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- [00:01]
Host (possibly Jordan or another ChinaTalk host)
Ukrainian drone manufacturing. How has the country been able to build hundreds of thousands, millions of drones over the past four years of conflicts? What dependencies does the country's industrial base still have on China? And what policy lessons for the rapid growth of its drone industrial base do we have for the rest of the world to discuss? We have on Kat Pachatsky, director of analytics at Snake Island, a military analytical center based in Kyiv, as well as Chris Miller. You guys know who Chris Miller is? Kat. Chris, welcome to ChinaTalk.
- [00:38]
Kat Pachatsky
Thank you for having us.
- [00:39]
Chris Miller
Excited to be here.
- [00:41]
Host (possibly Jordan or another ChinaTalk host)
So let's start off with a very brief overview, Kat, of the accomplishments of the Ukrainian drone industrial base. Like what is, what is getting pumped out on a monthly basis in, in February of 2026.
- [01:00]
Kat Pachatsky
We're right around the time where it's almost exactly four years of full scale war and the drone industrial base has been completely transformed at a pace that we really haven't seen in basically any other country. I mean, necessity is the mother of invention, right? And so if In February of 2024 we had about maybe 3,000 drones, and this includes any type of drone, FPV, like UGV, sea drone, anything of the sort. If in February 2022 we had about 3,000 total drones being produced in Ukraine, with 99% of them being imported, entire systems from China, in February 2026, we basically have 99% being completely assembled, final assembly in Ukraine. And now just the FPV industry alone is cited to be able to up to 5 million FPV drones per year. And that doesn't include our massive industry of heavy bomber drones, ISR loitering munitions, UGVs, which is now a booming industry in Ukraine as well. But the most impressive thing isn't necessarily just those numbers, which we went from about 3,000 systems being made in February 22 to 4 million FPVs alone. But the actual localization of that final assembly and the way that Ukraine has been able to completely transform its drone manufacturing industry. So now we're at a point where 99% of the systems are final assembly in Ukraine with a lot of components being imported, but basically no final systems being imported from China anymore, which is already a massive accomplishment.
- [02:45]
Host (possibly Jordan or another ChinaTalk host)
Gotcha. So let's turn the clock back then to sort of understand the arc of what kind of industry the military as well as federal policymakers ended up doing in order to enable that. So Feb 2022, the war breaks out. If you wanted to fly a drone for Ukraine, how would you procure one?
- [03:13]
Kat Pachatsky
February of 2022, actually, we hadn't really seen the introduction of drones on the battlefield, quote, quite yet. So if you wanted to fly a drone for Ukraine, first of all, you'd have to convince the Ukrainian military that that was even something worth exploring because it took us a little bit. It was not really until summer of 2023 that we saw the massive boom in FPV use and we started seeing kind of the pioneering of that industry. Although from 2014 to 2022, there were kind of sporadic incidents of Ukrainians toying around with Mavics. But 2022, if you wanted to fly a drone in Ukraine, you would probably had to bring in a DJI Mavic and get it to the front line yourself. We had essentially no homegrown drone industry whatsoever. And it was used in very, very small batches, basically all imported by volunteers that were buying them up in bulk from dji.
- [04:16]
Host (possibly Jordan or another ChinaTalk host)
So, you know, that that really is kind of a fascinating moment in retrospect. Like it wasn't necessarily that the technology was extant, but that folks on both sides of the war hadn't quite clocked into the potential of drones. So maybe, Kat, you want to take us back to all the light bulbs going on, that this stuff actually had an enormous amount of utility.
