Taipei: Stable foreign government demand for Taiwan-produced drones has yet to emerge despite a sharp rise in exports since 2024, while key upstream materials are still sourced from China despite the government's push to establish non-Chinese supply chains, a report published Wednesday found.
According to Focus Taiwan, the report by the government-funded Research Institute for Democracy, Society and Emerging Technology (DSET) documented major developments in Taiwan's drone industry and identified challenges facing the sector. Among the hurdles is the lack of stable demand from foreign governments, despite exports increasing from 3,472 units in 2024 to 122,726 units in 2025 and 191,373 units in the first half of this year, the report said, citing Ministry of Finance statistics.
The report identified Poland, the Czech Republic, and the United States as the main export markets, while noting there were also large orders from the Middle East in 2026. "However, part of European demand remains closely tied to Ukraine's wartime market," said report author Cathy Fang, a policy analyst at DSET. This suggests that the growth is being driven by short-term wartime demand, as whether it will translate into sustained post-conflict procurement remains uncertain, Fang explained.
Furthermore, Fang noted that documented foreign government procurement outside the U.S. remains limited, indicating that "export growth has yet to translate into stable, long-term government procurement demand."
The report also highlighted technological gaps in Taiwan's drone manufacturing capabilities, particularly in "three chips and two software" that Taiwan currently sources from overseas: flight controller chips, communication modules, and satellite positioning and imaging chips, AI-enabled flight control software, and autonomous mission and ground control software. It recommended issuing "milestone-based" grants, engaging in prototype procurement, and offering qualification support for high-risk, multi-year subsystem development, with dedicated access for small and medium-sized enterprises to speed up the development of key technologies.
Although the Ministry of Economic Affairs has approved a total of NT$326 million in funding for seven projects aimed at localizing the "three chips and two software," some indigenous alternatives will likely take two to three years to complete validation and begin mass production, according to the report. "Dependence runs even deeper at the materials level, where battery cells and rare-earth magnets are still sourced predominantly from China," the report noted, despite a government drive for "non-red" drone supply chains that do not depend on Chinese components.
The report recommended extending non-PRC sourcing requirements from components to upstream materials and using aggregated demand, long-term procurement, strategic stockpiling, co-investment, and cooperation with allies to establish alternative sources for batteries, magnets, and other critical materials.
Furthermore, the report also flagged limited UAV testing sites and capabilities as factors slowing platform maturation and hampering the validation and iteration of systems. It stressed the need to expand testing capacity for beyond-visual-line-of-sight operations, electronic warfare, global navigation satellite system (GNSS) denial, counter-UAS operations, maritime systems, and complex electromagnetic environments.
It also called for the establishment of a cross-ministerial mechanism to coordinate airspace, spectrum, testing sites, and safety requirements. The report referenced ongoing international technology cooperation projects for uncrewed systems, saying the results will depend on whether Taiwan ultimately retains control over system interfaces, software and firmware updates, maintenance, and upgrades. It recommended requiring co-development and licensing agreements in such projects to preserve Taiwan's authority over co-developed technologies, as well as putting technology-protection arrangements in place.