America Wants Cheap, Homegrown Drones. Can Its Makers Deliver?

By Malathi Nayak

U.S. Defense Secretary Pete Hegseth says America has a drone problem. The country’s drone makers are lagging behind China, Russia, and Ukraine as the industry grapples with the cost-and-scale conundrum.

Hegseth, in his recent drone policy announced via video, vowed to end restrictive policies that stifle drone production. He prioritized the US military’s acquisition of American-made drones. The news amid the current defense-tech boom drove up the stock price of drone makers like AeroVironment and Kratos Defense & Security Solutions. Hegseth wants the U.S. military to rely on American-made drones, but his requirements—that they be “cheap” and aren’t made from parts sourced from countries that pose security risks—make that vision hard to achieve.

With exorbitant labor costs and restrictions on accessing China’s market for inexpensive parts, the Department of Defense faces a reality: U.S. drones will be pricier than those built overseas.

To realize Hegseth’s drone ambitions, the U.S. government and drone makers could learn from countries like Ukraine that are ahead in the drone-technology race. It will be crucial to adapt quickly to identify sourcing options beyond China and prioritize efforts to grow skilled talent.

Lessons from Ukraine

Ukraine’s Ministry of Defense has streamlined the purchase of commercial drones by creating a separate budget “distinct from the conventional defense acquisition funding and procurement system, governed by its own rules and procedures,” according to a July report by the Center for Strategic and International Studies. The US could adopt a flexible, “standalone budget for rapid procurement of unmanned technologies at high technology readiness levels” to make room for “iterative deployment” and the “acquisition of products not yet formalized in military nomenclature,” the report suggests. This approach could help the Department of Defense tackle high costs.

America’s drone builders must pay attention to Ukraine’s super-fast drone development strategy. Ukraine’s “battlefield beta testing”  allows NPI, or new product introduction, cycles as short as six weeks, according to one drone industry consultant, who spoke on the condition of anonymity due to the sensitive nature of his work with drone companies in the US and Ukraine. Enabled by the use of off-the-shelf components and 3D printing, drone makers in Ukraine are iterating fast, taking in rapid feedback from the front lines, and simultaneously carrying out R&D and user testing, the source says.

This echoes what the US did during the shipbuilding boom in World War II, explains Harry Moser, a former executive at a machine tool company who set up the Reshoring Initiative in 2010 to track data on companies bringing manufacturing back to the U.S. “We made a bunch of ships to bring things to Europe and some of them sank, and some were easily hit and we kept fixing, making it better and pretty soon you had good ships going across the Atlantic,” Moser says.

The Ukraine experience also shows that quickly incorporating customer feedback from users to engineers leads to rapid iteration – a key takeaway for any US manufacturer, the drone industry consultant source says.  “Get your product in front of real users, as many as you can, and directly link their feedback to the designers and engineers,” the source adds.

Stephen Bryen, a former Deputy Undersecretary of Defense for Trade and Security, says Russia is another important case study for the U.S. The country mostly buys drone parts from China because various sanctions it faces make buying components from elsewhere problematic, and it has localized all its drone manufacturing, according to Bryen. He adds that “they're very innovative, constantly updating, changing, and modifying as the battlefield requires.”

Hegseth’s directive compels US drone makers to circumvent sourcing from China. Some components—like plastic arms, and rotor assemblies—can be produced in the U.S. quickly and easily through 3D printing. However, most high-value parts, including lithium-ion batteries, electric motors, and camera modules, are still not produced at scale domestically.

It’s time for drone companies to take stock of where they source parts in their bill of materials, Moser suggests. “It certainly makes sense to have parts 100% sourced in the U.S., if you can, and if not, then sourced in North America, Canada, Mexico, or from allies —Germany, France, England, Japan, Korea,” he says. “And if you can't, then maybe Thailand rather than China, but making sure it's really made there and not coming in from China.”

Drawing Talent

A significant challenge in filling America’s talent gap—after losing 6 million manufacturing jobs over the last four decades to offshoring—is convincing more Americans to go into manufacturing, Moser says.

The U.S. is the global leader in manufacturing value-added per worker, the Cato Institute has reported. In 2019, the average value added per manufacturing worker in the U.S. was nearly $141,000 compared with nearly $18,700 in China. Moser believes attracting a skilled workforce would have more impact in revitalizing US manufacturing than changes to tariffs, currency, tax rates, or regulations.

US manufacturing will create nearly 3.8 million new jobs between 2024 and 2033, and half of those positions may go unfilled if the skills gap isn’t addressed, the 2024 Deloitte and the Manufacturing Institute talent study has found.

The recent trend of software engineers being laid off in Silicon Valley signals that AI is likely to disrupt several fields of skilled labor in the coming years. The large labor pool of "skilled" workers could be trained and tapped to contribute to drone and other defense manufacturing efforts.

Robotics, generative AI, and other cutting-edge technologies could help make production more efficient and affordable. AI-powered robots and automation systems could improve quality control, assembly, logistics and inventory management.

Hegseth’s memo presents the US drone industry with an opportunity to create a blueprint for a broader US manufacturing revival. Bryen offers a reality check: American drone companies can’t make all-American drones right now.

“There are a few companies that probably can but I think they're still going to have labor problems, supply chain problems, and wage problems, because the cost of labor in the United States is going to be much, much higher,” Bryen says.

The drone directive is silent on sourcing challenges and ways to bridge the talent gap. Hegseth needs to be practical, Bryen says. “He has to come up with a scheme that says: ‘We can do all this, but we can't do it as 100% American today.’”