About DSET Drone Newsletter:

DSET’s National Security Program publishes a biweekly drone newsletter. It reviews a curated selection of the most noteworthy domestic and international sources, providing insights into the development of Taiwan’s drone industry and the implications of global uncrewed aerial vehicle (UAV) trends for Taiwan.

Registration Open: DSET’s June 6 Annual Forum

DSET will host its International Forum on Supply Chain Resilience Strategy on Saturday, June 6. The drone panel will feature the CEO of Thunder Tiger, Anduril’s East Asia Director, an author of the widely-discussed CNAS reportHellscape for Taiwan: Rethinking Asymmetric Defense, and two Ukrainian drone experts.

Event details and registration here.

This Issue’s Drone Highlights:

  1. NT$780B Special Defense Budget Passes, Threatening Nearly Two-Year Standstill in Domestic Drone Production: The Legislative Yuan on May 8 passed the opposition-sponsored “Special Act for Safeguarding National Security and Strengthening Asymmetric Capabilities,” capping total authorization at NT$780 billion (~US$24.8 billion) but excluding commercial purchases, commissioned production, and Taiwan–U.S. cooperation programs for drones and counter-drone systems. If the cut funding must be handled through the regular 2026 budget cycle, domestic drone procurement could face a near two-year delay.
  2. DSET Releases Taiwan–Ukraine and Taiwan–Europe Reports, Cited by NYTand Other International Media: DSET published two reports in April on Taiwan’s drone cooperation with Ukraine and Europe. The launch event drew 100+ representatives from government, industry, and academia, and the findings were cited by international outlets including Nikkei Asia, The New York Times, and The Guardian. The reports note that Taiwan is already supplying drones to Europe and Ukraine but still lacks institutional support, and call on allies to deepen cooperation with Taiwan. International media interviews with Ukrainian industry and officials further confirmed that Taiwan–Ukraine drone cooperation is intensifying—notably, The NYT cited an anonymous Ukrainian official who, for the first time, confirmed that a Taiwan-based firm is now co-producing drones with a Ukrainian partner.
  3. Ukraine–Gulf Drone Deals: Ukraine signed 10-year drone and defense export agreements with three Gulf states, covering weapons system exports and joint production, a model worth Taiwan’s attention. Based on the current terms, partners’ willingness to commit substantial upfront capital will be central to such cooperation.
  4. Japan–Ukraine Drone Joint Ventures Mark Indo-Pacific First: Japan’s Terra Drone announced this month two joint production plans with Ukrainian drone firms, Amazing Drones and WinnyLab. These are Ukraine’s first publicly announced large-scale Indo-Pacific UAV joint ventures.
  5. Japan’s Arms Export Reform: Looser defense export rules may open future opportunities in the Japanese drone market, but because Japanese firms have yet to mass-produce offensive drones, near-term exports remain limited. Nikkei Asia and Sankei Shimbun cited DSET Policy Analyst Hung-Yuan Teng on the implications for Taiwan–Japan cooperation.
  6. U.S. Drone Dominance Phase II Launched: After selecting 11 vendors in March for Phase I procurement of around 30,000 drones, the Pentagon announced in April a Phase II target of an additional 60,000 drones, alongside tighter restrictions on source countries for components such as motors and batteries.
  7. Russia Threatens European Drone Firms: Moscow in April threatened European countries that signed drone agreements with Ukraine for the first time, warning that European drone suppliers could be designated as potential military targets. European capitals firmly rejected the intimidation. Whether the threats will affect expanded Europe–Ukraine drone cooperation is worth watching.

(Read the full newsletter on DSET’s website here.)

Defense Budget Slashed 38%, Stripping Drone Funding and Threatening Two-Year Standstill

(Author: Cathy Fang)

After nearly six months of legislative negotiations, the Legislative Yuan on May 8 passed the opposition-sponsored “Special Act for Safeguarding National Security and Strengthening Asymmetric Capabilities,” capping total authorization at NT$780 billion (~US$24.8 billion)—approximately 38% below the Executive Yuan’s original NT$1.25 trillion (~US$39.7 billion) proposal. The final version funds only U.S. arms procurement, split into two tranches of NT$300 billion (~US$9.5 billion) and NT$480 billion (~US$15.2 billion), excluding direct commercial sales and commissioned manufacturing.

The NT$470 billion (~US$14.9 billion) reduction is most consequential for Taiwan’s UAV sector. The Executive Yuan’s original proposal allocated NT$335 billion (~US$10.6 billion) to unmanned vehicles and counter-unmanned systems; net of foreign military sales purchases, approximately NT$300 billion (~US$9.5 billion) would have flowed directly to the domestic drone industry. Affected programs include 210,000 coastal surveillance and attack drones, counter-UAS systems, unmanned surface vessels, and Taiwan–U.S. cooperation initiatives, among them NCSIST partnerships with several U.S. defense technology firms and the Mighty Hornet IV program with Kratos, currently in testing.

