The Pentagon's Drone Bet Has a Demand Problem
The Defense Department is spending billions to build a domestic drone industry. Manufacturers say the orders aren't consistent enough to justify the factories.
By The Defense Desk
The Pentagon wants to equip every Army squad with small attack drones by the end of fiscal 2026 and has outlined plans to spend nearly $55 billion on autonomous warfare in its FY27 budget. [1] The drone factories it needs to make that happen may not materialize — because the companies being asked to build them aren't convinced the orders will keep coming.
Defense Secretary Pete Hegseth's Drone Dominance memo, issued in mid-2025, set the ambition in motion. [1] The programmatic machinery is moving. The money, however, is stuck.
The bulk of the $55 billion was requested through a reconciliation package, leaving its future uncertain as lawmakers weigh whether to approve the money. [1] Performance Drone Works CEO James Slider put it plainly: "Seeing the DAWG money flow down would be very encouraging for us. Depending on who you talk to, it's definitely coming or definitely not coming." [1]
[1] Under Gauntlet 1, 11 companies were selected to deliver 30,000 small drones through a combination of initial and bonus orders, ranging from 1,520 drones for Farage Precision to 4,960 for Neros. [1] Gauntlet 2 split the field into deep-strike and close-quarters categories, awarding five companies in each and covering 30,000 drones per category. [1] An online leaderboard tracks delivery status in real time. [1]
None of those awards guarantee follow-on orders. [1]
There is a structural irony at the heart of this strategy. The competition format is designed to keep the field open and the technology fresh, but it is precisely that openness — that refusal to commit — that makes the long-term industrial investment so hard to justify.
Chad Chasteen, senior director and team leader of Army business development at AV, was direct at an Oct. 13 panel at the AUSA conference: "The Army system of continuous competition and not sticking with a solution for more than a year or two creates all kinds of havoc in the supply chain." [1] He added: "There is no supply without demand. Continuous competition doesn't mean you make industry fill out continuous requests for white papers. There has to be continuous awards, continuous orders to create that." [1]
John Burer, CEO of the American Center for Manufacturing & Innovation (ACMI), an industrial group focused on revitalizing the U.S. industrial base, framed the investor calculus plainly: "If I were a manufacturer of drone systems, I wouldn't be investing ahead of a very large amount of money or a consistent demand signal. It's great to do a bake off and to test some of these things and prove out that they can work, but then scaling production needs a different mindset, and it's a cost focus oftentimes." [1] ACMI itself aligns public and private priorities, specialized resources, and capital to bridge critical gaps in domestic production — a gap the drone market currently exemplifies. [2]
Not everyone is skeptical. It's [Department of Homeland Security], it's other parts of the civilian federal government, and we're selling products into all of those segments." [1] The divergence of opinion between Skydio and manufacturers closer to the production floor may reflect where each sits in the supply chain — closer to the government's wallet, or closer to the factory gate.
What is emerging is less a failure of ambition than a failure of timing — the government is asking industry to build for a future that hasn't been fully funded yet, and industry is asking the government to pay for a present that hasn't been fully imagined.
[1] Until Congress resolves the DAWG funding question and the Pentagon converts competitions into durable contracts, that challenge will keep answering itself — with empty factory floors.