Beyond Ukraine and the US: Where Taiwan's Drone Demand Comes From Next

Taiwan exported 191,373 drones in the first half of 2026. That is more than the whole of 2025 (122,726), which was itself a step change from 2024 (3,472). And according to a report published on September 2 by the Research Institute for Democracy, Society and Emerging Technology (DSET), almost none of that growth rests on stable, documented foreign government procurement, which is what many manufacturers need to see before they invest in capacity.

The report's author, DSET policy analyst Cathy Fang, identified Poland, the Czech Republic, and the United States as the main export markets, with large orders from the Middle East arriving this year. But much of the European volume is tied to Ukraine's wartime market, and documented foreign government procurement outside the US remains limited. Export growth has not yet become long-term demand.

We have argued in this publication that Europe is where Taiwan builds its relationships and the US is where it will eventually make its margin. That is still true. But neither market is a stable base on the timescales suppliers actually plan around, and the DSET report is a reason to look elsewhere. This piece does that, using a multi-jurisdiction opportunity screen we commissioned in late August, and adds one data point of our own: we are seeing a significant increase in sourcing inquiries arriving through this platform coming from India.

Why neither Ukraine nor the US is a stable base

The Ukraine corridor is large in volume, thin in margin, and dependent on the war continuing. DSET's own earlier work found that only seven of 61 Ukrainian drone-related firms were sourcing from Taiwanese suppliers, the buying is price-driven, and Ukrainian makers are now localizing the very motors and flight controllers Taiwan sells them. Even now it is component trade routed through intermediaries in Poland and the Czech Republic rather than government contracts, as our monthly customs tracking shows month after month.

The EU proper is structurally worse. The EDIP regulation, Regulation (EU) 2025/2643, and the €150 billion (about US$175 billion) SAFE instrument both cap components originating outside the EU and associated countries at 35% of component cost on funded procurement, and EDIP adds a design-authority requirement on top. Being China-free earns Taiwan nothing under those rules; it sits in the same 35% bucket as the US, UK, and Turkey, and the path out of that bucket runs through a Security and Defence Partnership Taiwan cannot obtain. We have written about what EU defense money can actually buy from Taiwan; in short, Polish and Czech volume is mostly Ukrainian demand routed through EU member states.

The United States is a future margin market, not a current one, and the reason is regulatory rather than political. Since December 2025 the FCC Covered List has barred equipment authorization for essentially all foreign-produced drones and critical components, on a country-of-production test that Taiwan fails regardless of Chinese content. The US commercial channel is therefore closed to Taiwanese flight-critical electronics unless the product is Blue UAS-listed, which carries an exemption until January 1, 2028. For a component maker, the relevant list is the Blue UAS Framework, which vets individual components and software, rather than the Cleared List of complete platforms; the FCC's Covered List text names only the Cleared List, but its FAQ confirms the exemption covers both. The defense channel is open under NDAA Section 848 to suppliers who can document non-Chinese content. Blue UAS listing is available now, supplier by supplier, through DIU's existing process, and Thunder Tiger has held a Cleared List position since September 2025. No legislation is required and none of the pending bills changes the timeline. What the US market requires is certification work and origin documentation that most Taiwanese suppliers have not yet done.

So the question is where else legally-driven demand for non-Chinese components exists now, at a scale worth a supplier's sales resource.

Where demand is created by law, and why customs data misses it

The screen started from a simple observation: the strongest opportunities are markets that restrict finished-drone imports, or bar Chinese content, while leaving components free, and that lack domestic component capability in the categories Taiwan actually makes. We have mapped those categories layer by layer: motors, battery cells and packs, gimbals and cameras, flight controllers, with real depth in the first two and SME-scale capacity in the last.

That produces three types of regime, and the type determines whether Taiwan has an advantage.

• Exclusionary regimes ban or screen out Chinese content. Taiwan benefits by default. The US is the model; Japan and South Korea are the near-term versions.
• Indigenization mandates require domestic assembly or local content. They create component demand that has to be met from somewhere. India is the archetype; Indonesia, the UAE, and Saudi Arabia are variants.
• Preferential regimes reward a bloc's own content. The EU is the example, and Taiwan is structurally disadvantaged.

