The Energy Security and Climate Resilience program of the Research Institute for Democracy, Society, and Emerging Technology (DSET) released a new report titled “Powering Resistance: Opportunities and Challenges in Localizing Taiwan’s Drone Battery Supply Chain,” examining the export opportunities and challenges facing Taiwan’s drone battery industry. The report indicates that although China has long dominated the global drone battery market and exploited various countries’ reliance on it to impose political sanctions on drone manufacturers in countries such as the United States, Japan, and Taiwan, constituting a bottleneck for Taiwan and its allies in achieving the goal of ‘non-Red drone supply chains,’ Taiwan’s drone battery industry has made significant progress in recent years.
Between 2024 and 2025, the Taiwanese drone industry’s reliance on Chinese battery cells has decreased from approximately 70 percent to 50 percent. Additionally, according to Ukrainian customs data, Taiwan has surged to become Ukraine’s third largest supplier of battery cells in 2025, trailing only behind China and Vietnam.
However, the report also warns that Taiwanese drone battery manufacturers are highly dependent on Chinese-made electrode materials, posing a strategic risk. Taking ternary (NMC) lithium batteries commonly used in drones as an example, China still controls approximately 65 percent of the global production capacity of cathode active materials (CAM), 95 percent of cathode precursors (pCAM), and 95% of battery-grade graphite processing. In July and October 2025, China respectively imposed export controls on related material processing technologies, battery cells and precursors, and sanctioned eight Taiwanese defense-related companies.
The report points out that while Taiwan has made progress in the procurement and subsidization of fully assembled non-Red drones, there is still room to strengthen policies regarding “non-Red battery cell materials” for drones. In January 2026, the Executive Yuan published the Guidelines for the Procurement of Remote-Controlled Unmanned Aircraft Systems, declaring the goal to achieve complete de-Redification or localization of government-procured drones and related components starting January 2027. The guidelines categorize fully assembled drones, modules, and parts (including active and passive components) into three classes, and divide the required level of de-Redification or localization into four tiers: A, B, C, and D. Within this framework, battery modules are explicitly categorized under Class C, which must satisfy “non-China requirements.” Passive components, such as battery cells, are also required to meet non-Red objectives for deliveries made after January 2027. However, battery cell materials further upstream have not yet been included in the guidelines. The guidelines also candidly acknowledge that certain components cannot be immediately de-Redified, primarily because manufacturers have been unable to find non-Red alternatives in time.
In response, the report recommends that, given manufacturers need time to adjust their supply chains, Taiwan could refer to Section 842 of the US National Defense Authorization Act for Fiscal Year 2026 (FY2026 NDAA). This section explicitly prohibits the Department of War from procuring advanced batteries containing materials from “Foreign Entities of Concern” (FEOC, which includes China and other nations) after 2028, and mandates that over 95% of component costs must originate from non-FEOC sources. Taiwan should learn from the US timeline to formulate a phased-out strategy that aligns with an industry buffer period (e.g., requiring public-sector procurements to use only Taiwan-made battery cells with non-Chinese cathode materials and precursors by 2028). Concurrently, by standardizing specifications, aggregating high-specification battery market demand, and securing non-China-sourced material supplies, Taiwan can build a highly resilient supply chain and reduce its exposure to China-related risk, while effectively assisting Taiwanese manufacturers in smoothly transitioning and breaking into the US military market.
This report was co-authored by members of the DSET Energy Security and Climate Resilience research program, Jia-Shen Tsai (Non-Resident Research Fellow), Angela Glowacki (Policy Analyst), Chen-Yen Chang (Policy Analyst), and Yu-Ping Yang (Research Assistant).
Taiwan’s Drone Battery Supply Chain Continues to Grow Steadily, Becoming Ukraine’s Third Largest Battery Supplier
The report analyzes that, overall, Taiwan’s battery cell and module manufacturing technology and capacity have steadily improved in recent years. According to public data and DSET’s cross-checked estimates with relevant industries, Taiwan’s current annual battery cell production capacity has reached approximately 9.41 GWh, and Taiwan holds a leading position in battery module assembly for specific application fields (such as consumer electronics).
According to DSET’s interview data with Taiwanese battery manufacturers, there are currently manufacturers in Taiwan continuously supplying 5 million to 7 million drone battery cells per month to Ukraine, primarily supplying NMC lithium batteries with high energy density that can adapt to Ukraine’s low-temperature winter environment. Separately, according to statistics from the State Customs Service of Ukraine (based on the Harmonized System code category 8507—which includes battery modules and battery cells), Taiwan was ranked as Ukraine’s 24th largest battery supplier as early as 2019, and surged to 3rd place in 2025, second only to China and Vietnam. According to customs data for the first quarter of 2026, Taiwan has exported batteries to Ukraine with a total value of approximately USD 11.85 million.
China Still Dominates the Global Battery Market, Taiwan’s Industry Faces Challenges
The report points out that due to China’s continued dominance in the global battery materials market, Taiwan faces three structural constraints in ensuring the security of its domestic battery supply chain:
- Inconsistency Between Battery Chemistry and Military-Grade Requirements: Approximately half of Taiwan’s existing cell production capacity is oriented toward lithium iron phosphate (LFP) chemistries, while military-grade drones predominantly rely on NMC batteries. Although reliance has decreased year by year, nearly half of Taiwan’s drone market still relies on China.
- High Exposure in the Upstream Supply Chain: Taiwan currently has no manufacturers capable of fully domestic production of NMC CAM or pCAM.
- Limited market scale of drone battery cell demand: The scale of Taiwan’s drone battery cell market remains too small and fragmented for upstream material manufacturers, making it difficult to attract their investment. Therefore, it is necessary to integrate multiple high-end applications such as electric vehicles (EVs) and electric vertical takeoff and landing (eVTOL) aircraft to anchor procurement commitments, in order to break through the dilemma of Taiwan developing a non-Red battery industry supply chain.
Recommendations
The government should build on current drone battery non-Red policies to further promote the localization or non-Red sourcing of electrode materials, helping Taiwanese battery cell manufacturers connect with international non-Red markets.
Specifically, Taiwan can establish a phased procurement strategy to phase out Chinese-made electrode materials (for example, achieving a total mandate for public sector procurement to use Taiwan-made battery cells, as well as non-Chinese cathode materials and precursors, by 2028). Furthermore, by promoting standardization of production specifications and pooling high-spec battery market demand, Taiwan can gradually expand the scale of its domestic and export markets. This will connect the upstream and downstream battery industries, building a more resilient drone battery supply chain and reducing risk exposure to China.
Download the full report here: https://dset.tw/en/research/492-2/
