Billions for Drones, and the Drone Stocks Fall

WASHINGTON, Oct. 19 — TheThe Pentagon talks of attack drones by the hundreds of thousands, and it is setting the price. On Oct. 14 Pete Hegseth, the defense secretary, said the Pentagon was seeking about $50 billion in one-time reconciliation funding to scale autonomous and robotic systems, Defense News reported, apart from a $53.6 billion Drone Dominance request for fiscal 2027. Phase III’s planned first tranche, about 60,000 one-way attack drones, is to be bought at fixed prices of $3,000 and $5,000 apiece.

Shares of drone makers went the other way. Between the close on Oct. 6 and Monday’s, Red Cat, Unusual Machines, Ondas, AeroVironment and Kratos lost between 10 and 27 percent.The FiveRed Cat is the parent of Teal Drones. Unusual Machines sells small drones and components; Ondas builds unmanned aircraft and counter-drone systems. AeroVironment makes the Switchblade and the Puma, and Kratos the Valkyrie combat drone.

No source this paper has read ties the slide to Washington’s terms. The selling was not confined to drones: in the same two weeks the Philadelphia Semiconductor Index fell 14.4 percent. But the Pentagon has written down how it means to buy the first 60,000 drones of Phase III: at a price it sets, from several suppliers at once, after a test of how fast each can build. In the paper’s reading, that is a design for making drones cheap, which is not the same thing as making drone makers rich.

The explanations on offer concern the market and the companies, not the Pentagon. On Oct. 7, after Ondas said it had secured more than $165 million in new orders, its shares closed down 2.97 percent, and AeroVironment and Red Cat fell about 3 percent too. “Something bigger than one company’s bookings is driving this drone selloff,” 24/7 Wall St., a financial news site, wrote that afternoon. On Aug. 20 it had put a drop across the group down to positioning, with a 30-year Treasury yield of 5.28 percent bearing hardest on high-multiple stocks.

The Price

Phase III is the $450 million third phase of the Pentagon’s Drone Dominance Program. Its first tranche is to buy about 60,000 drones, split evenly between Deep Strike and Close-Quarters Battle types, at prices the government has set: $5,000 a Deep Strike drone and $3,000 a close-quarters one.The WarheadsMunitions are priced separately: $3,000 apiece for Deep Strike drones and $2,750 for close-quarters ones. The government intends to buy them directly from the munitions makers. For that price a vendor must also deliver ground control equipment, spares and training. A second tranche of up to 40,000 more, bought at the government’s discretion, would be priced by the vendors’ own proposals.

With three vendors in each category, the winner is projected to receive an order for 12,000 drones and third place an order for 8,000, the smallest allowed. At the set price, 12,000 Deep Strike drones come to $60 million, and all 60,000 drones in the first tranche to $240 million. Bidders must show they can build at least 8,000 drones in five months.

In the paper’s reading, the fixed prices in Phase III’s planned first tranche put the margin squarely on the manufacturer. In that tranche the government fixes the revenue per drone, and the supplier keeps whatever its cost comes in below it. The request says each phase will raise both order volumes and mission requirements, and that the government will “allow competitive forces to inform future pricing.” Terms like these favor whoever can build cheapest at volume.

The front-runners so far carry other names. At Gauntlet II, the program’s September trial, Perennial Autonomy topped its Deep Strike leaderboard and Neros the close-quarters one, DefenseScoop reported.Gauntlet IIBehind Perennial Autonomy came Hyperscale, Neros, Skycutter and Swarm Defense Technologies; behind Neros, ORQA US, XTEND Reality, Vector and ModalAI. Gauntlet II’s winners in each mission category are fast-tracked into Phase III’s production sprint, in the category they won. Teal Drones, Red Cat’s subsidiary, flew in the close-quarters contest and did not make its leaderboard. “Scaling production is the step where small defense suppliers most often disappoint,” 24/7 Wall St. wrote of Ondas on Oct. 8, setting out the skeptics’ case.