A note on data. HS 8806, the customs heading for complete unmanned aircraft, is new with the 2022 HS revision and is a poor proxy for component opportunity. Motors sit in HS 8501, radios in 8517 and 8526, generic parts in 8807.30. A country can show essentially zero 8806 trade precisely because its law pushed platform imports to zero while leaving components open. That is exactly India's situation, and anyone screening markets by drone import data alone would miss it. Our own Export Tracker is built on 8806 flows and carries the same limitation; treat it as a platform-trade tool, not a component-demand tool.

India

India fits the pattern most exactly, which is why we have published a new guide detailing the drone import rules in India.

DGFT Notification 54/2015-20 of February 9, 2022 prohibits import of complete drones in CBU (completely built up), CKD (completely knocked down), and SKD (semi knocked down) form, with exceptions for R&D, defense, and security under DGFT authorization, while classifying drone components as "Free." Enforcement is real: in November 2025 CISF officers seized 22 DJI Mini 5 Pro units at Hyderabad airport, carried in from Singapore. There is no brand-specific ban on DJI, but the platform prohibition plus a security rationale functions as one.

The result is a domestic assembly industry that imports what it cannot yet make. The drone PLI scheme, notified in September 2021 with a ₹120 crore (about US$13 million) outlay over three years, had a second provisional list of 23 beneficiaries by July 2022, 12 drone makers and 11 component makers, whose combined turnover rose from ₹88 crore (about US$9 million) to ₹319 crore (about US$34 million, unaudited) in a year. By December 2024, only about half the outlay had actually been disbursed. The assembly base grew; the import dependence did not shrink. Companies claiming 75 to 80 percent in-house content still import their high-value components, mostly from China. Indian founders say propulsion alone is roughly 40 percent of a drone's cost, and motors, flight-controller silicon, and batteries still come primarily from China and Taiwan. Those gaps map directly onto Taiwan's motor, battery pack, and flight controller capacity.

Taiwanese companies are already operating there. AVIX Technology's joint venture with Optiemus Unmanned Systems, announced at Milipol India in April 2025, co-develops cameras, gimbals, and other components for the Indian defense market. Ahamani Advanced, the Kaohsiung motor and battery maker, set up a manufacturing unit in Delhi in 2023 and reports annual orders for 500 transport drones from Indian customers. In June, a Tamil Nadu state official at a Taiwan–India forum described a Chennai cluster of Taiwanese avionics and electronics firms, Hosur as an airframe hub, and Coimbatore for precision components, and openly invited Taiwanese manufacturers to set up production. The B2B and joint-venture route is politically tolerated under Make in India in a way a government-to-government sale never could be. CHiYODA told a Taipei forum in July that demand for non-China alternatives from Europe and India has surged since the second half of 2025.

The Indian Ministry of Defence has also circulated an Army Design Bureau drone security framework, consulted through April 8 and slated for the Defence Acquisition Procedure 2026. It requires vendors to disclose detailed sourcing, provide full hardware and software bills of materials, and submit to tear-down analysis, destructive testing, and cybersecurity audits of critical electronics. It acknowledges that foolproof traceability is not feasible, cites relabeling of Chinese parts as Vietnamese or Filipino, and prescribes testing by government-approved and NABL-accredited labs, with debarment for falsified origin. If adopted as drafted, the Indian defense buyer will not take a Taiwanese address as proof of a Taiwanese part. They will cut it open.

The window will not stay open indefinitely. India's Principal Scientific Adviser has said the coming Mission Drone Shakti exists so that Indian manufacturers "should not only assemble the imported parts", with component incentives and an ANRF research program on flight controllers and cameras. A separate ₹2,000 crore (about US$210 million) scheme targets localizing at least 40 percent of critical drone parts by FY2027-28, with extra incentives for domestically sourced components. Delhi is spending to close the exact gap Taiwan can fill, but the PLI record is a reminder that announced budgets are ceilings, not disbursements. The window closes when the money is spent, not when it is announced. The realistic window is two to five years, after which the opportunity shifts from component export toward licensing or joint manufacturing.

We see this in our own inquiry data. The sourcing requests we have received over the past month and a half show a clear uptick from India: integrators looking for motors, flight controllers, and battery packs with documented non-Chinese origin. It is a small sample from a young platform, and therefore too small to call a trend. But it is the first geography outside Europe and the US where we are seeing notable inbound demand arriving on its own, and it arrived where our policy analysis predicted it.