Premier Cho Jung-tai has signaled the administration will respond. Three paths remain open: a supplementary budget, a second special statute, or incorporation into the regular annual budget cycle. The choice carries structural consequences. A special budget provides a defined, ring-fenced commitment with multi-year visibility; annual appropriations introduce year-to-year uncertainty that directly undermines manufacturers’ willingness to invest in production capacity and capital equipment.
If the administration falls back on regular appropriations, the industry faces a near two-year production standstill. Following standard practice, the budget proposal would be submitted in September 2026 and clear legislative review around February 2027. Only then can the Armaments Bureau begin tendering for the 50,000-unit contract originally issued in July 2025—a process that itself takes several more months from solicitation to award. How the administration closes the funding gap in the coming months will determine whether Taiwan’s drone ambitions remain a strategic priority.

DSET Releases Taiwan–Ukraine and Taiwan–Europe Reports, Cited by NYT, The Guardian, and Nikkei Asia

(Authors: Ting-Wei Lin & Samara Duerr)

On April 23, DSET launched two new research reports on the drone industry: The Invisible Drone Wall: Taiwan’s Quiet Support for a China-Free European Drone Supply Chain, and Drone Superpower: Ukraine’s UAV Success and Where Taiwan-Ukraine Cooperation Fits In . Joining as panelists were Max Lo, President of the Taiwan National Drone Industry Association, and Mick Ryan, retired Australian major general and Senior Fellow for Military Studies at the Lowy Institute.

The reports document both the progress and the constraints facing Taiwan’s drone sector. Taiwanese drone exports grew 35-fold between 2024 and 2025—from 10,000 to roughly 123,000 units—with nearly all, according to DSET interviewees, routed through Poland and Czechia to Ukraine. Yet most of this volume falls outside of formal government procurement, leaving demand unstable. The sector also remains constrained by limited production capacity, reliance on foreign technology, and continued exposure to Chinese components and raw materials. Both reports identify gaps in joint production, technology transfer, and standards integration, and argue that closing them would position Taiwan as a prime alternative supplier of ‘non-red’ components.

During the Q&A session, panelists examined how Taiwan can deepen drone cooperation with Ukraine and Europe despite political constraints. Max Lo explained that Ukrainian manufacturers remain reluctant to source directly from Taiwan: roughly 90% of their components still depend on Chinese supply chains, and direct procurement would risk retaliation from Beijing. The next step, he argued, is to establish manufacturing bridgeheads in partner countries through joint ventures and special-purpose vehicles tailored to European demand.

Samara Duerr, Drone Superpower author and DSET Policy Analyst, framed Taiwan’s value proposition as twofold: a reliable manufacturing partner that can address scale, and a source of higher-tech components—flight controllers, jet engines—which next-generation interceptor drones increasingly require. While Ukraine intercepted 94.6% of Russian one-way attack drones during a record month of attacks earlier this year, joint UKR-EU programs are now calling for interceptors above 450 km/h—roughly double the speed of current models—pointing to clear room for Taiwanese research and development collaboration.

Ting-Wei Lin, The Invisible Drone Wall author and DSET non-resident fellow, noted that business-to-business (B2B) partnerships prove resilient under political shifts, since European governments and policies can change rapidly with each election cycle. Official and semi-official mechanisms can lower transaction costs between Taiwan and Europe, but it is the B2B trade routes that endure when conditions change.

Mick Ryan added that Ukraine’s drone advantage owes less to individual technologies than to tight feedback loops linking operators, industry, and research—embodied by initiatives such as Brave1, which channels frontline requirements into rapid prototyping while feeding technological literacy back to commanders. Replicating elements of that ecosystem, he argued, may matter to Taiwan as much as any single component transfer.

Panelists also flagged two pressing risks. The first concerns the NT$335 billion (~USD$10.6 billion) Special Defense Budget allocation for unmanned systems: without a sustained domestic demand signal, warned Cathy Fang, DSET Policy Analyst, the production lines stood up by Taiwanese industry would lack the volume to remain viable. The second is rare-earth processing. As Mick Ryan, Max Lo, and Cathy Fang each observed, reserves are not geologically scarce, but refining capacity remains heavily concentrated in China, and even shipment delays can disrupt magnet supply for drone motors. Diversification efforts now underway with Australia, the United States, Japan, and Malaysia aim to expand processing capacity and develop motor designs that require less rare-earth content.

For more event information, see DSET’s press release.

The two reports were cited by international outlets includingThe New York Times, The Guardian, and Nikkei Asia. The coverage drew on multiple Ukrainian industry sources: a representative of Vyriy, one of Ukraine’s leading drone manufacturers, told The Guardian, “We have components made in Taiwan, and this is not uncommon in the industry today.” The New York Times also cited an anonymous Ukrainian official who, for the first time, confirmed that one Taiwanese firm is now co-designing and producing drones with a Ukrainian partner.

