DEEP DIVE: Taiwan miltech aims to undermine Chinese components

CHIAYI, Taiwan – Taiwan has learnt the central tech lesson from the war in Ukraine: the next global conflicts will heavily feature cheap, small drones – and in large numbers. 

So as an electronics and hardware component giant – especially relative to its size and diplomatic status – it is trying not only to develop a domestic industry, but also become an arsenal for the free world, building drones and devices for allied militaries worldwide.

These hopes are illustrated by a brand new drone testing and research facility near Chiayi, a town in southwestern Taiwan. Here, dozens of companies have set up shop in hopes of getting government subsidies for innovation, and producing the next big thing in defense technology.

Above the facility’s testing grounds, major Taiwanese companies have spent thousands of hours flying their new drone designs with an eye to perfecting them. The Taiwanese military plans to invest more than USD $200 million to develop just the campus itself.

The government has announced a steady drumbeat of new expectations for this growing industry: it launched a Drone National Team in 2022, with a goal to produce 15,000 drones monthly within a few years. It’s become a national priority – even warranting a mention in the incoming president’s inaugural speech this past May.

“Our sights are set on making Taiwan the Asian hub of UAV supply chains for global democracies,” President Lai Ching-te said. 

The Taiwanese government estimates that the domestic drone industry will produce USD $150 million in drones this year, with goals to increase that eightfold by 2030. Thousands of drones have been ordered by the Ministry of National Defense to boost the domestic supply chain, and millions of dollars in funding have been dedicated to R&D. 

And not all of the drones will be aerial. Given the island nation’s deep connections to the ocean, they are pushing to develop technologies in this realm as well. 

Another marine science center, located on the southern tip of the Taiwanese main island, is currently being used for the testing of underwater drones. 

Taiwan’s nascent defense industry

Thunder Tiger is a Taiwanese company that illustrates the country’s pivot precisely. For decades it had been a manufacturer of toys, such as remote-control helicopters. 

Now it is bringing that expertise to drones that can deal death.

Following Russia's 2022 invasion of Ukraine, it was one of eight companies selected for evaluation as part of the country's national drone team. 

One of the drones developed by Thunder Tiger, the 'Overkill-10' is marketed with the slogan, “Pioneered in Ukraine, the weapons of the future.”

Some of Thunder Tiger's products have been tested in Ukraine and Israel – such as particular radios, cameras and sensors that they produce. 

Cost-effectiveness is key, the company learned in its trials, while semi-autonomous drones will soon be the standard – balancing those two elements will be the challenge. And much like in Ukraine, private companies are leading the charge on development of these new technologies, said Gene Su, the general manager at Thunder Tiger.

However, the lessons of Ukraine have not fully been adopted by the Taiwanese government, which still spends the bulk of its defense budget on conventional arms rather than technology that will give it an edge in asymmetric warfare.  

"So in that sense, they are not ready,” Su said.

Absorbing Ukraine’s electronic warfare lessons

Tron Future is among Taiwan’s most promising defense startups. It even has a staffer in Ukraine to evaluate the lightning-fast innovation occurring there in real time. 

One element of the war in Ukraine that shows the ubiquity of drones is proliferation of counter-drone electronic systems along the lengthy frontlines. As experience in Ukraine has shown, counter-drone systems are now a must-have for any military unit.

"The Taiwanese military for the last one or two years, they are already switching their mindset... before the Ukraine war, they were thinking that we should invest a huge amount of money in the latest aircraft, warships, those kinds of technologies. But the last one or two years... there was a paradigm shift in government,” said Yu-Jiu Wang, the chairman and CEO of the company, and the Taiwanese has started to think about the importance of drone warfare.

But Tron Future has focused on projecting what a Taiwan-China war may mean technologically. As such, it specializes in producing ‘soft kill’ electronic warfare systems and ‘hard kill’ counter-drone interceptors that target AI-enabled, autonomous drones.

"One very important thing that changed our development is that we expect that if China really wants to attack us... they're going to [launch] massive, large numbers of drones. The quantity will be much more than Russia sending drones to Ukraine," said Wang.

Thinking ahead, the company is already using what they're learning in Ukraine to develop interceptors that will approach drone swarms to disrupt their communications. 

For the time being, though, one of the challenges of developing defense technology is that private companies cannot use explosives in their trials – meaning they have to partner with the government over strict regulations on munitions. 

