped a multi-billion-euro program to build six F126 frigates.

The German Ministry of Defense told FT on Wednesday that the decision was due "to significant delays in the project, foreseeable cost increases and the risks that would have been associated with a change of main contractor," adding that changing the contractor would have added even more costs but also required the government to contractually "waive potential claims for damages against the previous contractor".

The ministry noted that it now plans to procure eight MEKO-200 frigates from TKMS instead. "Sea-based anti-submarine warfare is of the utmost importance within NATO and is therefore also a national priority," it said.

TKMS shares in Germany jumped 10% on the news.

Morgan Stanley analyst Marie-Ange Riggio said the report was a surprise, especially because Rheinmetall had been confident it would secure the contract before summer.

Riggio said it raises questions about German defense procurement visibility and Rheinmetall's near-term naval ambitions, but it should not materially affect current guidance because deliveries were not expected until 2031, leaving a limited impact on 2030 targets.

Here is Citi analyst Charles Armitage's first take on the news:

Barclays analyst Afonso Osorio says, "This comes as a surprise, weighs on sentiment, and raises questions about how quickly defense spending will evolve."