Low-Tech Warfare

Skydio, China, and the Architecture of Supply Chain Coercion

Days before the 2024 American presidential election, China fired the opening shot of a new kind of war. On October 11, Beijing sanctioned Skydio, America’s largest drone manufacturer, cutting off access to essential battery supplies. Within days, the company that was meant to provide an alternative to Chinese drones found itself scrambling for new suppliers, forced to ration batteries to customers including the United States military. The timing was precise. The message was unmistakable.

“This is a clarifying moment for the drone industry,” wrote Skydio CEO Adam Bry in a letter to customers. “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.”

The Skydio crisis is not an isolated incident. It is a preview of a new strategic landscape in which China’s dominance over critical supply chains—batteries, rare earth magnets, lithium processing, semiconductor inputs—functions as a distributed kill switch for Western industry. What happened to America’s largest drone maker can happen to its largest defense contractors, its largest automakers, its largest technology companies. The question is not whether Beijing will activate these chokepoints again. The question is when, and against whom.

The Timeline

The chain of events was swift and devastating. On October 10, 2024, China’s Ministry of Foreign Affairs announced sanctions against Skydio, Huntington Ingalls Industries, and Edge Autonomy Operations, along with ten senior executives of American defense contractors. The stated justification: U.S. military assistance to Taiwan. The date—the 113th anniversary of the Republic of China—was not coincidental.

Within hours, Chinese authorities ordered Dongguan Poweramp, a subsidiary of Japan’s TDK Corporation that manufactured batteries in China, to sever all ties with Skydio. As Exiger’s supply chain analysis confirmed, Skydio had historically relied on a single Chinese provider for the batteries used to power its drones. The company’s sole battery supplier was gone. Skydio sought emergency assistance from the Biden administration, with CEO Adam Bry meeting Deputy Secretary of State Kurt Campbell and senior White House officials. The company also reached out to Taiwan’s Vice President.

But there was no quick fix. Skydio announced it would limit battery distribution to one per drone for the next several months. It did not expect new suppliers to come online until spring 2025. The company extended software licenses and warranties to affected customers—a gesture that underscored how little else it could offer.

The sanctions hit at the worst possible moment. Skydio had recently delivered more than a thousand drones to Ukraine for intelligence gathering and reconnaissance. Its X10D model had become the first American drone to pass Ukrainian electronic warfare tests, demonstrating superior resistance to Russian jamming. Ukraine’s Ministry of Interior had formally requested “thousands” more. Now, the company that was supposed to reduce Western dependence on Chinese drones was itself dependent on Chinese batteries.

How Did We Get Here?

Skydio was founded in 2014 by three MIT alumni—Adam Bry, Abraham Bachrach, and Matt Donahoe—who had collaborated on autonomous drone research since 2009. Bry had previously worked on Google’s Project Wing. The company’s mission was to build drones that could fly themselves, using artificial intelligence to navigate complex environments without GPS. It was, by design, a vision of American technological leadership.

The company raised over $840 million across multiple funding rounds, including investments from Andreessen Horowitz, Nvidia, Lockheed Martin, and the Walton Family Foundation. A 2023 Series E round valued Skydio at $2.2 billion, establishing it as a unicorn in the aerospace sector. By 2024, more than 50 percent of its business was with military customers, including the U.S. Department of Defense, the UK Ministry of Defence, the Israel Defense Forces, and the Royal Canadian Navy. As Digitimes reported, Linse Capital projected $180 million in revenue for 2024, up from $100 million in 2023, with military clients accounting for over half of its $1.2 billion backlog.

Skydio manufactured its drones in the United States. It had spent years building supply chains outside of China. “We have always manufactured our drones in the U.S.,” Bry wrote after the sanctions, “and over the last few years we invested massively in bringing up supply for drone components outside of China.”

Batteries were one of the few components they had not yet moved.

This was not an oversight. It was a structural reality. The global battery supply chain is not merely concentrated in China—it is dominated by China at every stage, from raw material extraction to cell manufacturing. The dependency Skydio inherited was not unique to the company. It was embedded in the architecture of the global economy.

The Battery Archipelago

Consider the numbers. According to SNE Research, six major Chinese battery manufacturers controlled 68.9 percent of all global EV battery installations in 2025. CATL alone held 37.9 percent of the global market—more than the next three competitors combined. BYD, also Chinese, held 17.2 percent. Together, these two companies supply batteries to Tesla, BMW, Mercedes-Benz, Volkswagen, Toyota, and virtually every major automaker on earth.