International Media Takes Note of Taiwan-Ukraine Drone Cooperation

(Author: Samara Duerr)

A recent New York Times article confirmed that business-to-business connections between Ukrainian and Taiwanese companies are deepening. One pathway is through component sales. As reported by The Guardian, Vyriy, one of Ukraine’s leading drone makers, uses components made in Taiwan. Some Taiwanese companies are even setting up local component facilities in Lithuania and Poland to cater to Ukrainian demand. 

Another pathway is that of full drone unit exports. The NYT, quoting DSET’s research, noted that Taiwan exported 70,372 drones to Czechia and 31,711 to Poland in 2025 of which most, if not all, were then transferred to Ukraine. The Economist has also observed that two kamikaze quadcopter models by Taiwan’s Kunway Technology reach Ukraine via Poland. In another case, AbonMax, a Taoyuan-based company, has delivered a batch of Cobra-3120 loitering munitions to Kyiv. Thunder Tiger has similarly sent its drones to Ukraine, though primarily for testing.

Beyond bilateral ties, trilateral links are growing among the drone ecosystems of Taiwan, the U.S., and Ukraine. For example, U.S. drone maker Neros is testing 100 Ukrainian-designed drones in Taiwan; Ukraine’s General Cherry is partnering with U.S. firm Wilcox, which also sells to Taiwan; and U.S.-German company Auterion has signed cooperation agreements with Taiwan while continuously refining its software using Ukrainian battlefield data.

A senior Ukrainian official has also reported that, of 10 overseas production facilities where international and Ukrainian companies manufacture Ukrainian-designed drones, one is in Taiwan.

This growing cooperation highlights Taiwan’s potential as a manufacturing and components hub within the global defense supply chain.

Ukraine’s Drone Deals: From the U.S. to Saudi Arabia, Qatar, and the UAE

(Author: Samara Duerr)


Last week, Ukrainian President Zelensky unveiled the landmark signing of a ‘Drone Deal’ with Gulf states—three 10-year defense export agreements with Saudi Arabia, Qatar, and the United Arab Emirates (UAE). Originally conceptualized for the U.S., the deal incorporates a systematic approach to defense, integrating drones, air defense systems, electronic warfare, a meshed sensor network, and more.

Over this period at least 10 separate contracts are expected, covering exports of Ukrainian systems, co-production initiatives, and the creation of subsidiaries or local manufacturing facilities both in Ukraine and in the partner countries. Crucially, the massive initial financial burdens are being absorbed by these Gulf states.

The war in Iran has further emphasized the value of Ukraine’s battlefield experience and advanced technology; Ukraine has already received requests from more than 11 countries seeking to procure Ukrainian weapons.

A defining factor in Ukraine’s choice of joint-venture partners is their capacity to shoulder the initial financial risks of production. If Taiwan intends tosecure co-production rights for Ukrainian interceptors and long-range drones, it should structure agreements that provide robust upfront capital, while leveraging Taiwan’s global dominance in microelectronics and component manufacturing to solve Ukraine’s own supply chain bottlenecks.

Japan–Ukraine Partnership Marks Ukraine’s First Indo-Pacific Drone Joint Venture

(Authors: Ryan Teng & Samara Duerr)

In March and April this year, Japanese drone company Terra Drone announced two strategic investments in Ukrainian drone firms Amazing Drones and WinnyLab. 

With Amazing Drones, Terra Drone will jointly launch the Terra A1 interceptor for international sale—a VTOL drone with a 300 km/h top speed, 32 km range, and 500–650 g warhead. Terra Drone plans to invest in production facilities to raise monthly output above 1,000 units, more than five times Amazing Drones’ current capacity and on par with the UK–Ukraine Octopus interceptor project’s 1,000 units per month. With WinnyLab, Terra Drone will launch the Terra A2 — an electric fixed-wing interceptor with a top speed of 312 km/h (faster than Shahed-type drones at roughly 200 km/h) and a range of up to 75 km.

These are not Ukraine’s first joint ventures: at least 20 countries are engaged in “Build with Ukraine” or “Build in Ukraine” initiatives. But the Japanese deals stand out—most of Ukraine’s co-production partnerships are European, making these the first large-scale UAV joint ventures in the Indo-Pacific, spanning a far greater geographical and logistical distance.

By contrast, Japan’s and Ukraine’s cooperation with Taiwan remains limited. Taiwan Instrument Company is the only Taiwanese firm with a Terra Drone agreement, distributing the “Terra Xross 1” in Taiwan. On the Ukraine side, the Taiwan Excellence Drone International Business Opportunities Alliance (TEDIBOA) and Ukraine’s Iron Cluster have signed an MoU for business-to-business connections. Taiwan’s partnerships with both have room to grow, particularly in UAV technical collaboration, joint production, and supply chain integration.