- [04:43]
Kat Pachatsky
Yeah. So between 2014 and 22, when there was a war in eastern Ukraine and Russia and Ukraine were kind of along this frozen frontline in Donbas, we had a few isolated incidents of both sides using mavics to scout around primarily for reconnaissance. The Ukrainian army at the time was significantly undersupplied. And so basically being able to find commercial off the shelf technology and bring it, supply it yourself and use it for different purposes like ISR was already kind of a little bit of a game changer, but it wasn't at scale because the war itself wasn't at scale in 2022, the first, the first year of the full scale invasion. Of course, Ukrainians were all trying to figure out exactly what they could leverage if their Western allies weren't going to be supplying them with the technologies that they were asking for. So we realized pretty quickly that no one was coming to help us, that we weren't really, at the time in 2022, you know, that we weren't going to get the F16s, that we weren't going to get all these tanks. We weren't going NATO support at the speed and the volume that we would have needed to hold off the assault. And so by 2023, when we were thinking about potentially another wave of counteroffensive Ukrainian soldiers, And volunteer networks started buying up more and more drones initially to kind of perform ISR functions. And then pretty quickly, if you're a soldier and you're fighting in an existential battle, you're going to do absolutely everything you can with the tools at your disposal. And people realize that they could strap explosives onto these things and just fly them directly into the enemy, which was huge. What was huge here for Ukraine was the asymmetry of using drones. A because we were strapped for cash. And so the cost asymmetry of being able to put on a payload and ammunition onto a drone that would only cost you a few thousand dollars was huge for a country that's at an economic disadvantage. And fighting against Russia, which has, you know, one of the large military industrial complexes and military budgets in the world. And second, the asymmetry of being able to protect our soldiers and pilot these drones remotely was also huge, because you're never really going to be able to go person for person with the Russian army. They're always going to have more people. And in a war of attrition, which we pretty quickly realized it was going to be, we weren't going to be able to hold the line with as many infantry and as many soldiers as Russia would. And so being able to send remotely controlled tools in order to perform certain functions, instead of putting human life at risk was also another huge benefit for the Ukrainian side that we saw. And so pretty quickly we went into overdrive to produce these drones just by the sheer necessity of we don't have as much money to buy different systems and we just don't want to put our people's lives at risk. And then from 2023 to now, it was just a huge industry boom. And we got to where we are today because we realized that was kind of the only thing. Not the only thing, but one of the major things keeping us in the fight, our ability to leverage unmanned systems as opposed to putting our capital and our people's lives at risk.
- [08:02]
Chris Miller
Could we dig into the industrial dynamics of that? Because I think Ukraine is fascinating in that it started the war with this pretty sizable defense industrial base, motorise and others legacy firms, but with really substantial capabilities. And then we've seen, as I understand the last couple of years, just this extraordinary boom in new firms emerging to begin first sourcing, then producing the drones that Ukraine requires. So tell us about how the defense industry in Ukraine has shifted and transformed over the past couple of years.
- [08:40]
Kat Pachatsky
Yeah. So Ukraine had always had a rich industrial background, in particular during the times of the Soviet Union, it was a massive producer of jet engines. Dnipro was a huge kind of rocket factory in Ukraine. And we had that background in place. The issue was that obviously during the times of the Soviet Union, one of our major contractors was the Russian Federation. And after the collapse, and without getting that centralized funding from the ussr, the Ukrainian government was responsible for upkeep of those manufacturing facilities and for kind of continuing, continuing those production lines. And it struggled a ton with that because our state budget was strapped. And we pretty quickly realized that we were kind of going to be in a tough spot if we were going to be continuing to invest in our defense industry, because Russia was not going to be happy about that. It was clear in the 2000s when Ukraine had gained, after Ukraine had gained its independence, that Russia was going to be putting pressure on Ukraine to do everything it could to cripple its defense industrial capacity. And of course after 2014, it became a major point of contention. And so although we had had the history and Ukraine historically has been full of engineering talent and has a lot of that knowledge, the manufacturing was not upheld to the extent that it should have been. Most of our legacy exquisite systems were completely out of date, in need of repairs, basically unusable. So our fleet, for example, you. One of the huge reasons that we had to start using USVs and sea drones was because our fleet was in complete shambles and complete disrepair. Even though we had some ships, it just wasn't realistic to use them in a wartime scenario at all. And so we were able to use a lot of, a lot of the tech talent in Ukraine wasn't actually working in the defense industrial base at the time. A lot of Ukraine was famous for its IT industry, software, computer science and things like that. And then when the full scale invasion began and a lot of the people, I mean, harnessing civilian talent was one of the big things that were, kept us in this fight. And so a lot of the people that were previously working in the software industry, in consumer goods and technologies and things like that just completely shifted. And it was similar to what happened in the US during World War II, right, where you just tapped into this massive civilian talent and massive civilian production lines and directed them to be contributing to the war effort. And so the tapping in of the civilian industries, which was supported in large part also by our government and its state policies in order to encourage more companies to direct their efforts into defense, was basically what kept us in large part what kept us afloat. And so now you just have millions and millions of dollars going into this. You have dozens and dozens of different companies. I mean, I think I saw a stat recently. We're releasing a report about it this week actually that there's over 40 components manufacturers in Ukraine. And that's just the components alone. I can't speak to how many to their effectiveness or the scale that they're producing at, but I just think that's a massive number for a country of about 30 million people right now in active war. And so the fact that there's dozens and dozens of these UAV companies for every single category speaks volumes to the amount that we've been able to mobilize all of society and kind of have this defense tech renaissance.