But market share in finished cells understates the depth of the dependency. The real chokepoint is upstream. According to the International Energy Agency, China processes 70 percent of the world’s lithium chemicals, despite holding less than 7 percent of global lithium reserves. Chinese companies control 65 to 70 percent of global lithium refining capacity. They produce 98 percent of battery-grade lithium iron phosphate, over 90 percent of anode material, and 80 percent of global battery cells. As Bloomberg data cited in the Geopolitechs analysis confirmed, China controls approximately 96 percent of global cathode material capacity and 85 percent of anode material capacity.

Even when lithium is mined in Australia or Chile, it typically takes a round-trip through Chinese refineries before it becomes usable in a battery. The ore may be extracted in the Atacama Desert, but the chemistry happens in Fujian Province. The value addition—and the leverage—accrues to whoever controls the processing.

This is the same pattern that defines rare earth elements, critical minerals, and pharmaceutical precursors. Call it the Mining Fallacy: the mistaken belief that resource security means access to mines. It does not. The true center of gravity is the refinery. And the refinery is in China.

The Dual-Use Inversion

For decades, the West organized its strategic thinking around “dual-use” technology—civilian goods with potential military applications. Nuclear reactors that could produce weapons-grade material. GPS satellites that could guide missiles. Encryption software that could shield terrorists. The framework was simple: civilian technology with military applications required export controls.

We built elaborate regimes to manage this problem. Licensing requirements. End-user certificates. The Wassenaar Arrangement. Entire bureaucracies dedicated to preventing sensitive technology from reaching adversaries.

China has inverted the model.

The new dual-use is not technology. It is infrastructure. Battery factories that look commercial but supply defense contractors. Lithium refineries that appear to be market share but function as kill switches. Pharmaceutical plants that supply hospitals until they become instruments of coercion. Port terminals that provide services today and leverage tomorrow.

The West has no framework for this. Our export control regimes govern what crosses borders. They do not govern who owns the nodes through which everything must pass.

Consider the asymmetry. If a Chinese company tried to purchase an American defense contractor, CFIUS would block it. National security review. Front-page news. But that same company can acquire a battery factory in Malaysia, a lithium refinery in Indonesia, a rare earth processing facility in Vietnam—and face no comparable scrutiny. Each acquisition is commercial. Unremarkable. Legal. The strategic effect accumulates invisibly.

Skydio learned this the hard way. The company did not buy batteries from a Chinese state-owned enterprise. It bought them from a Japanese subsidiary manufacturing in China. As TDK’s corporate structure confirmed through Washington Trade & Tariff Letter reporting, Amperex Technology (ATL)—the TDK subsidiary—is also the parent lineage of CATL, which was spun off from ATL’s electric vehicle battery division in 2011. The supply chain looked diversified. It was not.

The Ukraine Proving Ground

Skydio’s crisis unfolded against the backdrop of a war that has demonstrated both the centrality of drones and the fragility of supply chains. In June 2024, Adam Bry testified before the House Select Committee on the Chinese Communist Party, warning that “the Chinese government has tried to control the drone industry, pouring resources into national champions and taking aim at competitors in the U.S. and the West.”

According to CSIS analysis, Skydio teams made over 30 visits to Ukraine between 2022 and 2024 to incorporate battlefield insights into their products. The company’s drones proved capable of navigating GPS-denied environments and resisting Russian electronic warfare—challenges that had defeated earlier American systems.

Yet even as Skydio’s drones proved their worth under fire, the Wall Street Journal reported that most American drone startups had failed to prove themselves in combat. U.S.-made drones were expensive, faulty, and complicated to repair. Lacking solutions in the West, Ukraine turned to Chinese products. The irony was bitter: the war that demonstrated the need for American drones also revealed the supply chain dependencies that undermined them.

Russia’s Countermove

While Skydio scrambled for batteries, Russia was solving the same problem differently.

Despite Western sanctions and Chinese export restrictions, Russian companies have maintained access to Chinese components. According to a Telegraph investigation, Chinese firms exported at least $63 million worth of drone parts and materials to sanctioned Russian companies between 2023 and 2024—aircraft engines, microchips, metal alloys, camera lenses, carbon fiber. Ninety-seven different Chinese suppliers participated.