Japan Eases Defense Export Rules, but Drone Makers May Need Time to Benefit

(Author: Ryan Teng)

On April 21, Japan’s Takaichi government revised the “Three Principles on Transfer of Defense Equipment and Technology,” effectively allowing the transfer of “lethal weapons” to certain countries. Each case must still be approved by Japan’s National Security Council, and eligible recipients are limited to the 17 countries with defense cooperation agreements with Japan—including the Philippines, the U.S., and the UK. Japan’s Defense Minister Shinjiro Koizumi said the revision would strengthen the deterrence and response capabilities of allies and like-minded countries while bolstering Japan’s defense industrial base.

According to Nikkei, the relaxation could expand market opportunities for Japan’s defense industry. But major Japanese drone makers have yet to develop lethal drones. So far, only Terra Drone has launched an interceptor drone—the “Terra A1″—and although the system did not fall under the five previously permitted export categories,the company quickly emphasized the technology is for defensive use only. The revision’s short-term impact on Japan’s drone industry therefore remains limited. In the longer term, the policy could open a new export market for Japanese drone companies.

Regarding Taiwan–Japan drone cooperation, Nikkei Asia and Japan’s Sankei Shimbun also interviewed DSET Policy Analyst Ryan Teng over past weeks to discuss recent developments in Taiwan–Japan cooperation.

U.S. Drone Dominance Program Advances to Phase II 

(Author: Cathy Fang)

The U.S. Department of War has released the Request for Solutions for Phase II of its US$1.1 billion Drone Dominance Program. Phase II builds on Gauntlet I, which selected 11 winners, ordered 30,000 drones, and awarded US$150 million, and targets 60,000 additional drones with a US$300 million budget across up to 10 vendors.

Phase II’s four stages—Application, Qualifier Event, Production & Delivery Test, and Gauntlet II—reflect a deliberate shift from identifying capable systems to proving industrial readiness at scale. Unlike Phase I, vendors may now submit to one or both mission profiles: Mission A (long-range strike, up to 20 km, in GPS/communications-degraded environments) at $4,500/unit, and Mission B (close-quarters tactical strike—building interiors, trenches, bunkers, and tunnels) at $3,500/unit. Each mission awards 4,000–8,000 drones per winning vendor.

Evaluation spans four categories: Gauntlet performance, military operator feedback, production capabilities, and supply chain compliance. Most consequential is the newly introduced “Drone Dominance Supply Chain Migration Schedule,” which becomes progressively more restrictive with each phase. For Phase II, batteries and motors must be sourced exclusively from non-covered, allied countries—requirements that exceed both Phase I standards and the existing National Defense Authorization Act (NDAA) baselines. 

Together, the program’s ambitious scale and supply chain stringency signal a program not merely buying drones but building a trusted, allied-nation industrial base for high-volume production under contested supply conditions.

Note:

  1. Non-covered-country (references DFARS definition). DFARS “covered country” (for magnets/tantalum/tungsten restrictions under DFARS 252.225-7052) is defined as China, North Korea, Russia and Iran.
  2. The FASC-covered foreign entity list published on SAM.gov is currently derived from the Consolidated Screening List and is broader than a drone-specific entity list.  

Russia Threatens Europe’s Drone Firms, but Capitals Refuse to Back Down

(Authors: Ting-Wei Lin & Wen-Chi Kuo)

In mid-April, Russia’s Defense Ministry published a list of European companies accused of supplying drones and components to Ukraine, spanning ten countries including the United Kingdom, Germany, Czechia, the Netherlands, and Poland. Deputy Chairman of the Russian Security Council and former president Dmitry Medvedev described the list as “potential targets for the Russian Armed Forces.”

European responses came swiftly. Czechia and Germany each summoned the Russian ambassador, with Berlin calling the threats an attempt to “test European unity” and pledging not to be intimidated. The EU declined to comment on the list itself but reaffirmed its steadfast support for Ukraine, while Dutch Prime Minister Rob Jetten dismissed it as classic intimidation, as the Netherlands and Ukraine signed a €248 million (~US$282 million) joint drone production agreement.

Moscow’s move is not merely rhetorical bluster, nor is it an isolated incident. Since 2024, European governments and NATO have attributed or linked Russian actors to drone incursions, cyberattacks, espionage, and intimidation campaigns against defense industry leaders. The pattern is clear: Russia is trying to raise the political and physical costs of Europe’s support for Ukraine without triggering open conflict with NATO. Taiwan faces a parallel pattern of grey-zone hybrid pressure from China, giving Taiwan and Europe converging incentives to deepen cooperation across drone and counter-drone supply chains.