TAIPEI (Taiwan News) — In response to the risks associated with overdependence on China, many US drone companies are diversifying their supply chains by sourcing parts globally rather than relying primarily on Taiwan or a single country, according to a Wall Street Journal report.

Businesses are concerned about the possibility of retaliation from Beijing, which could penalize them for working with Taiwan, or in a worst-case scenario, seize control of the country and its industries. Despite these concerns, Taiwan remains focused on strengthening its position as a key player in the global drone market.

With China dominating the market for small, affordable drones, Taiwan sees this as an opportunity to carve out its own niche. The country plans to leverage its expertise in advanced semiconductors and other technologies to secure a competitive presence in the industry.

To support this ambition, Taiwan’s government is investing at least US$10 million this year to develop drone chip technology, according to Vice Premier Cheng Li-chiun (鄭麗君), who emphasized the inevitability of a “democratic supply chain” in which Taiwan plays a pivotal role. Additionally, Taiwan plans to invest US$1.35 billion over the next four years to boost its domestic drone capacity and reduce reliance on China.

However, Taiwan's manufacturers face significant challenges. Essential drone components, such as gimbal systems that combine optical lenses, thermal sensors, and stabilizers, are expensive to assemble locally.

While Taiwan produces many of these parts, they are often shipped to China for final assembly due to cost considerations. Joe Chiu, co-leader of an Economics Ministry-backed consortium focused on export opportunities, noted that while Taiwanese suppliers could produce entire batteries domestically to ensure supply chain security, it would come at a higher cost.

Chiu also pointed out that Taiwanese suppliers working with US companies are likely to maintain discretion due to the sensitive geopolitical situation. “If a company has nothing to do with China, they would not have to worry about this at all,” Chiu said.

Mike Sims, co-founder and CEO of US startup Empirium which helps companies find China-free parts and services, emphasized that the transition from China to Taiwan is not a simple swap. Instead, it requires navigating a delicate business environment, a complexity that presents a challenge to Taiwan’s ambition to become a leading supplier of drone parts while strengthening its defense capabilities against the potential threat of a Chinese invasion.

Sims views Taiwan as a natural alternative to China, likening the situation to a “gold rush.” He predicts that it will become a booming market.

Meanwhile, US drone maker Skydio faced supply disruptions in October after China blacklisted the company, cutting off access to Chinese-made batteries. The move followed Skydio’s sales of drones to Taiwan’s National Fire Agency and its deliveries to Ukraine for use in its war with Russia.

Skydio CEO Adam Bry stated that the Chinese government’s actions highlight its ability to use supply chains as a tool to further its interests. “No Western drone manufacturer is safe,” he wrote.

In response to the blacklist, Skydio sought assistance from Taiwan’s government and is now in talks with local suppliers as well as manufacturers in other countries. The company has not yet secured a new battery supplier.

Skydio has actively engaged with US policymakers about the nation’s reliance on Chinese-made drones, including those produced by Shenzhen DJI Technology, the world’s largest small-drone manufacturer. DJI has been labeled a national security threat by the US government.

China holds strong control over the essential materials required for many drone and defense-related components. The country supplies over 90% of the magnets used in motors, while batteries are made with minerals sourced from China or processed there.

Last month, China’s Ministry of Foreign Affairs imposed sanctions on over a dozen additional US drone technology companies, including those supplying drones to Ukraine. Many of these companies had already begun seeking alternative suppliers outside China.

China’s dominance in the global supply of critical components such as batteries, motors, sensors, and rare-earth materials remains a key issue. A study by Massachusetts Institute of Technology researchers Edlyn Levine and Fiona Murray revealed that nearly all components in first-person-view drones, widely used in Ukraine, are manufactured in China, despite many of the innovations originating in the US.

Craig Singleton, senior fellow at the Foundation for Defense of Democracies, warned that China plans to weaponize its control over these crucial components. “The Chinese understand our supply chains better than we do,” he said.

The era of depending on a single dominant supplier has ended, and the race to develop secure and diversified alternatives is now underway.