- [12:28]
Chris Miller
I think this is really fascinating that the last China talk I was able to join, Jordan and I were discussing or debating in a worst case scenario, would you rather have a Xiaomi or an Apple, in other words a hardware company or essentially kind of a software slash supply chain company? And what you're describing with Ukraine is not a labor force that was sealed in drone manufacturing, but labor force. It had a lot of software know how and was able to quickly repurpose itself to build a bunch of essentially brand new drone companies in a way that like I probably wouldn't have predicted would have been nearly as successful as it actually has been. Can you tell us, like take the typical entrepreneur who started up a new drone company or runs a production line, like who are these people and what makes them good at their jobs?
- [13:22]
Kat Pachatsky
I mean they come from completely different backgrounds, which is super interesting. So you have some people that in their, I guess, quote unquote civilian life, although they're still civilians, but in their past lives, I guess used to be top software engineer at a, I don't know, like a B2B SaaS type of company or you have, you know, one of the biggest defense tech VCs right now that is like supporting the entire industry. It used to be chief marketing officer at like a workflow automation company and some people were not in tech at all and kind of like became CEOs and stepped into it from working at video game companies or something or another. I mean the video game overlap is actually quite that that pipeline is real. I actually used to play a lot of video games and learned drone operating from that. So that, that's definitely real. I think that most of them were working across the industry at places from. I know some people that were working on software and development at Uber, Ukraine or other rideshare companies. There's a few examples of that. But it, I think that it's kind of unimaginable. It was kind of, it became unimaginable for most people in Ukraine after February 24th to work on anything except this. And it's something that you really, you can't replic unless a your country is at war. But not only your country's at war, but it's in an existential one. And so it's something that's extremely difficult for any other country to imagine. And when I talk to my friends abroad and the fact that most people I know now in Ukraine, the pipeline is you're in high school, you're in college, you want to do something for the army, you either want to join the army, you're going to work on loitering munitions or you're going to do something else. It's a type of, of society wide mobilization that's very hard to imagine and is only comparable I think, to maybe Israel.
- [15:27]
Chris Miller
I love the dual use. Chief Marketing Officer, I wouldn't have guessed that, but that's an extraordinary anecdote. I think the other interesting dynamic is that you had this assembly spring up very rapidly by comparison to almost anything else I can imagine. Can you walk us through what is a typical drone assembly factory look like circa 2026? And I think we'll, we'll probably spend some time later digging into the components. But just like when you get the components together, what does one of these factories look like? What is their scale? What's the time to assemble a specific drone? Kind of. What does the economics look like? Would love, would love any detail on that?
- [16:08]
Kat Pachatsky
Yeah, I mean, I think I want to, I want to debunk a myth here that I see a lot of articles online and conversation in general about Ukraine's kind of garage shop drone industry. It is not that it might have been that in 2022, 2023, and we still have a lot of small startups that are garage shopping it up. But for the most part these are massive, massive manufacturing facilities in hundreds and hundreds of square foot warehouses, multiple stories, a lot of them completely underground in order to protect themselves from Russian strikes. And so you have these like massive underground bunkers with production hundreds and hundreds of employees, drones being assembled in the thousands per month. So you know like 10,000 per month for a particular drone factory. And you have these hundreds of employees, assembly lines. I mean it's not quite at the DJI level yet, I will say so if you've seen the videos, you know, the drones don't fly themselves to the next assembly station yet, but we're getting there. And it's basically, I mean, it's comparable to anything that you would have seen like this, the SpaceX, like the Starlink production line or anything like that. It is not a garage shop industry. Our primes, quote, unquote, primes, because we don't have traditional primes, are making tens of thousands per month and making tens of millions of dollars in revenue. And so it's pretty, pretty large productions. And in terms of what it actually looks like, it looks like any other kind of assembly line. So you have the drone frames coming off like the carbon fiber frames, and then you pass them along, you have someone, you attach the motors, you attach the props, you attach everything, and then you send it off. The interesting thing here is that we have a little bit of like a reverse cycle where a lot of our manufacturers send these complete systems to the front line. And then when they get to the frontline units, the frontline units themselves have these little assembly facilities where they actually take apart the drones and then reassemble them to whatever, like custom needs they're dealing with right now on the front line. So the process of getting the parts to getting a finished drone fighting somewhere, flying over, flying over the front line is kind of like you have the components, assemble them in shop, ship them out to the unit, the unit disassembles them and reassembles in their own kind of little production line, and then they go out flying. Which is one of the things that I think a lot of Western countries don't comprehend, because it's very rare that you, I mean, almost impossible that you ship off a Finnish system and then they fly it out the box like you're, you have R D shops and you have these assembly lines all across, close to the front line, that are run by the military that are also doing their own assembly.
