Chinese Sanctions Disrupt America's Largest Drone Maker
China's Sanctions Impact Skydio's Supply Chain
Skydio, the largest drone company in America and a supplier of unmanned aircraft to the Ukrainian Armed Forces, is facing a supply chain crisis. This is due to sanctions imposed by Beijing, which have prevented the company from sourcing drone parts from Chinese suppliers. The Financial Times reports that this situation serves as another reminder of the risks American companies face when they are heavily reliant on China. It highlights the urgent need to 'friend-shore' or 'reshore' critical supply chains away from the world's second-largest economy.
Sanctions Prevent Sourcing of Battery Components
According to sources familiar with the situation, Beijing imposed sanctions on Skydio to prevent it from sourcing battery components from Chinese firms. Skydio has stated that the sanctions were imposed because it sold drones to Taiwan, where its only customer is the National Fire Agency.
Skydio CEO Discusses Situation with US Officials
Skydio CEO Adam Bry met with US Deputy Secretary of State Kurt Campbell and senior White House officials last week to discuss the situation. The sanctions have paralyzed part of Skydio's supply chain. Bry described this as a "clarifying moment for the drone industry," and stated that the Chinese government is using supply chains as a weapon to advance their interests over those of the United States.
China's Attempt to Eliminate American Drone Company
Bry also stated that the sanctions represent an attempt by China to eliminate the leading American drone company and increase the world's dependence on Chinese drone suppliers. China first announced the sanctions on October 11, in retaliation for Washington's decision to sell attack drones to Taiwan. Skydio recently secured a contract with Taiwan's fire agency.
Impact on Skydio's Chinese Suppliers
The sources did not specify which of Skydio's Chinese suppliers were affected by the sanctions. However, public trade data compiled by Sayari, a counterparty and supply chain risk intelligence firm, shows that about 94.44% of Skydio's drone component shipments came from Vietnam, 4.9% from Hong Kong, and 0.65% from China.
Sanctions Seen as Attempt to Weaken Competitor
An official told the Financial Times that they suspect Skydio was targeted by Beijing because it is viewed as a competitor to DJI. The official added, "If there is a silver lining, we can use this episode to accelerate our work to diversify drone supply chains away from China."
Sanctions as a Tool in US-China Rivalry
This situation appears to be part of a tit-for-tat sanction war between the US and China, aimed at weakening each other's drone-manufacturing capabilities. The Chinese sanctions pose a significant threat to US defense and drone manufacturers.
Bottom Line
The sanctions imposed by China on Skydio highlight the vulnerabilities of global supply chains and the risks that companies face when they are heavily reliant on a single source for critical components. This situation serves as a wake-up call for American companies and underscores the need for diversifying supply chains. What are your thoughts on this issue? Do you think it's time for 'America First' policies to avoid such situations? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