Japan

Japan has no import prohibition and components enter free. What it has instead is an exclusionary procurement standard: the September 2020 government policy limits agency procurement to drones with guaranteed security and mandates replacing existing Chinese drones. That is a standard, not a quota, and it favors Taiwan directly.

Japanese integrators are already buying from Taiwan. ACSL, the Tokyo-listed market leader, secured a ¥1 billion (about US$6.5 million) order from the Acquisition, Technology and Logistics Agency this year, its third consecutive large MoD order, and Co-CEO Kensuke Hayakawa has said the SOTEN platform uses US and Taiwanese components to run a supply chain with no Chinese parts, with 1,000 units shipped. On price, he said that Taiwanese parts struggle against Chinese pricing, but security imperatives dictate choosing trusted partners. ACSL is open to expanding Taiwanese procurement and has committed to TADTE 2027.

Terra Drone, which just won an ATLA interceptor-drone contract, stated in July that no domestic Japanese company can simultaneously meet the requirements for high output, mass production, price competitiveness, and immediate defense supply for drone battery packs, so Japanese firms rely on China and Taiwan. Terra Drone said this while announcing its own Japan-based pack line using non-Chinese cells, so domestic substitution has already begun. Volume is smaller than India's; margins and trust are higher; and Japan is the market where a Taiwanese supplier can convert ad-hoc orders into framework agreements with the least political friction, with perhaps three to six years before domestic supply catches up.

South Korea

South Korea's 500,000 Drone Warriors program, announced by Defense Minister Ahn Gyu-back in September 2025, comes with a stated commitment to rely on 100 percent domestically produced components rather than Chinese parts. The National Assembly raised the 2026 budget to ₩33 billion (about US$25 million), up from the ministry's ₩20.5 billion (about US$15 million) request, to procure about 11,000 training drones this year. Ahn initially spoke of 110,000 drones by 2029; the ministry later revised that to about 60,000. Even at 60,000, it is the largest new government drone program in Asia with an explicit no-Chinese-parts requirement.

Korean industry cannot supply that volume from domestic sources today. Invest Korea reports nearly nine in ten small commercial drones in Korean service come from overseas, predominantly China, and the commercial training layer remains thin and import-dependent. Samsung SDI, LG Energy Solution, and SK On are enormous cell makers, but they make EV cells, not drone-grade cells. Lightweight motors and flight controllers are also in short supply.

Three obstacles stand in the way. There is no government-to-government channel, so Taiwan sells B2B and must prove its own non-red bill of materials. The mandate ostensibly wants Korean brands, so Taiwanese suppliers are more likely to sell components to LIG Nex1, Hanwha, KAI, and Korean startups than to sell under their own brand. And competitors are already selling: Canada's NEO Battery received its first direct purchase order from a ROK Army division in August, on top of a supply letter for 7,584 non-Chinese battery packs to a Korean drone maker. Taiwanese suppliers are being approached too: Ahamani's CEO told Bloomberg last year that a large South Korean company had asked about non-Chinese motors. The mandate is a Defense Ministry directive rather than statute, which means it could be revised without legislation. For the next few years, though, the constraint on Korea's program is production volume, not policy, and that is what creates the opening for imports.

The Gulf

Taiwan recorded its highest-ever monthly drone exports to Saudi Arabia in June, US$47.2 million, roughly 80 percent of that month's total. That is the "large orders from the Middle East" DSET refers to. In the UAE, Tawazun Council concluded 11 Ministry of Defence contracts worth AED 3.6 billion (about US$980 million) at UMEX and SIMTEX 2026, most of it channeled to EDGE Group. Both countries run localization programs while lacking a domestic component base: Saudi GAMI reports military-spending localization at 24.89 percent at end-2024 against a target above 50 percent by 2030. Price tolerance is high.

Neither market has a rule against Chinese content, and both have bought Chinese platforms: Wing Loong in the UAE, CH-4B and Wing Loong in Saudi Arabia. Taiwan competes here on capability and price, not on trust, and there is no G2G channel and considerable political caution. The Gulf is worth pursuing through EDGE and SAMI supplier qualification and offset programs, but not as a primary market.