- [19:20]
Host (possibly Jordan or another ChinaTalk host)
So another callback to a past Chinatalk episode. We had Christian Brose of Anduril on a few months ago and I opened by asking him why he was building his new factory in Ohio, a state without mountains to hide your factories in. And it was somewhat facetious, but, like, having you let us know that actually all the drones in Ukraine are made underground gives me a little more worry that American drone manufacturing is just happening in a field somewhere. Sorry, Chris,
- [19:56]
Chris Miller
another question. Maybe on factories, if I wanted to start up a factory producing 10,000, let's keep it to FPVs a month. How long does that take me to get that up and running? What does it cost to build a factory like that? Are there Specific types of machines or tools you need that are hard to get access to or is that not really a challenge?
- [20:20]
Kat Pachatsky
Yeah, I mean, I don't know if I can speak to the cost, but in terms of the estimated time that it would take to set it up, I mean, some of our biggest FPV primes I would say took them two to three years to get, get things up and running. I mean, by 2025 we were already hitting the numbers. So it would have been about three years since the beginning of the full scale invasion to scale that they did it without venture capital funding, which is interesting because we didn't really have that in Ukraine at all. It was purely state contracts, slash bootstrapped companies. I mean, one of the big companies actually that recently announced a huge joint vent with a German firm, they were completely bootstrapped and in 2022, 2023, were basically producing no systems and almost went broke out of their garage. And then they managed to pull it together and are now, you know, one of the biggest Ukrainian drone primes that just opened up a factory in Germany. So it took them, it was like a turnaround of, you know, two years time, three years time. The machines that are difficult to get access to, I mean, honestly, I think CNC machines are a challenge. And then I would probably say that like it's less about the machines themselves and more about the fact that logistics are super challenging for Ukrainian companies, particularly because A, we're dealing with export restrictions from China. And so the actual like components that we're trying to get access to are severely bottlenecked. And then B, getting logistics to a wartime country that doesn't accept deliveries and you can't fly into, you have to load trucks in Poland, you have to take them across the border or from any other country. And customs security, clearance, things like that. It's a significant lift and a heavy operation to kind of establish that. That's also why most of our companies are in western Ukraine, because it shortens the logistics cycles. But that's, those are things that people don't really think about when they think about Ukraine scaling its defense industrial base. Like the fact that we are in wartime, isolated from a lot of the traditional shipping routes makes it, I think all the more impressive in a way.
- [22:57]
Host (possibly Jordan or another ChinaTalk host)
Sorry. So you have this line in one of your reports from late last year that Ukraine startups can assemble and ruggedized, but they could not easily reproduce decades of specialized chemical material or electronic expertise. Before we get to the second half of that statement, why don't, why don't we explore the assemble and ruggedization, like what that has unlocked for Ukraine. Why was it important to have that domestic capacity developed in the first place?
