Building America's Drone Supply Chain

Great. Thank you very much, Associate Administrator. Appreciate it. And thank you to the SBA for putting on this summit today, and to the administration more broadly for all of your leadership and your hard work on so many of the policies underscoring American drone dominance that we'll be talking about today. So, let's get right into it. You know, obviously over the past few years, a lot of new policy has been put on the books in the spirit of American drone dominance and honoring drone and component manufacturing and really the entire supply chain. Of course, the FCC covered list action following the National Security Determination last December being among them. The American Security Drone Act, another. Alan, I'll start with you. You know, from a manufacturer standpoint, have these kind of mandate policies, sticks we might call them, meaningfully moved capital and demand toward domestic suppliers or are they just creating compliance headaches for our manufacturers and end users?

Yeah, and Ryan, I want to get your take on this as well. As a platform manufacturer navigating this, you know, where have mandates worked? Where have they maybe fallen short and incentives or other policies that we might call carrots might be needed to complement those sticks?

Yeah, I mean essentially it's completely necessary and like Allan said, you know, these are more or less flying cell phones and they have actuation and the requirements for a warfighter are much harder than you have in a consumer space, right? So we have to more or less onshore every single critical component to allow us to hit those requirements and do that at fast pace, right? So the restrictions are hugely important for that. As a drone manufacturer, you know, we work within many different subsystems, whether they be compute or sensors or motors or batteries and they all have to work together elegantly so they can provide, you know, a huge performance boost to our end user. So, you know, these restrictions and some of these carrots as you say are massive because we can start building a robotic industrial supply base right ahead of what's really necessary. You know, we need to see increased demand. We're seeing that. We need to see a much more consumer commercial, you know, industry. We're seeing that. You know, the movements over the last 18 months have been absolutely massive and they're allowing us to grow and, you know, see a lot of innovation coming.

And Deputy Assistant Secretary, you know, as we're starting to talk about, you know, additional policies that are out there or programs that are out there that could help companies that are seeing this signal from the administration and want to onshore, can you talk a little bit about, you know, what is available at the offices that you oversee or the broader Department of War apparatus that could help companies do that?

Yeah, well, thanks to the SBA for hosting it, for this amazing forum and for the partners on the panel. I mean I think there's a lot of great stuff that's happening at the department to your point there. There are plenty of sticks as you know one might call them. But the beauty to the point that the gentlemen here are making is that the carrots are also numerous and extensive and exhaustive and I think they're continuing to grow both in partnership with our congressional colleagues who are giving us the resources to help make those investments, but also in the creative ways that I think we're going about it. So obviously we have the drone dominance program that everyone here is familiar with, which is, you know, a generational model for acquisition, particularly of these types of systems. It's scaling in a way that hasn't happened before but within our office of industrial base policy that's ran by Honorable Mike Kadenazi, our assistant secretary. We're also injecting capital into the supply chain and I think that's really where you're going to see increased investment from our side which is it's great that we have all these end items. It's great that we're having these parts and component providers that are growing. But as we identify the threats in the supply chain, which obviously the FCC ban and other policies that we've enforced have included components as a part of that kind of stick approach, but we're directly targeting not just tier one and tier two, but three, four, and five all the way down to the rare earth element, the minerals, the magnets, the motors that are powering these systems. And you'll see increased investment in that particularly, you know, God willing we get our next tranche of funding and reconciliation and appropriations bills that, you know, are on the way we hope. But you're going to see $70 billion if that's the case come into the industrial base policy shop and you can imagine a huge chunk of that going into this particular industrial base.

Let's talk about China. So, you know, obviously a lot of this is, you know, in the spirit of decoupling from China. It is a national security imperative that AUVSI supports doing. Some might say that there is a risk associated with doing that too quickly. In other words, if we don't move at the speed of supply chains and cut China out before we have those domestic or at least allied alternatives built up, that that may end up harming industry. Alan, I want to get your take on that. How do we make sure that we get the policy right in terms of recognizing the fact that it takes time to build alternative supply chains?

And Deputy Assistant Secretary, what do you see as the biggest choke point in, or actually let me broaden this out. What do you see as the biggest national security exposures or concerns as it relates to the drone industry? Is it, you know, a single source supply chain choke point or a particular component category or is it something else like workforce capacity? What are you most concerned about right now?

