Taiwan's drone industry: vertical take-off

Taiwan wants to be a major dual-use drone supplier to the democratic world, but first it must face a more urgent task: scaling up the production capacity it needs for its own defence

“Four or five years ago, most of these companies weren’t making drones” says Alex Du, general manager of Align, which started making drones – initially hobbyist kind – more than two decades ago. His was one of scores of UAV-related companies displaying their wares at a defence show in Taipei last month.

Photo by Thomas Tucker on Unsplash

Taiwan, the centre of the world’s advanced semiconductor industry, has often frustrated external military analysts for failing to translate that technological manufacturing prowess into defensive capability. Its military has long been seen as old-fashioned, with some justification: only last year did the Defence Minister announce an end to bayonet training.

Things started to change, though, in 2022. In the summer of that year, as reported by Reuters, then Taiwanese President Tsai Ing-wen was briefed about the importance of drones on the battlefield in Ukraine.

It was a lesson in how low-cost drone technology could be used to repel a much larger foe. But it was also a wake-up call. The Taiwanese military had just “hundreds” of drones of just a handful of types, compared to the estimated tens of thousands of drones in 50 different types on the other side of the Taiwan Strait.

Tsai’s administration put together a “Drone National Team” to ramp up Taiwan’s capability, inaugurating a drone development and production centre in the southern county of Chiayi, whose varied geography makes it suitable for testing drone types in different conditions.

But the official thinking has since shifted even more. The previous administration under Tsai wanted Taiwan to be a home for drone manufacturing. The current Lai administration, which took power in 2024, has loftier aims. In March, it announced plans to position Taiwan as the “Asia-Pacific Hub for the Democratic Drone Supply Chain.”

Drone technology is improving extremely rapidly. As Hong-Lun Tiunn, deputy director of the National Security Programme at Taiwan’s Research Institute for Democracy, Society, and Emerging Technology (DSET) told Resilience Media, it would make little sense for the Taiwanese military to stockpile large quantities of weapons that are so quickly outdated. Taiwan’s plan, rather, is to export abroad, building up massive homegrown productive capacity which it could then focus on its own defence if needed.

Some demand still comes from the Taiwanese military. In July, an armaments notice showed that the Ministry of National Defence plans to acquire 48,750 military-grade commercial drones over the next two years. But many analysts argue that number is too low both to provide enough demand to justify investments needed to secure a 100% Taiwanese supply chain, and also for defence purposes.

Ellen Chang, managing director for defence instructure at CapZone Impact Investments, reportedly told a symposium hosted at the Taiwanese legislature that “50,000 is not going to cut it. “In fact … maybe you need to multiply that by like 100,000 and maybe that’ll start to actually mobilize the manufacturing lines.”

Meanwhile, budget squabbles in the legislature this year have led to concerns about the reliability of some pockets of future government funding.

Scaling to feed the supply chain

Drones are an analogue of Taiwan’s chip industry when it comes to their economic potential. As with chips, the international market for military-grade commercial drones – and the subsequent export revenues that will bring – could be a lucrative complement to the domestic market. That potential could give Taiwanese drone manufacturers the confidence they need in future demand to scale up production.

The export sector has, in fact, grown at a rapid pace. According to customs data, Taiwan’s first drone exports were only two years ago, in June 2023. The country exported a total of less than 12,000 drones in 2024. But in the bumper month of August 2025 alone, the figure was 19,000. At that rate, it would already be well on track to meet the government’s aim of producing 180,000 per year by 2028 – two years earlier than previously forecast. But the remains fuzzy because monthly figures are highly unstable at present: in September, Taiwan exported just 4,000 drones.

That’s impressive acceleration both in terms of production and demand, but it’s not the full story. For context, Ukraine produces over 200,000 drones per month; and there were nearly 2.2 million drones registered in China at the end of last year, though most are civilian drones. Many think Taiwan needs to be far more ambitious.

In the meantime, Taiwan has focused on its strengths. According to customs data, 91% of the exports in August by value were of 2-7 kg drones, which are fairly small. Taiwan’s existing electronics industry offers clear advantages among drones of this size, part of the reason for this focus.

Another is the speed at which they can be produced. To employ drone swarm technology or have smart soldiers integrated with AI, you need a large quantity of drones of different types. Larger drones have uses, such as hovering as sentries. But the priority for Taiwan currently is upping production of the lighter, smaller models. Cathy Fang, a researcher, says that “right now, as we need more and more quantity, small and nimble [drones] matter more” than bigger drones.

