China’s Skydio curbs sound the alarm for US battery supply chain
American defense contractors’ suppliers are adding new factory outside of China to reduce geopolitical risks
Skydio, the largest drone manufacturer In the United States, has failed to obtain the batteries made by Japanese TDK’s unit in mainland China after it was sanctioned by the Chinese government three weeks ago.
The California-based company last week sought help from the Biden administration as its Chief Executive Adam Bry met with US Deputy Secretary of State Kurt Campbell and senior officials at the White House, the Financial Times reported.Capital equipment not enough to revive US chip-making
The Chinese government last month announced its sanctions against Skydio, Huntington Ingalls Industries and Edge Autonomy Operations LLC, as well as 10 senior executives of American defense contractors, and accused them of providing substantial military assistance to Taiwan. Observers couldn’t help noticing that the date of the announcement, October 10, marked the 113th anniversary of the Republic of China.
After the announcement, Chinese officials visited Skydio’s suppliers, including Dongguan Poweramp, a subsidiary of Japan’s TDK, and ordered them to cut ties with the American drone maker, a person familiar with the situation told the Financial Times on Thursday.
“This is a clarifying moment for the drone industry,” Bry told Skydio’s customers in a note obtained by the Financial Times. “If there was ever any doubt, this action makes clear that the Chinese government will use supply chains as a weapon to advance their interests over ours.”
He said Beijing wants to eliminate the leading American drone company and deepen the world’s dependence on Chinese drone suppliers.
Bry told US media that Skydio has a substantial stock of batteries on hand but it does not expect new sources of battery supply until next spring, He said the company has invested in domestic production and sourcing outside of China but batteries are one of the few components it has not yet moved out of China.
Skydio, which has sent more than 1,000 drones to Ukraine for intelligence gathering and reconnaissance purposes, is seeking alternative suppliers in Asia. It has been in touch with Taiwan’s Vice President Hsiao Bi-him about the issue.
China’s moves to curb Skydio’s battery supply coincided with North Korea’s plan to deploy troops to support the Russian army in Ukraine. US State Secretary Antony Blinken said Thursday that about 8,000 North Korean soldiers are stationed on the Russian border and are preparing to join combat in Ukraine “in the coming days.”
Chinese pundits’ reaction
Although Beijing’s curbs have not yet been able to disrupt Skydio’s drone production, many Chinese commentators are now celebrating.
“China’s sanctions against certain US companies and individuals have initially shown their effects,” A Henan-based columnist using the pseudonym “Spirit No.1” says in an article published on Friday. “The curbs are having a real impact on American firms, as Skydio now has a limited battery supply and needs to seek alternative suppliers.”
The commentator adds, “It is difficult for the US government to help companies overcome the challenge in the short term given the complexity and time required to reconstruct the supply chain.”
He says, with its complete supply chain in the drone sector, China is able to limit the production and supply of the US military drone makers that rely on the Chinese manufacturing sector.
He says that the incident is only reflecting the intensifying technology war between China and the US. He says the US should think twice whether it wants any escalations as it will hurt itself one day.
According to an article by a Hainan-based writer using the pseudonym “No.14 Observation Room,” “China has previously launched several rounds of countermeasures against US firms but people do not know whether these measures really work. Now people are satisfied after seeing Skydio’s failure in getting Poweramp’s batteries.”
He adds that “the US has made up excuses when sanctioning Chinese firms and individuals, and it thinks China can’t do anything to its arms sales to Taiwan. Now China’s counterattack is completely beyond the United States’ expectation. Skydio does not have an alternative supplier.”
That writer says the current Chinese sanctions, which target US defense contractors and drone makers, have displayed only a small part of Beijing’s retaliation capabilities. He says the US defense contractors’ suppliers in China can be targeted.
John Moolenaar, chairman of the House Select Committee on the Strategic Competition Between the US and Chinese Communist Party, said the administration and Congress need to work together with industry to set guardrails that protect US companies from CCP economic coercion.
He said China’s control of supply chains for drones, pharmaceuticals and other sectors was a “loaded gun” aimed at the US economy. He said Beijing is weaponizing these supply chain dependencies against US people.
China Plus One strategy
While Skydio is working on sourcing batteries elsewhere, TDK is also implementing its China Plus One strategy by adding new production facilities in India.
TDK Chief Executive Noboru Saito told Nikkei in 2022 that it is diversifying its manufacturing network by expanding in countries such as India. He said at that time that TDK no longer saw China as the world’s manufacturing hub although it would continue to treat the country as its main battery production base.
TDK and a long-term partner, Contemporary Amperex Technology Co Ltd (CATL), in 2021 set up two joint ventures in Xiamen, Fujian province, for the making of electric vehicle batteries.
Saito said in a speech on Investor Day on May 22 this year that TDK has started production of back-end processes for battery packs in India in 2017 to implement its China Plus One strategy. He said the company also started cell production in India in 2022 and will commence production in a new factory in Sohna of the same country in 2025.
“We will continue to expand gradually in line with growth in local demand,” he said. “In our materials procurement efforts, we will maximize business value by strengthening our value chain, including pursuing strategic initiatives such as investing in material suppliers.”
Meanwhile, several US academics co-write in an article published by The Conversation on Friday that, among the 23 battery plant projects announced or expanded since the Inflation Reduction Act became law in the US, construction for 72% of expected production is on track.
They say these 23 companies’ new US factories are expected to create about 30,000 new jobs, with projects mostly in the US Southeast, Midwest and Southwest.
Read: Latest Taiwan drills show off PLA deterrence
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