If the U.S. Army found itself at war, American manufacturers would struggle to produce the large number of high-quality small drones that the service would likely need—unless the Pentagon increases its support for drone producers, and soon.
Army leaders at all levels are racing to incorporate small drones into operations, drawing on lessons from Ukrainian battlefields where small quadcopter-type aircraft are being used to great effect and in extraordinary numbers.
Some two years into Russia’s full-scale invasion, Ukrainian companies are building one million first-person-view drones a year for use as loitering munitions—and that’s not counting other types like the thousands of reconnaissance quadcopters that the military has bought or received. In May 2023, Ukrainian forces were reported to be expending some 10,000 drones a month.
U.S. firms likely aren’t making enough to replace even half of that. Estimates of total domestic monthly production include the mid-single-digit thousands (David Benowitz, who leads research at drone market firm DroneAnalyst) or the low four-figures (Bryan Clark, a senior fellow at the Hudson Institute).
“Until the U.S. military mainstreams operational concepts that demand large numbers of drones, production will remain at a relatively low level,” Clark said.
Currently, the Army has just one quadcopter program of record—that is, a program with a dedicated funding line in the budget—called Short Range Reconnaissance, or SRR. Two companies are currently competing to win SRR’s Tranche 2 contract: Skydio, which says it can make a total of 2,000 drones per month, and Teal, which says its production capacity is in the thousands.
These and other U.S. drone manufacturers would likely expand production capacity if they could win more sales, but the market is fiercely contested by Chinese firms—particularly DJI, which alone commands 70 percent of the global drone market, in part thanks to state funding.
“Over the last ten years, I’ve watched dozens of U.S. and allied drone companies go under in a market distorted by foreign subsidies,” Skydio CEO Adam Bry said in congressional testimony.
The Defense Department is a reliable customer of domestic drone companies, in that it generally requires its agencies to buy drones off its U.S.-only Blue List. But military buyers can move too slowly for start-up companies to thrive, said Ryan Gury, CEO of Performance Drone Works. The venture-capital backed PDW has found success, including getting its C100 drone on the military’s pre-vetted drone list.
Still, “It’s really difficult for a startup to get into this space and it takes a lot of capital to get to the place that we’re at,” Gury said in a February interview.
Such drones, meanwhile, are often far more expensive than their Chinese equivalents. U.S. drones approved for military use can cost three to five to times as much as Chinese drones with similar specifications, according to the Defense Innovation Unit.
In part, that’s because U.S.-made drone components can cost far more than Chinese components, said Soren Monroe-Anderson, co-founder of first-person-view drone company Neros.
“You end up paying, you know, 100 times more for a U.S. component that you would for a Chinese component,” he said.
Monroe-Anderson said Neros is working to keep costs “in the low four figures” by optimizing the drone’s design, and one day aims to make more of its own components. But that will take considerable money and knowledge. “It’s a huge thing to try and take on.”
In some cases, the price may even be a barrier to soldiers flying them.
The Army’s program-of-record quadcopter cost $39,800 per drone for the first tranche of program, while drones in tranche two are expected to cost $65,000 apiece. Even the cheaper drones on the Blue List can clock in at $14,000.
One commander said the cost stresses his limited operational budgets as he tries to get units up to speed on this vital battlefield tool. Soldiers have expressed “heartache” over experimenting with expensive drones given the risk of breaking or losing them.
And despite their higher prices, U.S. drones are often not as good as their cheaper Chinese rivals.
“Products from Chinese manufacturers such as DJI and Autel are still able to perform better in almost every regard, making them the clear choice when purely price-to-performance ratio is a deciding factor,” said one Western drone consultant with experience advising Ukraine, who agreed to be quoted on background.
Skydio’s drones were frequently lost due to Russian jamming when they were first sent to Ukraine, although the company has since said that they’re learning from the experience and that Ukraine has requested thousands of their drones. Chinese drones are also frequently lost to jamming—but at $2,000 for, say, a DJI Mavic 3, they are more easily replaced.