All of the above is played out against a background of Taiwan’s adversary operating at a formidable size. China controls “close to 90 percent of the global commercial drone market,” according to Drone Industry Insights. Economies of scale and an integrated supply chain mean that China’s drones are cheaper to produce (and sell) than those of competitors. In Taiwan’s favor, however, certain customers, such as governments or emergency services, are more sensitive to supply chain resilience than cost.

So who’s buying?

Based on Taiwan’s customs data, two-thirds of Taiwan’s drone exports from June to August went to Poland, a country investing heavily in new military kit at the moment, particularly from democratic partners, amid the war next door in Ukraine.

Cathy Fang visited drone importers and manufacturers there earlier this year and stated that “from the B2B side, I heard a lot of companies want the ‘non-red’ supply chain. They have a high demand for Taiwanese drones because they want to find alternatives to Chinese drones.”

Drone manufacturers in Poland would pay a premium of as much as 30% for reliable Taiwanese components, she said. In January, the Vice Premier, who oversees the government’s UAV Task Force, told the Wall Street Journal that the “non-red trend” was a “huge potential business opportunity for Taiwan.”

Some analysts speculate that some of these drones might be being exported subsequently from Poland to Ukraine, though there’s little direct evidence of this, Fang said. Meanwhile, Ahamani, a Taiwanese dronemaker, has announced plans to open a factory in Poland. That is one example of the growing cooperation with Europe, which is set to increase as Taiwan signed MOUs in the past year involving Poland, Ukraine and Czechia. It may well be that some of the drones Poland buys are then supplied to Ukraine.

What is clear is that cooperation with Europe is set to increase as Taiwan signed MOUs in the past year involving Poland, Ukraine and Czechia. Ahamani, a Taiwanese dronemaker, has even announced plans to open a factory in Poland.

The Taiwanese drone supply chain is a “public-private partnership”, as Hong-Lun and Cathy explained in a detailed report earlier this year. Funding for the sector is largely private investment, though in September the government announced a new subsidy “to accelerate localisation of AI imaging chips” and other specific components that Taiwan currently struggles to make.

The Taiwanese Excellent Drone Industry Alliance, launched by the Ministry of Economic Affairs and leading drone manufacturers, now has over 200 members, from drone manufacturers to research teams. The Alliance functions as a mechanism for coordinating international engagement and integration of Taiwanese companies into democratic drone supply chains.

Many started out in different areas of electronics manufacturing, such as batteries or engines, before applying that expertise to drones. Align, for example, started out manufacturing motors for vacuum cleaners.

Others are spin-offs from universities or partnerships with US companies. National Chung-Shan Institute of Science and Technology, the Taiwan’s military’s defence tech research laboratory, has begun to work with academic institutions.

At the exhibition in September, many companies proudly advertised the “non-red” content of their supply chains. Drone company Dragonfly’s Osprey 25E is 90% “made in Taiwan”.

A few had 100% Taiwanese supply chains, generally a requirement for Taiwanese government contracts. This is generally in terms of components, where there are concerns about backdoors being built into the software or hardware. But at the level of material inputs, analysts highlight Chinese dominance in rare earths used in magnets and the anodes used in batteries. The focus for now is just on components.

A Taiwanese official who oversaw the drone programme from 2020 to 2024 has said that “Taiwan’s supply chain needs the ability to produce EVERY key component. Once conflict, quarantine, or blockade breaks out in the Taiwan Strait, we would no longer have access to those key components and would face severe challenges in producing drones during wartime.”

Thunder Tiger, the leading commercial drone manufacturer in Taiwan, is the first to have Blue UAS Certification in the US for its Overkill FPV drone, meaning that it has passed the stringent requirements needed to become a supplier to the US military. That offers “a gold standard for local companies to follow, fostering a self-sufficient defense ecosystem,” Jamestown Foundation fellow Sunny Cheung told CNA last month.

The biggest democratic drone manufacturer currently is Ukraine. Those drones are subject to export restrictions currently due largely to Ukraine needing all the firepower it can produce for its war with Russia. But that could change: Ukraine is looking to ease those sales restrictions in order for Ukraine to raise more revenue to fuel its defence efforts in other ways.

Taiwanese analysts express concern privately that, when the Ukraine war is finally over, its battle-tested equipment will be difficult to compete with. But it really depends on the intended use and location. Several manufacturers at the defence show in Taipei last month noted Taiwan’s demanding and varied geography as an asset. Its drones have to be built to operate over seas, plains and high mountains in extremely strong winds.