Not made in USA: military spending report suggests many drone parts are still made in China

The past few years in the U.S. drone industry have been marked by emphatic calls — from both politicians and some drone industry leaders — to stop buying drones and drone parts made in China. But a recent U.S. military spending reports suggests that — despite federal rules preventing use of some drones made in China — a huge portion of materials used to make military-approved drones still come from China.

The 2020 Annual Report of Industrial Capabilities Report to Congress by the Department of Defense looked at the Department’s Defense Spending, and there was a section devoted to drones. Between procurement and Research, Development, Test & Evaluation programs, the drone-related budget is $3.2 billion in total for the 2020 fiscal year. Here’s a breakdown:

• $153 million was allocated to drone programs.
• $13.4 million was awarded to drone suppliers under Defense Innovation Unit’s (DIU’s) Commercial Solutions Opening using the funds authorized and appropriated under the CARES Act.
• $11 million are contracts awarded to private drone companies in 2019 — Skydio, Vantage Robotics, Altavian, Teal Drones and Parrot —via the Blue sUAS group to build ‘cyber-secure drones’.

And it’s exactly those Blue sUAS platforms that are shaping up to be interesting – and potentially problematic.

The Blue sUAS project was created by the Department of Defense’s Defense Innovation Unit as a way to partner with private, American drone companies that would then build “trusted” drone systems for the DoD and other U.S. government partners. The Blue sUAS platforms were approved through a cybersecurity vetting process and made available for purchase by any government agencies in September 2020. Among the drones selected as a trusted UAV solution under the DIU’s Blue sUAS program is the Skydio X2 and the Teal Golden Eagle drone.

That sounds all good — unless you’re a made-in-USA purist. The 2020 Annual Report of Industrial Capabilities Report looked at the materials of four randomly selected drone platforms that meet the DoD requirements (it did not specify which ones) and found that many of the parts making up those drones still rely on Chinese suppliers.

Among the products most reliant on parts from China:

• Fuselage structures (e.g. carbon fiber or plastic
• frames)
• Electric motors (e.g. Neodymium Iron Boron magnets)
• Printed circuit boards (PCB)

Of course, not all parts come from China. The report broke down the parts by country, with China in red. Notably, the dark blue color aligns with France, though it looks like that’s a misprint on the graphic, and the dark blue should represent the U.S.

In a nutshell, it seems that many drones that are funded by the U.S. military to some extent still rely heavily on China.

“This raises the broader question of whether or not most of these drones meet new federal rules on component sourcing, or if many of these drones need a waiver to be purchased,” wrote industry analyst and Drone Market Sector Report author David Benowitz in a blog post to his site, Drone Analyst.

Why does everyone demand made in USA drones — and what’s the problem if they’re foreign-made?

The “buy-American” sentiment is pervasive in many industries, not just drones. But specific to tech, there’s an executive order issued by former President Donald Trump in January 2021 ordered government agencies to study whether they could stop buying certain drones, with Chinese-made drones likely at the forefront of that order.

Then, the National Defense Authorization Act for Fiscal Year 2020 prohibited defense contracts that would involve operation or procurement of foreign-made drones (though lawmakers ultimately tossed out an outright ban in favor of “continuing efforts to encourage domestic drone production.”

“While the terminology across these two rules and the above chart are not entirely consistent, having gimbals, cameras or computers/software of Chinese origin would not be acceptable,” Benowitz wrote in a post on his site. “It is more likely that agencies are currently getting around these limitations through waivers or, in the case of Trump’s Executive Order, outlined steps to mitigate risks related to operating foreign made UAS.”

Other anti-Chinese sentiment included news that the U.S. government has added DJI to a list of companies on its restricted trade list, alongside discussion that the U.S. government might ban its own agencies from using Chinese-made drones. In fact, in 2017,  the U.S. Army prohibited its troops from using DJI drones due to cyber-security concerns.

Throw in recent news that the U.S. government has added DJI to a list of companies on its restricted trade list, and a 2017 U.S. Army ban on troops using DJI drones due to cyber-security concerns, and it seems that many people don’t want drones affiliated with China.

Alas. The meaning of ‘made in USA’ is messy, and it may be tough for the federal government to actually get what it wants with U.S. made drones.

What does made in USA mean?

For what it’s worth, the term “Made in the USA” is somewhat fluid, and it’s hard to get an exact definition. Most experts agree that “made in USA” does not necessarily mean that every single part was thought up, made and assembled in the U.S., using materials entirely from the U.S. The copper might come from Chile. Perhaps the glass for a camera lens was made in China, but was shipped to the U.S. to be placed into a camera.

By the Federal Trade Commission’s definition, “Made in USA” means that “all or virtually all” of the product was made in America. More specifically, all “significant parts, processing and labor that go into the product must be of U.S. origin.”

But what constitutes significant parts? What is the difference between ‘assembled’ and ‘built’? Does shipping Chinese-made parts to the USA to be snapped together qualify as “Made in USA”?

You’d be hard-pressed to find a drone where every material, product, assembly and step of building was made entirely in the U.S.A. For example, many drones use Sony sensors — typically manufactured in Japan. Many drones rely on Nvidia to provide obstacle avoidance sensors; Nvidia largely relies on Taiwan Semiconductor Manufacturing Company.

What parts made in China mean for the Blue sUAS group companies

Many of the Blue sUAS group companies have touted their status as being made in the USA. And given the loose definitions of what ‘made in the USA’ means, they’re not wrong. Giant lettering on Skydio’s homepage proclaims that its drones are ‘designed, assembled, and supported in the USA.’ Here’s a statement on Skydio’s website.

“We take our responsibility as America’s leading drone manufacturer seriously. We design, assemble, and support our products in the U.S. We develop our software in-house and source our processors from U.S. companies. That enables us to provide a high level of supply chain security and serve as a trusted partner to government customers. The result is a homegrown aircraft that reflects the best of American innovation, trustworthiness, and craftsmanship.”

In general, U.S. drone manufacturers are seeing a resurgence. There’s heavy public interest for companies like Skydio, which makes both enterprise and military-ready, as well as consumer drones like the Skydio 2. In fact, the  DroneAnalyst 2020 Drone Market Sector Report, revealed that DJI’s 2020 drone market share dropped for the first time to 69%, down from 74% in 2018.

Still, 69% is massively high relatively to most other industries.

“Despite this shift, the industry is still far away from both broad competition or a truly independent US supply chain,” Benowitz wrote. “All this goes to show that building up a domestic production capability that is commercially competitive is difficult, and is going to take time.”