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How Will the U.S. Supply Chain Change Over the Next Two Years? What the American Security Drone Act Means for the U.S. Drone Industry—Part 3 of 3

BY Zacc Dukowitz
21 May 2020

Over the last few months we’ve been interviewing leaders in the U.S. drone industry to get a sense for what the current landscape looks like when it comes to U.S. drone production, and what the future might hold.

skydio-2-public-safety
Photo credit: Skydio

When we started these conversations, we wanted to find out what might happen to U.S. drone companies if the American Security Drone Act (ASDA) suddenly banned Chinese drones and drone components from use by all government agencies.

At the time, the big concerns we were hearing about the ASDA were:

  1. It could cause public safety agencies to lose their drone programs overnight. Since 90% of public safety agencies use DJI drones, a ban on Chinese drones for all government agencies would force them to drop their drone programs.
  2. It could cripple the U.S. supply chain. Since many U.S. drone companies (not to mention foreign, non-Chinese companies that have big customer bases in the U.S., like Parrot or Flyability) rely on Chinese drone components in their drones, the proposed ban could have a devastating impact on their manufacturing capabilities, and on the U.S. drone industry in general.

The results of these interviews was a three-part series on the ASDA and U.S. drone companies.

In the first article, we dove into common misconceptions about the ASDA, and clarified that 1) It doesn’t require public safety agencies to give up their drones, and 2) Supply chain concerns may not be as drastic as they appear because the ASDA includes a two year grace period before any ban takes effect—and the ban only applies to drones used by federal agencies, not state or local agencies.

In the second article, we took a close look at U.S. drone companies that work in public safety, diving into the first of the two concerns listed above.

In today’s article, the third and final one in the series, we’re going to look at the second concern listed above: the U.S. drone industry’s supply chain.

Supply Chain Lessons from COVID-19

We started our investigation into the U.S. drone industry supply chain by talking to Michael Quiroga, Chief Revenue Officer of ASYLON. ASYLON is a drone company focused on security applications, which has created DroneCore, a robust autonomous drone security platform.

Quiroga also serves as the Team Lead for the CIPAC (Critical Infrastructure Partnership Advisory Council) UAS Security Operations at the Department of Homeland Security. Working in both government and the private sector, he has a unique perspective on the supply chain question.

The first thing he pointed out is that the sudden, sweeping impact of COVID-19 has demonstrated the extremity of U.S. reliance on Chinese manufacturing when it comes to drone production.

. . . a growing number of component suppliers around the world are experiencing slowdowns or shut-downs in reaction to the COVID-19 virus, which impacts the availability of subcomponents in a snowball effect.

– Excerpt from an email Skydio sent customers in early April

The impact of the Coronavirus on Chinese production locally, and on the ability to ship goods globally, has revealed the extent to which U.S. drone companies rely on Chinese manufacturing.

dji-coronavirus-drones
Drones are being used to fight COVID-19 but the virus has also impacted drone production

This dependence wasn’t news to most people in the drone industry, but it does provide a dramatic illustration of its extremity. In a frenzy over the last few months, some drone companies have reportedly tried to stockpile components by ordering enough to continue production for a year or more, hoping these orders will actually be filled.

In the U.S., some view this extreme reliance on outside support a problem, from both an industry and a national security perspective. To put it in stark tems, the imbalance in the supply chain is so great that some say the U.S. drone industry might cease to exist as we know it if Chinese companies were to suddenly halt shipments of key components.

Essentially, drones have been established as an essential technology for national security. Remove the commercial side, remove the hobbyist side, it is a technology that is essential for freedom to reign, period. And the current supply chain in the U.S. does not allow for that to happen, because our production of drones could be immediately halted by a foreign power.

– Michael Quiroga, Chief Revenue Officer at ASYLON

What Happens to the U.S. Supply Chain if the ASDA Gets Passed?

The big concern about the ASDA when it comes to the U.S. supply chain is that it would do exactly what COVID-19 has done—that is, that it would wreak havoc on U.S. drone production.

But the truth is that the ASDA only proposes a ban on the use of drones equipped with Chinese drone components at the federal level, so the impact is not as far-reaching as it might appear. Also, and perhaps more importantly, it allows for a two year grace period in which those agencies—and U.S. companies that might create drones for them—can make the transition.

To bridge the gap between our current reliance on Chinese drone manufacturing and a future where federal agencies have access to drones that meet the ASDA’s requirements, the U.S. government has issued several grants, subsidies, and RFIs (Request for Information) to help standup different components of the drone ecosystem in the U.S.