The larger sums are less concentrated than they sound. “Ultimately we will be dealing with hundreds of thousands of one-way attack systems this year and into the millions in years to come at a pace that this department’s never ever seen before,” Mr. Hegseth said at an Association of the United States Army panel in Washington, Defense News reported. But less than a third of the $53.6 billion request, $16.9 billion, is for buying unmanned systems; $14.4 billion is for countering them, and the rest for contested logistics, collaborative autonomy, and institutional systems and personnel. Defense News noted that the request does not establish that Mr. Hegseth’s $50 billion is the same money, or that it is all for drones. The Drone Dominance Program itself is awarding $1.1 billion in prototype orders over several phases, its request says. AeroVironment, Kratos and Ondas sell in the counter-drone market too, 24/7 Wall St. has noted.

Ultimately we will be dealing with hundreds of thousands of one-way attack systems this year and into the millions in years to come at a pace that this department’s never ever seen before.

The Parts

On Monday China revised its drone export controls, effective Nov. 18. The revision sets license thresholds for drone motors, their speed controllers and carbon-fiber propeller blades: under the notice, Announcement No. 49 of 2026, listed items may not be exported without a license from that date.The TranslationThe notice, in Chinese, was issued by the Ministry of Commerce, the General Administration of Customs and the Central Military Commission’s Equipment Development Department, with the approval of the State Council and the commission. The translations here are Daily Cortex’s.

A brushless motor built to drive drone propellers is covered if it is rated at 48 volts or more and 3 kilowatts or more, with a power density of at least 3 kilowatts per kilogram and a rated speed of no more than 3,000 revolutions a minute. So is a speed controller built for such motors if it, too, is rated at 48 volts or more and 3 kilowatts or more. Carbon-fiber blades are covered if they are fixed-pitch and measure 762 millimeters or more from hub center to tip, or 648 millimeters or more from root to tip where the blade does not span the hub, or if they have variable pitch at the root, whatever their length.

In the paper’s reading, the length thresholds describe big machinery: a fixed-pitch blade 762 millimeters from hub center to tip sweeps a circle about five feet across. DroneLife, a trade publication, wrote that not every listed product is newly restricted, and that the effect on drone makers elsewhere would depend on whether specific components fall within the categories. Many American drone makers still depend on Chinese suppliers for parts such as motors, it wrote in August.

From Nov. 18 the notice will also offer faster lanes: registration in place of a license application for some drone exports, and general licenses for established exporters with working internal compliance systems. Under an Aug. 5 notice, though, exports to the United States of listed drones, their key components and related technology are reviewed strictly, case by case, and are not eligible for “license facilitation measures,” the term the new notice uses for those lanes. In the paper’s reading, Beijing has announced a faster path for qualifying exporters from Nov. 18 while keeping American buyers on the slow one. Under the new notice, customs will not release goods while it queries a declaration it doubts.

China has already acted against one of the five. On June 22 it barred exports of certain controlled dual-use items to ten American companies, Red Cat and Teal Drones among them, DroneLife reported at the time, adding that there was no public sign of production delays at Red Cat. Washington is tightening its own side: Phase III drones must meet a supply-chain framework that the request calls more restrictive than the National Defense Authorization Act. For manufacturers, DroneLife wrote in August, “regulatory pressure now exists on both sides of the supply chain.”

In the paper’s reading, the clearest gainer is the buyer, which in the first tranche gets drones at prices it sets from suppliers competing on performance and output; next come the makers that can build cheaply at scale. Who pays is any supplier whose costs run above the fixed price, and any maker that still needs the listed parts from China.

The next tests come quickly. Gauntlet 2.5, a trial of reusable bomber drones, is expected in early November at Camp Grayling, Mich., and China’s rules take effect Nov. 18. The Pentagon expects to award its first Phase III orders by mid-December, ahead of a Gauntlet III expected in March.