“Timewise, matching a DJI product is probably impossible to do in the next years,” said Hendrik Bödecker, a drone industry analyst at European analytic company Drone Industry Insights.
Chinese drones’ performance is in part a product of the vast amount of human resources that their companies have invested in research. Of DJI’s 14,000 employees, about one-quarter work on research and development.
U.S. firms are far smaller. Drone industry group AUVSI counts just 13 groups in its “large” category of 500 or more employees. Chinese companies also benefit from vertical integration in their supply chain, said Benowitz, which allows them to control every component’s specifications.
The U.S. could theoretically look across the Atlantic for drones, but European firms are little better off.
“The average drone company in Europe has, like 20 employees,” said Bödecker.
Fixing the problem
If the U.S. wants to help the domestic drone industry, the solution is to stimulate the market through high demand, according to David Michelson, who leads the autonomy portfolio at the Pentagon’s Defense Innovation Unit.
“The feedback I usually get [from vendors] is: ‘Don’t tell me how to build a thing, just buy more’.” said Michelson.
By contrast, government involvement in the industry—such as making capital investments on behalf of companies—might dampen innovation while ultimately being a wasted investment if drone orders don’t come through, he said.
“If you make those capital investments and you’re not building anything, you’re not going to learn and become more agile and become more efficient,” Michaelson said.
Army leadership agrees: “I think once we start to show a demand for more of these, and people are producing them, the prices will continue to come down,” Army Chief of Staff Gen. Randy George said during Defense One’s State of Defense event earlier this year.
But so far, the Short Range Reconnaissance program remains the Army’s only small-drone program of record. It has ordered 936 quadcopters from fiscal year 2023 through 2026, according to Army budget documents.
Other programs-of-record are being developed, and the Army has also requested $25 million from Congress to give to individual commanders to buy drones off the Blue List. That may put another 1,700 drones into the Army, assuming they purchase cheaper drones like the $14,000 Parrot Anafi. That also assumes that Congress approves the request and that commanders are interested.
The Army’s 2024 budget also includes $21.8 million to buy commercially available drones, but does not say which ones or how the money would be spent. The Army did not respond to a request for clarification in time for publication.
But the military will need to up its orders if it wants to catch up with China, said DroneAnalyst’s Benowitz.
An order of 1,000 to 2,000 drones could “significantly help justify investments that could ramp up production and potentially lower costs by investing at a component level,” he said. “However, it wouldn’t be sufficient to significantly close the gap in capacity or price compared to China.”
Hudson’s Clark said drone companies with venture capital funding can invest more in production, but the low average price for individual drones means that companies that depend on sales may struggle.
“If the government buys a tranche of them, it’s not a huge amount of money, which means it’s difficult to capitalize new plants based on current cash flow,” he said.
Even companies with more resources aren’t necessarily well-positioned to make investments in some key components, “They can’t build their own chip-making plant,” said Clark.
If orders ever reach hundreds of millions of dollars, the U.S. “could do an immense amount,” to improve drone manufacturing, said Monroe-Anderson. Still, he agreed that China’s strong industrial base meant the U.S. couldn’t quickly catch up.
Clark added that national security is another reason for investing in the supply chain. “There’s components for these drones that are not readily available in the U.S. There’s going to be a concern: are we becoming dependent upon non-U.S. sources?”
While Clark pointed to investments in the submarine industrial base as a possible model for the drone industry, Benowitz recommended a policy like the CHIPS and Science Act, which provides tens of billions in federal incentives for semiconductor production.
Bödecker, of Drone Industry Insights, pointed to yet another potential solution.
“When you look at Ukraine, now, they are building insane capacities to build drones,” he said. After the Russian-Ukraine war ends, “there will be a production capacity that will in return address the European and maybe even North American market,” he said.
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