As we understand it, these efforts are not meant to fully replace Chinese manufacturing’s place in the U.S. supply chain. Rather, the goal is to provide some amount of domestic production that both meets ASDA requirements and could allow U.S. drone companies to continue some level of production in the event of a sudden loss of access to Chinese goods.

Consumer Drones for Mass Markets, Application-Specific Drones for Commercial Markets

So what does all this tell us about the future of the U.S. drone industry?

Right now, much of the attention for standing up the production of drone components in the U.S. is focused on defense and federal agency needs. To put this another way, the focus is on commercial drones.

Which makes sense. The security concern that triggered the creation of the ASDA is that commercial drones made in China or with Chinese drone components might be sharing data with the Chinese government, so of course the federal focus will be on bringing some amount of commercial drone production into the U.S.

This means that over the next few years we will probably start to see U.S. companies making drone components for commercial drones that were originally being made in China.

As U.S. drone manufacturing grows in capacity, and as the ASDA’s ban goes into effect—assuming it passes, which looks likely—we’ll probably start to see an emphasis on commercial drones made from a largely domestic supply chain.

Although the ban will only be at the federal level, state and local agencies will be required to follow its stipulations in how they use federal dollars. Over time, it seems likely that a larger number of commercial drones used in the U.S. will be made in the U.S.

impossible-aerospace-drone
Photo credit: Impossible Aerospace

When we say “larger” it’s important to note that only 1% of drones currently used by public safety agencies are made in the U.S., so larger could be an increase of just two or three percent, which would still be double or triple the current number.

On the consumer side, on the other hand, it seems likely that things will stay relatively the same.

DJI makes some of the best consumer drones on the market at a very competitive price, and it seems far-fetched to think that its dominance in the consumer and prosumer space will significantly diminish over the next few years.

But who knows? If domestically-produced drones start to be available at price points that compete with DJI, we might start to see consumer drones made in the U.S. eat into DJI’s market share.

The Skydio 2, with its unique autonomous capabilities, its relatively low price point of $999, and its crossover capabilities for both commercial and consumer/prosumer uses may be the first drone that is up to the challenge. Only time will tell.

Are Any U.S. Drone Companies Ready to Take on DJI?

Although this is one of the biggest questions we had when we started working on this series, what we found was that competing with DJI wasn’t really a goal for U.S. drone companies.

As many leaders in the U.S. drone industry are aware, U.S. companies have already tried to take on DJI and failed—3DR with its Solo and GoPro with its Karma standout as past examples. So instead of trying to take DJI on, U.S. companies are a lot more interested in finding ways to work alongside the drone giant.

As a specific example, we thought a likely candidate for taking on DJI might be FLIR.

FLIR is a huge company with a massive presence in public safety (and elsewhere), and they bought both Aeryon and DroneSense within the last few years. If anyone was poised to make a big prosumer play in the drone industry, we thought it could be them.

But Randall Warnas, the Global sUAS Segment Leader at FLIR, told us that this wasn’t part of the company’s plan. DJI was a partner, and FLIR valued that partnership.

The acquisition of Aeryon wasn’t made to support consumer drone production. Rather, it allowed FLIR to pursue a significant opportunity in the defense space, where Aeryon could serve a specific need for a specific type of mission.

This perspective is similar to what we reported on last week about U.S. drone companies working in the public safety sector. Rather than try to compete with DJI, many see themselves as adjacent to the drone behemoth, doing work that requires a specific type of drone for a specific job.

asylon-asda
Photo credit: ASYLON

Acknowledgments

We owe a big thank you to several people at U.S. drone companies who took the time to talk to us for this series. We learned a great deal from these conversations—much more than could fit into these articles—and we’re grateful to each of them for taking the time to speak with us.

Here is a list of everyone we’d like to thank:

  • Matt Sloane, CEO of Atlanta Drone Group
  • Randall Warnas, Global sUAS Segment Leader at FLIR
  • Spencer Gore, Founder and CEO at Impossible Aerospace
  • Brendan Groves, Head of Regulatory and Policy Affairs at Skydio
  • Fritz Reber, Head of Public Safety Integration at Skydio
  • Michael Quiroga, Chief Revenue Officer at ASYLON and Team Lead for CIPAC UAS Security Operations at the Department of Homeland Security

How do you think the drone industry will change over the next few years? Chime in on this thread in the UAV Coach community forum to share your thoughts.

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