The US banned new DJI drones in December 2025, removing the company that holds 80 per cent of the American market, but faces a supply chain crisis in replacing them: China controls 90 per cent of rare earth processing, 99 per cent of drone battery cell production, and 90 per cent of the permanent magnets that power drone motors. Skydio’s $3.5 billion domestic manufacturing expansion is the largest response yet, but the supply chain needed to match DJI’s scale will take years to build.TL;DR
Skydio, the largest American drone manufacturer, announced in late April that it would invest $3.5 billion over five years to expand US drone production, open a factory five times larger than its current facility, create more than 2,000 direct jobs and 3,000 supplier jobs, and build a domestic component supply chain through an initiative it calls SkyForge. The announcement came five months after the Federal Communications Commission effectively banned the import and sale of new DJI drone models in the United States, removing the company that controls roughly 80 per cent of the American consumer and commercial drone market. Skydio’s investment is the most significant response yet to the central question created by the ban: the United States has decided it does not want Chinese drones. It has not yet figured out how to make enough of its own.
The 2025 National Defence Authorisation Act required a US national security agency to complete a formal review of DJI by 23 December 2025. No agency completed the review before the deadline. The automatic consequence, mandated by statute, was DJI’s addition to the FCC’s Covered List, which blocks new products from receiving the radio frequency authorisation required for import and sale. DJI’s existing products already in the country remain legal to fly. No grounding order or remote disablement has been issued. But the pipeline for new DJI models, accessories, and components is now closed unless a specific national security exemption is granted. DJI says 25 new products planned for the US market in 2026 are frozen, representing approximately $1.5 billion in lost revenue. The company sued the FCC in February 2026. The litigation is ongoing.
The US-China semiconductor decoupling has already cost equipment makers hundreds of millions in lost China revenue, and the drone ban follows the same logic: restrict Chinese technology access on national security grounds and accept the economic consequences. The difference is that in semiconductors, the United States has ASML, Applied Materials, and a generation of fabrication expertise that China is still trying to replicate. In drones, the dependency runs in the opposite direction. China makes the components. America buys them.
DJI drones are not just cheaper than their American equivalents. They are better for the price at nearly every level of the market. A DJI Mini 4 Pro retails for approximately $760. The nearest American-made consumer alternative is several times more expensive for comparable capability. In the enterprise and public safety market, American-made platforms from Skydio and Freefly Systems can cost $10,000 to $30,000, compared with $2,000 to $5,000 for DJI equivalents. The price gap is not the result of dumping or subsidy. It is the result of scale: DJI manufactures millions of units per year across a vertically integrated supply chain in Shenzhen. Skydio manufactures thousands.
DJI invested heavily in research and development for over a decade while facing virtually no competition from American manufacturers. The company’s dominance was built on consumer-grade innovation, cameras, gimbals, flight controllers, obstacle avoidance, that was subsequently adapted for commercial, industrial, and public safety applications. American drone companies, by contrast, have largely focused on military and enterprise markets where margins are higher but volumes are smaller. The result is an American drone industry that can build excellent military systems but cannot produce a $500 consumer drone that competes with DJI on image quality, flight time, or reliability.
The deeper problem is not manufacturing capacity but component supply. China controls approximately 60 per cent of global rare earth mining and 90 per cent of rare earth processing. Neodymium-iron-boron permanent magnets, which convert electrical current into the lift and torque that keep drones airborne, are 90 per cent manufactured in China. Each small drone motor contains roughly 5 to 15 grams of these magnets. China manufactures approximately 99 per cent of the lithium-ion battery cells used in consumer and commercial drones. Motors and batteries, the two components most critical to drone performance, both originate overwhelmingly in Chinese factories.
American suppliers exist, but they operate at a fraction of the scale required. Unusual Machines, a Florida-based company, is expanding to three shifts at its motor factory in Orlando. Lead times for motors and batteries from US suppliers are six months or longer, compared with weeks from Chinese manufacturers. European startups like Norway’s Stendr are developing AI-driven counter-drone systems, but even counter-drone technology depends on the same magnet, motor, and sensor supply chains that China dominates. The problem is not limited to the companies building drones. It extends to the companies building systems to shoot them down.
Skydio’s SkyForge initiative is designed to address the supply chain gap by co-locating suppliers near its own manufacturing operations, reducing dependence on Chinese components, and building the kind of integrated production ecosystem that DJI has spent fifteen years developing in Shenzhen. More than $1 billion of the $3.5 billion investment is expected to go to US-based suppliers. The company has not disclosed the location of its new factory, though it has said most new jobs will be in California.
The Department of Defence maintains a Blue UAS Cleared List of approved drone platforms for government use, and the FCC has granted temporary exemptions until January 2027 for drones meeting “Buy American” standards of at least 65 per cent US-made content by cost. These policies create a protected market for American drone manufacturers in government procurement. They do not address the consumer and commercial markets where DJI’s absence has created a vacuum that no American company can currently fill at a comparable price point.
Europe’s Alpine Eagle is scaling counter-drone production from a new facility near Munich, and Germany captured 90 per cent of Europe’s record defence tech funding in the first half of 2025, showing that the push for sovereign drone and counter-drone capability is not uniquely American. Every NATO member is grappling with the same dependency on Chinese components and the same realisation that drones have become too important to national security to source from a strategic competitor. The difference is that Europe is investing primarily in military drone capability. The United States banned the consumer market leader and now needs to replace it across military, commercial, and consumer segments simultaneously.
New rare earth processing facilities take three to five years to build. Battery cell manufacturing plants take two to four years. Magnet production lines require specialised equipment and metallurgical expertise that is concentrated in fewer than a dozen facilities worldwide, nearly all in China or Japan. Even if every announced American investment proceeds on schedule, the domestic supply chain will not reach the scale needed to support a competitive consumer drone industry before the end of the decade. In the interim, American drone manufacturers will continue to source critical components from China, creating the paradox of “American-made” drones that are 65 per cent American by cost but dependent on Chinese magnets, battery cells, and motor components for the other 35 per cent.
Mistral and Helsing’s European defence AI alliance illustrates a model where software capability, rather than hardware manufacturing, becomes the competitive advantage. American drone companies may follow a similar path: building AI-powered autonomy, navigation, and sensor fusion on top of hardware that still relies partly on Chinese components, while the supply chain gradually shifts. It is not a clean solution. It is the realistic one.
The United States banned DJI because it decided that the national security risk of Chinese-made drones operating across American airspace, inspecting American infrastructure, and surveilling American cities was unacceptable. That decision may be correct. But it was made without a plan to replace what was banned, and the $3.5 billion that Skydio is investing, impressive as it is, represents a fraction of what DJI has spent building the world’s most capable drone company over a decade and a half. The ban took one vote in Congress. The supply chain to replace DJI will take years, billions of dollars, and a sustained commitment to building manufacturing capacity in minerals, magnets, batteries, motors, and sensors that the United States has spent the past two decades outsourcing to China. The question is not whether America can build a drone industry. It is whether it is willing to spend the time and money required to build one that works.
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