Well, you know, two things on the China threat before answering your question directly, which is one I think it gets lost on us sometimes or we like silo between one of the two options here, which is that either, you know, we're just saying it's a threat because we don't have the sovereign production capacity, which is true. Or it's a threat because it's Chinese capabilities that are in that phone that's flying around. And I think it's important to realize that it's the combination of both of those things. It makes it so essential that we move away from that supply chain as quickly as possible in the coordinated way that you're mentioning because the phones that are flying around are not, it's not just a problem because we can't build the phones ourselves. It's a problem because our adversaries can control those phones and see everything that we're flying around. And so I just want to like level set on the threat there. I think, you know, when I think about what the biggest single exposure is. I mean that's a, I mean workforce is obviously one. The department just launched Build Freedom US with Mike Rowe to help establish skilled trades as we build up this industrial base which I think is, this is the moment for changing the mindset of America's youth around skilled trades and really promoting the next generation of America's workforce which is critical. I think that's the biggest national security imperative that we have is that we have the capital whether it's in the government or it's in the private sector that we're leveraging. We have the brilliance when it comes to designing and outpacing our threats I think in almost every single way especially in this supply chain. But if we don't have the people who are willing to build it, I think obviously that's a huge piece. And then just like, you know, lastly back to the China section is we have a lot of procurement restrictions that are about to go into effect for the department that extend beyond the FCC covered list. And I think it's being prepared and companies taking the department seriously on that. I've heard a lot of companies say, you know, oh yeah yeah we understand this goes into effect next June. But we also understand that there's a waiver process and y'all are going to be really realistic with us and we'll probably end up getting a waiver. And, you know, from the inside of the building perspective, I just want to make really clear to everyone in this room and use this, you know, podium to say this. The waiver is not going to be the default for our procurement restrictions. And I think that just needs to be known and spread and, you know, spread that gospel around the community. How many folks in here, not to steal too much time, have heard of the 126 list that the War Department puts out? Okay, not enough, which is justifying me being here, so that's great. 126 list is a list of Chinese military affiliated companies that have a presence directly or indirectly in the United States. Our intelligence cell and industrial base policy puts out it annually. Historically it's been just a list of companies and you look at it and you're like yeah it's probably like not good to have a Chinese military company in my supply chain. But, you know, that's the option. This year as of June it becomes prohibited or it is now prohibited for the department to buy anything from the entities on that list. It's up to 183 entities now. It grows by over 40% year-over-year. You can imagine the more we illuminate the supply chain, we're going to get a very, very large list pumping out. But the more important thing to everyone in this room is next June it becomes illegal for the department to procure any goods or services from companies that are selling us items with those companies in the supply chain. And so I offer that for two reasons. One, you're on notice like, right, you have 10 months. So find alternatives even with our allies and partners, to your point. And two, if you can fill the gaps for companies on that list, that is my office's job is to help pair you with companies on the supply chain that need American-made or allied alternatives. And so go to that list, use it as a road map for kind of, you know, where the next verticals are for American small businesses to fill the supply chain security concerns we have. It's public. It's available and we're socializing it around because that to me is the next big IT moment for the department is replacing all those firms.

Absolutely. So Ryan, you know, PDW makes finished platforms which means you feel every weak point in the supply chain. So can you talk a little bit about from your perspective, you know, what supply chain choke points are you most concerned about in terms of domestic sourcing? And what do you see as solvable in the next few years versus what do we need to, you know, acknowledge is going to be a longer term play and not something that we can flip a switch and start making here in the next 12-18 months.

Yeah. I mean, I'll first say that none of this has been a huge surprise. So the signaling, the sentiment, the current, the tap is off. Like we've seen this, we all know this. We talked about this for years now, right? So, it's been no surprise to see the change and the importance of what's happening. And I'm a technical founder and a little bit of a nerd, but if you've taken apart a DJI small gimbal and looked at the, you know, coreless motors and Hall effect sensors and on-semi sensors and how they do that for under $500, it's remarkable in probably some of the best technology, you know, on the face of the world, right? So onshoring that stuff, making sure we're not depending on it is not just important for drones, but for multiple industries that are, you know, the foundation of our future, robotics, EVs, everything that we're going to see over the next, you know, 10 years. Humanoids building actuators that are onshore, you know, scale that. So this is the foundation for America's, you know, physical technology and incredibly important just beyond our industry, right? And everything is tricky, right? So sensors, you know, primarily throughout the world, we use Japanese sensors, right? Moving that to New York sensors, thermal cameras, micro gimbals, as I said, getting a coreless BLDC motor with a hall effect sensor. You know, cell technology, high energy cells, BMS's that you can carry on planes that are inexpensive. Doing that for a bomb that not only is, you know, economical, but, you know, offers performance, too. And we're also in this arena of requirements where, you know, today we have, you know, drone dominance requirements that are very quickly evolving, right? So we're moving from, you know, initial stages of drone dominance into future stages where there's more autonomy and compute and digital sensors and encryption. So, you know, it's a lot. But I think the sentiment and the current is obvious and you can absolutely hook into it and field of support. Investing into portions of your BOM, knowing that, you know, where things are going is hugely critical for us. And, we can make those, you know, the R&D decisions early on and see the results of those, you know, in a few quarters.

And Alan, you have a very keen understanding and direct experience with how China built its drone supply chain dominance. So, you know, in your view, what did they get right about their industrial strategy that maybe we should be willing to learn from or adapt for our purposes and what did they do that we should absolutely not seek to emulate?