Congressional Targets: First It Was the TikTok Ban, Now Drones
Welcome to the New Cold War ...
First it was TikTok.
Now it’s drones.
After the “sell or be banished” decree from the United States to TikTok’s China-based parent ByteDance Ltd. was signed just last week, U.S. lawmakers have targeted a new perceived threat – drones.
Or, more specifically, the Chinese drone maker SZ DJI Technology Co. Ltd., the Shenzhen-based tech firm usually referred to simply as DJI, according to a recent report from The New York Times:
Make no mistake: Anything of this ilk would be a big deal.
A former DJI employee estimated that the firm controlled 58% of the U.S. commercial drone market in 2022, while a 2020 study pulling Federal Aviation Administration records believes DJI is the “drone company of choice” for law enforcement agencies, with 90% of the market.
“DJI presents an unacceptable national security risk, and it is past time that drones made by Communist China are removed from America,” Elise Stefanik (R-NY), the primary sponsor of the Countering CCP Drone Act, told The New York Times.
If passed, this legislation would be a de facto “grounding” of DJI drones, because it would add them to the U.S. Federal Communications Commission (FCC) list of equipment covered by the Secure and Trusted Communications Networks Act of 2019 – which bars any technology seen as a national security risk from running on U.S. communications networks.
This bill could be passed by the House of Representatives as early as next month. And it could have competitive implications – and not just the ones Congress is aiming for.
Vic Moss, CEO of the Drone Service Providers Alliance, told the trade journal Commercial UAV News that “67% of the [UAV operators] in this country would go out of business if we couldn't use Chinese drones.”
And it’s not that these operators are averse to American-made drones. But comparable models just aren’t available, Moss told the publication.
“I don't know a [U.S. drone operator] out there who uses Chinese drones that wouldn't buy an American drone that was comparable in price and reliability,” Moss said. “Five years from now, [comparable quality U.S.-produced drones] still are not going to exist. They don't exist now. They're not designed yet. So, even if they were designed right now, we don't have the infrastructure to build them. We don't have the supply chain.”
This is all playing right into the “New Cold War” narrative I provided an overview for in my two-part series (Part 1 is available here and Part 2 is available here).
In Part 2 of that series, I made a “checklist” of New Cold War opportunities and threats for your money.
And two of the points I made are showing up here.
The first is deglobalization: In a global economy, we can source designs, technologies and finished products (like drones) from other countries. But as countries break back into regional trading blocs – and view other “blocs” like China as threats – we’ll have to backfill our economy, supply chain and factory capabilities. That’s precisely what Moss is talking about with DJI.
The second point I made – very specifically – was drones.
And I did that with good reason: Researcher Spherical Insights said the global drones market could grow at a hefty 27% compound annual growth rate (CAGR) from 2022 to 2030, which equates to a $260 billion market by the end of that stretch.
As we’re seeing right now – in real time – drones are playing crucial battlefield roles in the Middle East and in the Russia/Ukraine War. The Ukraine claims that it has sunk a full third of Russia’s Black Sea Fleet using seagoing drones. And it’s backed up some of those claims with some amazing videos.
Both sides are flying “one-way” drones in strikes against opposing targets.
In the Middle East, Iran launched a strike against Israeli targets in mid-April that included a huge contingent of armed drones. Some reports say that U.S. Air Force F-15E Strike Eagle fighter jets from the USAF 494th Fighter Squadron shot down as many as 70 drones before they could reach intended targets.
I should tell you folks that the drone opportunity is something I’ve been covering since the middle 2010s: One news-breaking item I sent out via my personal X feed generated nearly 700,000 impressions within a short time after my post.
And I’ve written extensively about the military, commercial, governmental and university research, hobby and investment storylines drones continue to create.
I’ll build on that here with some different drone opportunities – which will be good starting points for your research.
Big Player: Boeing Co. BA 0.00%↑ has unmanned drones in the sea and air. Its Wave Glider (used for intelligence, surveillance, reconnaissance) sits on the ocean’s surface while its Echo Voyager submarine drone fed into the U.S. Navy’s Orca undersea program. In the air, Boeing is developing the MQ-25 Stingray, a flying tanker aircraft that can give U.S. carrier groups an edge in case of military operations in the South China Sea. It’s also shown versions with “hardpoints” under the wings that would let the Stingray carry AGM-158C Long-Range Anti-Ship Missiles (LRASMs). The flying tanker, which I wrote about at my previous newsletter, Private Briefing, way back in 2018, is targeted for operational status by 2026. Boeing is also developing the MQ-28 Ghost Bat, which will serve as an uncrewed “loyal wingman” to manned fighter jets.
Multi-Market: AeroVironment Inc. AVAV 0.00%↑ provides unmanned vehicles to the U.S. government and more than 55 countries, but it also has additional cash-flow sources outside of weaponry. It’s developing a solar-powered drone to provide broadband access and partnered with NASA to launch the first drone on Mars in 2021.
Broad Array: I always believe the biggest gains are made through owning individual stocks, but ETFs can serve as a “starter” investment or even as a diversifying foundational play for the individual companies you want to own. You can profit from an ETF through a certain storyline – like the New Cold War – while using the collection of companies held by the fund as a way of limiting your downside a bit. One such ETF to look into is the iShares U.S. Aerospace & Defense ETF ITA 0.00%↑ , with Boeing and AeroVironment both included in its 34 total holdings (as of April 25).
This is a story I want to keep following for you.
And I will.
I’ll see you here next time;
