Recent Chinese government trade restrictions targeting a prominent U.S. drone-maker highlight the vulnerabilities of Western companies that rely exclusively on Chinese imports for critical goods.
Background
Skydio Inc., America’s largest drone manufacturer, faces a supply chain crisis after Chinese authorities prohibited Chinese companies from supplying Skydio with lithium-ion batteries and other components critical for building drones. Skydio has historically relied on a single Chinese provider, Dongguan Poweramp Technology Ltd., for the batteries used to power its drones. Skydio has now found itself in Beijing’s crosshairs, which has specifically banned Dongguan Poweramp from selling its batteries to Skydio. The backlash from China comes amid Skydio selling drones to Taiwan and the U.S. government sanctioning Chinese companies for supplying drones to Russia.
U.S. Government Clients
Exiger’s Supply Chain Explorer (Contracts Management Module) identified that, over the last several years, Skydio has supplied drones and related materials to 11 departments and agencies in the U.S. government, including the Defense Department and NASA, encompassing 80 prime awards valued at over $6.2 million. Skydio has also been a sub-recipient on 57 U.S. government contracts totaling over $107.6 million, including an award of more than $11 million by the State Department for Ukraine-bound small unmanned aircraft support systems.
Other Impacted Entities
Exiger’s data shows that Skydio directly supplies at least half a dozen companies with finished drones or drone-related materials. Those companies in turn provide drone-related materials to at least six additional entities, all of which appear to be drone assembly firms or manufacturers.
Skydio also supports a U.S.-India industrial partnership meant to strengthen defense capabilities and expand the countries’ “AI collaboration.” China’s restrictions targeting Skydio could thus impact unmanned aerial vehicle development in allied nations.
The potential disruption is not limited to Skydio. Any U.S. company that relies on Dongguan Poweramp, for example, could be exposed to these kinds of Chinese government-imposed restrictions, mirroring how the U.S. government bans the sale of certain kinds of American technology — made in America or with American intellectual property — to Chinese end users. Per international bills of lading, Dongguan Poweramp directly supplies lithium-ion batteries to at least one other U.S.-based company. Many others could be impacted if China were to expand the prohibition to include the resale of Dongguan Poweramp batteries to American customers.
Weaponization of Supply Chains
This incident exemplifies how China can weaponize its supremacy over the battery market, including how quickly vendor concentration risk — from relying on a single source in an adversarial country — can crystalize into disruption. For well more than a decade, China has dominated the global battery market. From the extraction of rare earth elements to mineral processing and cell assembly, China controls more than 70% of the global battery market. Like many other countries, the U.S. depends on China for lithium-ion batteries used in drones, electric vehicles, and various energy storage applications. If China broadened the restriction to reach additional American companies that rely on Chinese vendors for lithium-ion batteries, the downstream impact could balloon.
How Exiger Can Help
Understanding and navigating geopolitical risk is now a fact of life for most businesses. Companies should build supply chain resilience into their day-to-day operations by geographically diversifying their vendor base — especially companies that source goods from China or other U.S. adversaries.
Exiger’s government and commercial clients use Supply Chain Explorer and Illuminations to map international supply chains, uncovering vendor concentration risk and identifying alternative sources of critical goods. Vendor diversification encourages supply chain resilience, allowing an organization to better withstand unpredictable disruptions from geopolitical tension.