More troubling: Russian firms have begun vertically integrating the very chokepoints that constrain Ukraine and the West. According to Ukrainian drone manufacturers interviewed for a recent Security Innovation Initiative report, Russian buyers are acquiring entire Chinese factories and relocating production lines inside Russia. One Ukrainian manufacturer reported negotiating for the output of a Chinese motor factory producing 100,000 units per month—only to have Russians purchase the factory outright. Another was told by a Chinese supplier that wait times had dropped dramatically because Russians had bought the firm’s production lines and moved them to Russia.

This is the archipelago being exploited in real time. One belligerent vertically integrates the chokepoints. The other remains exposed.

The Reshoring Illusion

Skydio’s response to the crisis reveals the timeline mismatch at the heart of Western strategy.

The company announced it was developing alternative suppliers. It had a substantial stock of batteries on hand. Its team was already working on non-Chinese sources. But new suppliers would not come online until spring 2025—months after the sanctions hit. In the interim, customers would receive one battery per drone.

As of early 2026, the battery rationing appears to have eased, though Skydio has not made a public announcement confirming full resolution of the supply constraint. A February 2025 DroneXL report noted the company was still ramping alternative supplier talks in Asia, including Taiwan. The company’s focus has shifted to securing contracts and expanding its military footprint—suggesting the immediate crisis has been managed, if not entirely eliminated.

This is the structural problem. Building a battery factory takes years. Permitting a lithium refinery takes years. Developing domestic processing capacity for rare earth magnets takes a decade. A crisis over Taiwan could unfold in weeks. We are attempting to solve a tactical emergency with a decadal infrastructure plan. The math does not work.

The numbers are improving—slowly. In 2019, the United States had two battery gigafactories. By early 2025, according to TechCrunch’s tracking of the battery factory boom, the country had approximately 34 either planned, under construction, or operational, with over 200 GWh of cell production capacity. But as Mordor Intelligence’s market analysis noted, domestic anode production covers only about 5 percent of projected 2026 demand, and elevated Section 301 tariffs raise landed costs for Chinese graphite by $2,000 per ton. The Department of Defense has invested over $540 million in critical minerals projects.

The Pentagon launched its Replicator initiative in August 2023, aiming to field thousands of autonomous systems by August 2025. A Congressional Research Service report confirmed what insiders suspected: only hundreds—not thousands—materialized by the target date. As the Washington Times reported in November 2025, the program was subsequently renamed the Defense Autonomous Working Group and transferred from the Defense Innovation Unit to U.S. Special Operations Command. In December 2025, at the Reagan Forum, Pentagon Chief Technology Officer Emil Michael indicated that DAWG would now focus on larger, longer-range drones for Pacific operations, while Secretary Hegseth’s separate “Drone Dominance” initiative targets smaller FPV-style systems inspired by Ukraine. The first Replicator 2.0 acquisition—AI-powered counter-drone interceptors—was announced in January 2026.

But 2028 is not 2026. And magnets are only one node in a supply chain that extends from lithium brines in Chile to cobalt mines in the Congo to cathode factories in Fujian. Each link represents a potential chokepoint. Each chokepoint represents leverage.

The Rare Earth Escalation

While the Skydio sanctions demonstrated what China could do with battery supply chains, 2025 revealed the same playbook applied to an even more strategically critical domain: rare earth elements.

On April 4, 2025, China’s Ministry of Commerce imposed export controls on seven rare earth elements—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—requiring special export licenses for all overseas shipments. The move came as direct retaliation for President Trump’s tariff increases on Chinese goods. As CSIS analysis detailed, the United States is particularly vulnerable for these supply chains; until 2023, China accounted for 99 percent of global heavy rare earth processing. Because these seven elements include the key ingredients of the permanent magnets used in fighter jets, submarines, missiles, and guided munitions, the effect was immediate.

Then, on October 9, 2025—one day before President Trump canceled a planned meeting with President Xi at the APEC summit in South Korea—Beijing escalated dramatically. As CSIS reported, five additional rare earth elements were placed under export control: holmium, erbium, thulium, europium, and ytterbium. As Al Jazeera confirmed, twelve of the seventeen rare earths were now restricted. More significantly, China introduced an extraterritorial “Foreign Direct Product Rule” modeled explicitly on the American mechanism long used to restrict semiconductor exports. Under the new regulation, as the China Briefing analysis explained, any foreign-made product containing as little as 0.1 percent Chinese-origin rare earth content by value would require a Chinese export license—regardless of where it was manufactured.