"The government put a very strong regulation, or control, over [the private defense sector] before," Wang said, but there's been a shift ever since President Tsai came to office in 2016, and the Taiwanese government has tried to encourage growth in this field. 

Taiwan as a democratic alternative to the ‘red supply chain’

America, Ukraine and its allies have all begun seeing defense supply chains which route through China as a national security issue – particularly if the components are for military hardware. 

The Chinese government has hastened this trend by placing export controls on some of their drone parts. With pressure to find new ways to find components, Taiwan is trying to become a leader in the field.

"The government now hopes that we can make more drones in Taiwan, because of the Ukraine war,” said 7A Drones COO Jimmy Lee. “Many aircraft drones used in the war are produced in China, and NATO – as well as the Taiwanese government – would like to decrease the dependence on Chinese manufacturers." 

For much of the late 20th century and the early 21st, the free world took the view that welcoming China and Russia into the flows of international trade would have a democratizing effect. 

"When Russia invaded Ukraine, we found that we were too naive," acknowledged Deputy Minister of Foreign Affairs François Chihchung Wu. The appropriate strategic response, he said, is to "try to separate the 'Red supply chain’ and the ‘democratic supply chain.’” 

Taiwan is eager to play a part in the new world, with a differently composed set of supply chains – not only so Taiwanese chips don’t end up in Russian weapons, but also to develop its own means for survival against a potential Chinese attack. 

Ambassador Wu sees Taiwan as a key player, not only because of its famous semiconductors, but as a peer among democracies – if only the world’s fellow democracies will work with them. One of the obstacles to Taiwan’s elevation as a drone technology hub is that many countries do not recognize it as an equal partner. 

"It needs a lot of international cooperation... [but] it's not so efficient because it needs a lot of information exchange. So the world needs to accept that we exist,” the ambassador said. "One of our weaknesses, I need to recognize is our defense industry. Because for more than 30, 40 years, the world refused to work with Taiwan to defend our own defense industry," 

But much like Ukraine, Taiwan has significant human capital that can turbocharge development in this sector. 

"We do have a lot of scientific knowledge – a way that Taiwan has been very successful is that we work with official [bodies] unofficially,” he said.

Thunder Tiger, for example, is focused on improving their own supply chain as it innovates products it wants to sell to allied countries. If they can't make it themselves in Taiwan, they’re looking to find components in Israel, Australia, the U.K. and the United States. 

And others have made it a strategic priority, even as the Chinese produce good quality products like drone motors and batteries. 

“We don't use Chinese-supplied components from day one," said Wang, the CEO of Tron Future, which is now six years old. 

Two of their big clients, the Taiwanese space agency and the Taiwanese military don’t typically allow Chinese components in their end-products, he added. 

The costs of a safer supply chain

"We are very confident that we can make a totally locally-made drone without any components or any parts from China, because in Taiwan we have enough industrial capability," said Tzu-Li Wu, a researcher at INDSR, a leading Taiwanese think tank. 

The mechanical knowhow is there. But for 7A Drones, which designs and produces drone motors in Taiwan, the key issue is just how much 'China-proofing' the world wants to do – and whether it's economical for all parties involved.

There is an urgency in the company – and across the Taiwanese defense industry – to respond to the West’s goal of a less China-dependent supply chain. 

By cost, about 20 to 30 percent of 7A’s drone components come from China at the present moment. 

It’s a dollars-and-cents issue – the drone industry in China is massive, and for many components, Taiwanese companies don’t share this advantage. To become cost-competitive, they will need a magnitude more purchases.

"We could make some [of the materials we import from China] here. It's just a matter of scale," Lee said. “It all depends on how many orders [we get].”

At the end of the day, customers from democratic nations may just have to make peace with the fact that they’ll need to pay more. 

But for that premium, they’ll be rid of China’s often-arbitrary and opaque customs regime, and be ensured that their money isn’t going to fund their adversaries. 

“A lot of buyers tell us that once they buy those [components] from China [that funding] goes back to the central government. And the central government uses this money to support their allies, Russia and North Korea,” said Su, the general manager at Thunder Tiger. “So that makes this purchase counterproductive.”

Taiwan's growing drone industry, centered near Chiayi city, hopes to provide a more productive option.

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