The international market for Taiwanese drones is growing rapidly and manufacturers have begun moving away from battery cells made in China. Yet, Taiwan’s drone industry remains heavily dependent on China for upstream materials needed to manufacture cells.
The proportion of Taiwan’s drone industry using Chinese-made battery cells fell from about 70 percent from 2024 to 50 percent last year, a Research Institute for Democracy, Society and Emerging Technology (DSET) report published last month said.
That is significant progress, but it only affects the downstream end of the supply chain. China still dominates the global production and processing of cathode-active materials, cathode precursors, anode-active materials and battery-grade refined minerals — basic materials from which lithium-ion battery cells are made.
Procurement rules that only look at the manufacturing origins of a completed battery cell might overlook the most serious production risk of the drone industry.
In addition, a 20 percent reduction in reliance on Chinese cells still leaves Taiwanese drone manufacturers vulnerable to China’s export control whims. Taiwan’s drone exports last year rose nearly 35-fold from the previous year. In the first quarter alone, drone exports surpassed the total for all of last year.
Taiwan has also emerged as an important battery supplier to Ukraine. Records indicate that at least one Taiwanese manufacturer is shipping between 5 million and 7 million drone battery cells to Ukraine every month.
The developments demonstrate Taiwan’s growing position in the international drone market. They also present a hidden concern: The more orders Taiwanese drone manufacturers accrue, the greater the consequences if essential materials become unavailable.
Taiwan and its democratic partners have been promoting the adoption of a “non-red supply chain,” which excludes defense products and critical components from China, but if purchasing rules only verify the origin of the completed drone and its battery cells, dependence on Chinese upstream materials might not be detected during procurement inspections.
There might be great demand for Taiwanese drones, but manufacturers would be unable to deliver without a secure supply of raw materials. Reducing the use of Chinese-made cells to 50 percent does not establish a genuinely non-red supply chain. Taiwan can only credibly claim drone autonomy when its production lines are able to continue operations should China cut raw material supplies.
The DSET report recommends that Taiwan maintain inventories sufficient to withstand a six-month upstream supply disruption. It also estimates that non-Chinese critical battery materials cost about 40 to 50 percent more. That difference could be challenging. Unless governments commit to buying enough drones consistently and are prepared to pay the extra cost, Taiwanese companies might be unwilling to invest in large-scale production of alternative materials. Suppliers would also have little incentive to maintain long-term partnerships.
Adequate inventories must be maintained and orders placed at a sufficient scale. Otherwise, a supply chain disruption would leave manufacturers unable to fulfill their orders.
The shrinking proportion of Chinese-made battery cells in Taiwanese drones demonstrates that real adjustments are being made downstream. However, that does not mean that Taiwan’s drone supply chain is secure. If non-red supply chain procurement only inspects the origin of a completed drone or battery pack, crucial upstream vulnerabilities would remain undetected.
The real test of Taiwan’s drone autonomy is: If China were to block supplies for six months, could Taiwanese factories still obtain what they need to continue making drones and deliver orders on time?
Only when the answer is yes could Taiwan claim to possess an autonomous drone supply chain. As long as China can force Taiwanese production to stop by withholding essential raw materials, Taiwan is only in control of drone assembly and its drone industry cannot be called truly resilient.
Steven Ho is a retired engineer.
Translated by Amy King
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