Markets that do not fit

Turkey has Baykar, TAI, and STM, but also Aselsan EO/IR payloads, domestic engines, and Baykar's own avionics. There is no gap to fill. Turkey is a component competitor, not a customer.

EU-funded procurement, including Poland's SAFE-financed orders, caps Taiwan at 35% and requires EU design authority. Documentation changes nothing here, because the EU content thresholds do not ask a question documentation can answer. Commercial and non-funded work stays open but is not where the money is. Poland is best understood as a logistics conduit for Ukraine and a component customer that Taiwan already serves. Farada has bought Ahamani motors and batteries since 2023 to replace Chinese parts ahead of its US expansion; Ahamani has said it plans a Polish plant and WB Group has proposed a joint venture, but neither has been confirmed as operating.

Indonesia is a real mandate, with TKDN local-content certification required for government procurement and materials carrying most of the score, but it is early stage, price-sensitive, and has no anti-China rule. A joint venture structured to meet TKDN thresholds is a reasonable long-term position, not a near-term priority.

Brazil has integrators but no policy pushing them away from Chinese parts. Price-driven, distant, low priority.

Two constraints that apply everywhere

The first is diplomatic status. Every market above shares the same constraint: no government-to-government defense sale is available to Taiwan. The viable channel everywhere is private-sector B2B, joint ventures, local subsidiaries, or third-country routing. AVIX–Optiemus, Ahamani in Delhi, and Ukraine-via-Poland are the models that work. A Taiwanese supplier waiting for a government tender in Delhi, Seoul, or Riyadh will wait indefinitely.

The second is verification. India's proposed framework, Korea's 100-percent-domestic mandate, and Japan's security-guaranteed standard all assume the buyer verifies origin rather than trusts it. And Taiwan's record on non-Chinese content claims has gaps. The same DSET report notes that battery cells and rare-earth magnets are still sourced predominantly from China despite the government's non-red push, and that the "three chips and two software" (flight control, communication, positioning and imaging chips; AI flight control and ground control software) remain imported, with indigenous alternatives two to three years from validated mass production. We have covered the magnet problem and what a non-red battery bill of materials actually proves in detail.

Three public cases show the problem at three different levels. In March 2024, a Geosat prototype shown to then president-elect Lai was found to carry eight motors from China's T-Motor, which the company attributed to cost and said would not appear in delivered units. In May 2026, army inspectors found partially removed "CHN" markings on flight-control chips in Thunder Tiger training drones; the company said the STMicroelectronics parts were merely packaged in China and compliant with the procurement requirement, which raised the question of where "non-red" actually stops. And in August, prosecutors alleged that Hang Jian Technology delivered drones to the 8th Army Corps with Chinese chips and flight control boards under false certificates of origin, Taiwan's first drone procurement case under the National Security Act. Cost-driven substitution, packaging ambiguity, and alleged fraud are different problems, but a buyer in a zero-China market does not necessarily care which one it is. A supplier that cannot satisfactorily prove origin or fails an origin audit outright will not lose margin; it will lose the reason the buyer chose Taiwan.

Non-Chinese origin is Taiwan's only structural advantage in these markets, and it is an advantage that has to be documented at the bill-of-materials level, per product line, before the buyer asks. Because origin can change between production runs, buyers who audit will expect lot-level traceability rather than a one-time declaration.

The suppliers who can produce this documentation on request, at the depth India's framework and Korea's mandate require, will be the ones who convert the current inquiry flow from India, Japan, and Korea into the framework agreements DSET says the industry still lacks.

Conclusion

The DSET finding is correct: stable foreign government demand has not materialized. Our view is that it is unlikely to arrive in the form of government contracts, given Taiwan's diplomatic position. If it arrives, it will more likely come as component supply agreements with private integrators in exclusionary and indigenization markets, often routed through joint ventures because that is the only channel Taiwan's diplomatic position allows. India and Japan first, Korea next, the Gulf as opportunities arise. The window in each is measured in years, not decades, and it is closing at the pace those governments fund their own component industries.

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Disclaimer: company capabilities and compliance statuses described here reflect public statements and reporting, not independent verification by TaiwanDrones.com unless explicitly stated. Buyers should conduct their own due diligence and consult qualified export-control and trade compliance counsel for their specific situation.