CSIS described these measures as the most consequential restrictions targeting Western defense supply chains to date. Under the new rules, companies with any affiliation to foreign militaries—including the United States—would be largely denied export licenses. Any requests to use rare earths for military purposes would be automatically rejected.

A brief diplomatic thaw followed. As the Clark Hill legal analysis documented, at U.S.–China trade talks Beijing agreed to suspend the October restrictions for one year. American headlines declared victory. The fine print told a different story. The suspension applied only to the October controls. The April licensing regime—covering the original seven elements, including samarium, dysprosium, and terbium—remained fully in force. As REEx’s analysis noted, companies seeking to export those materials still required case-by-case approval from MOFCOM, approvals for Western companies were taking longer, and Beijing’s promise was carefully couched with the qualifier “relevant,” leaving it ambiguous which controls were actually on hold.

The strategic reality is this: China has now institutionalized discretionary control over the materials that go into every F-35, every Virginia-class submarine, every Tomahawk missile. The lever is no longer latent. It is operational. And Western supply chain alternatives remain, by CSIS assessment, five to ten years from meaningfully reducing the dependency. As CSIS confirmed, Noveon Magnetics remains the only manufacturer of rare earth magnets in the United States. In October 2025, Noveon and Lynas Rare Earths announced a memorandum of understanding to build a domestic supply chain. But memoranda do not produce magnets. Factories do. And those factories do not yet exist.

Strategic Implications

If China can do this to Skydio, what about Lockheed Martin?

Every F-35 Lightning II contains over 920 pounds of rare earth elements. Every Virginia-class submarine requires more than 9,200 pounds. Every Arleigh Burke-class destroyer uses approximately 5,200 pounds. As Raytheon chief Greg Hayes warned: “More than 95 percent of rare earth materials or metals come from, or are processed in, China. There is no alternative. If we had to pull out of China, it would take us many, many years to reestablish that capability either domestically or in other friendly countries.”

In 2022, the Pentagon suspended F-35 deliveries after discovering that a magnet in the aircraft’s engine contained a cobalt-samarium alloy sourced from China. The component, manufactured by Honeywell, did not comply with U.S. procurement laws. One month later, the Pentagon signed a waiver to resume deliveries—Chinese magnets included—while it searched for a domestic replacement. The search continues.

The same vulnerabilities extend beyond defense. Ford and General Motors both turned to CATL in 2024 for lithium iron phosphate batteries—the only way to make affordable electric vehicles. Tesla depends on CATL for batteries in its most popular models. In January 2025, the Pentagon designated CATL a “Chinese military company” under the Section 1260H list, alongside Tencent, SenseTime, and Autel Robotics. The updated list now includes 134 companies. As Crowell & Moring’s legal analysis detailed, the 2024 NDAA bans the Defense Department from contracting directly with entities on the 1260H list beginning June 30, 2026, with indirect prohibitions following in 2027. CATL denied any military involvement, calling the designation “a mistake” and threatening legal action.

The impossible position sharpened: the same company that powers American automobiles is now officially designated a national security threat. As Fortune reported, partners like Tesla that source from CATL could find themselves unable to bid for Pentagon contracts. The architecture of dependency and the architecture of national security have become mutually exclusive—and no one has a plan for the transition.

The DJI Reckoning

The Skydio crisis occurred in the shadow of the larger battle over DJI, the Chinese company that dominates the global drone market. According to congressional data, Chinese companies produce 90 percent of commercial drones used in the United States and 77 percent of those flown by hobbyists.

On December 22, 2025, the FCC took action that went far beyond what most of the industry expected. As the Wiley law firm’s analysis documented, rather than simply adding DJI and Autel to the Covered List as the 2025 NDAA mandated, the Commission added all foreign-produced drones and UAS critical components to the list—effectively preventing any new foreign-made drone model from receiving FCC equipment authorization required for legal import, marketing, and sale in the United States. The action followed a formal “National Security Determination” by an interagency body convened by the White House, which concluded that foreign-produced UAS posed “unacceptable risks to the national security of the United States.”

The ban was not retroactive. As the DroneDeploy compliance guide explained, previously authorized DJI models remain legal to purchase, own, and fly. Retailers can continue selling existing stock. But no new foreign-made models can enter the U.S. market without a specific government waiver. On January 7, 2026, the FCC issued a one-year exemption removing Blue UAS Cleared List drones and products meeting a 65 percent domestic end-product threshold from the Covered List, valid through January 1, 2027.

DJI did not accept the ruling quietly. On February 20, 2026, as DroneLife reported, the company filed a petition for review in the Ninth Circuit Court of Appeals, arguing that the FCC exceeded its statutory authority, failed to follow required procedures, and violated the Fifth Amendment. As DroneDJ detailed, the filing—now docketed as Case 26-1029—contends that new DJI products “can no longer be marketed, sold, or imported into the United States,” and accuses the FCC of using the decision “as a justification to severely restrict” even existing product lines beyond the stated scope.

But the DJI ban, however consequential, addresses only one dimension of dependency—finished products. It does nothing about the deeper problem: the supply chains that feed every drone manufacturer, including Skydio. As DroneXL noted, the FCC banned foreign batteries while having no plan to replace them. China makes approximately 99 percent of drone-grade lithium batteries. Banning Chinese drones while remaining dependent on Chinese batteries is not security. It is theater.

Skydio’s Ascent

Despite the battery crisis—or perhaps because of it—Skydio’s position has strengthened dramatically since the sanctions. The company has become the primary beneficiary of Washington’s pivot toward trusted domestic drone suppliers.

In June 2025, President Trump signed the “Unleashing Drone Dominance” executive order, directing the strengthening of the domestic drone industrial base. Within a week, Skydio was awarded a $74 million indefinite-delivery/indefinite-quantity contract by the State Department’s Bureau of International Narcotics and Law Enforcement Affairs to provide X10D drones, software, training, and support to U.S. personnel and partner nations.

The military contracts accelerated. In October 2025, the U.S. Army awarded Skydio $7.9 million under the Short Range Reconnaissance Tranche 2 program, bringing total SRR Tranche 2 support to $12.3 million in fiscal year 2025. In November, the U.S. Air Force awarded two multi-million dollar contracts to expand Skydio X10D systems across Tactical Air Control Party and Explosive Ordnance Disposal units, with additional deliveries planned over eighteen months. At Travis Air Force Base, Skydio’s drone-based inspection program had already reduced C-17 inspection times by more than 90 percent. In July 2025, the Royal Norwegian Ministry of Defence selected the Skydio X10D in a $9.4 million initial tender. NATO’s NSPA selected Skydio for a Nano UAS framework agreement in August.

By late 2025, according to Skydio’s own disclosures, the company supported all branches of the U.S. military, 28 allied nations, and over 3,500 public safety agencies. Its manufacturing facility in Hayward, California—described as one of the world’s largest drone manufacturing facilities outside of China—employs approximately 874 people according to Tracxn’s company profile. The company that China tried to kill with a single phone call to a battery supplier is now more deeply embedded in Western defense infrastructure than ever.

The lesson is double-edged. Skydio’s survival and growth demonstrate resilience—but the vulnerability that made the crisis possible has not been structurally resolved. The battery supply chain remains concentrated. The rare earth supply chain remains concentrated. The next phone call from Beijing might not target a drone company. It might target the magnets inside an F-35 engine, the cathode materials inside a submarine’s power system, or the lithium cells inside the grid-scale batteries that keep American data centers running.

The Warning

The Skydio case is not merely a supply chain story. It is a strategic warning.

During the first Trump administration, China’s retaliation to American tariffs and trade restrictions was largely symbolic and equivalent. The second round has been different. The Skydio sanctions came days before a presidential election, calibrated for maximum political visibility. The April 2025 rare earth controls came as direct retaliation for tariff increases. The October 2025 escalation came the day before a presidential summit was canceled. Each action was targeted, precise, and immediately effective. Beijing has demonstrated that it is prepared to accept and dish out pain, using its status as the world’s factory floor to exact punishment through supply chain warfare.

The beauty, from Beijing’s perspective, is deniability. State-owned enterprises make commercial decisions. Customs officials enforce regulations. Market forces determine prices. Nothing is explicitly hostile. Everything is quietly coercive.

This is coercion through architecture. Deterrence in reverse. The threat of disruption disciplines behavior without requiring disruption itself. The lever may be more valuable latent than activated—but 2024 and 2025 proved Beijing is willing to pull it.

If China can constrain Skydio today, it can coerce Lockheed tomorrow. It can throttle Ford next month. It can ration pharmaceuticals next year. The architecture of dependency is already in place. The kill switch already exists. Beijing simply chooses when to flip it.The battery war has begun. The question is whether the West will recognize it before the next chokepoint activates.