- [23:32]
Kat Pachatsky
I think think why it was important was a. Having the systems, the ruggedization is key here because Ukraine is fighting an attritable war. And so a modularity is super big. Which is also why assembly in house is important. Because going back to something I said earlier, which is when the systems get built in the factory, they get sent over to the military R and D labs that essentially disassemble them and reassemble them. The reason they do that is because the actual factories, the manufacturers themselves cannot necessarily predict what are the features that the frontline is going to need by the time that they ship out the product. And so VTX is almost always, always switched out, like completely unpredictable, what kind of frequencies you're going to need to be flying on. And so that's almost never flown off the, off the factory line. It's something that the soldiers will always switch out. Other modularity in terms of what payload you're going to be attaching, what munition you even need for a certain mission, set what conditions you're going to be flying on and things like that. So like having the actual assembly of it so that you can really disassemble and reassemble according to your specific mission requirements is huge. Because one of the downsides of having the massive import of Chinese drones into Ukraine is that you have this input of Chinese, you have this import of Chinese drones and, and you don't necessarily have the same relationship with the manufacturers where they can be reacting and responding to the real user needs. That's also why most Western companies quote, unquote, fail in Ukraine. And that's like the headlines you see. It's because they don't have an engineering presence and they don't have this assembly presence to be able to react fast enough to the needs of the soldiers. So when they tell them like, hey, we're getting jammed, we need to swap out this VTX or hey, we need the specific payload for the specific mission, it's not going to be effective otherwise they can't do anything about it. Like, we can't phone into California and ask them to fix something if they don't have an assembly line there in Ukraine to react. So it gave us a huge, it gives us a lot of mobility and it gives us a lot of leverage because it essentially means that we can adapt the tools to whatever mission that we're trying to conduct. So I, I would say that this, like when people talk about the short innovation cycles in Ukraine, that's mostly what they mean. Like this ability to have continuous R and D, this ability for the soldiers of get hands on and adapt the modular systems to whatever they need. So that's something that we kind of, that we nailed down and that has been super important.
- [26:15]
Host (possibly Jordan or another ChinaTalk host)
So nice drone industry you have there. Shame if some export controls would happen to it. I want to read in full this opener of a Financial Times piece from about a month ago which featured one of your interviewees on his numerous visits to the factories of southern China. Alexander Yakovenko finds that his hosts increasingly plan his arrivals and departures down to minutes and seconds. They sometimes ask him to wait nearby for a while or usher him through side doors, down service corridors or into empty conference rooms. It took the founders of TAF Industries, now one of Ukraine's biggest drone producers, a while to realize why his arrival at the head of an office of a camera developer or battery mate acre required such opaque rituals of schedule jubbling and extreme punctuality. It was because the Russians had just been there or they were on their way, or both our suppliers make an effort to manage the Ukrainian and Russian customers. They try to make it so we don't have to be in the factory at the same time, he told the Financial Times. They invite us for one time, for one time, but they invite the Russians for a different time. As soon as the Russians with the, as soon as the car with the Russians drive away way the car with the Ukrainians goes in, he adds, what a kind of unbelievable situation we're in. I mean, it's a truly surreal thing. Like we've had, you know, there have been other times in history where you've had very, you know, one arms manufacturer selling to both sides. I think it's actually not that uncommon the more that I think about it. But the fact that like you're having this like iterative kind of like technological race as opposed to like, oh yeah, we'll sell some AKs to this side and so make has to that side and kind of like shrug your head. It's just a, it's just a really, I don't know, it's, it's, it's very weird. You know, Kat, maybe start off by just kind of telling the story a bit from the Russian side as well about how both sides of this war do have these significant drone dependencies on what comes out of factories in China.
- [28:31]
Kat Pachatsky
Yeah, I mean it's definitely a very, very bizarre scenario, especially for our Manufacturers that are dealing with this, both sides have a dependency in the sense that, I mean, the whole world really has dependency in the fact that most of the critical components for the drone industry are based in China and for us produce for both sides to produce the unmanned systems that we need at the scale that we're going through them, it's kind of impossible to have that without China.
- [29:04]
Host (possibly Jordan or another ChinaTalk host)
What, what are, what are some history examples? I mean, like, I guess Iran, Iraq War. Did America do that? Not really. Right.
- [29:12]
Chris Miller
I think, I think the, the dynamic of like, it's not just selling finished weapons, it's like this supply chain iteration, I think that is. That does seem pretty, pretty unique.
- [29:23]
Host (possibly Jordan or another ChinaTalk host)
Well, there's like the British selling the dreadnoughts to the, the, like Argentines and the Brazilians and the. All at the same time.
- [29:33]
Chris Miller
Yeah, yeah, but, but like, I, I think that's because defense supply chains today look so different than they did 50 years ago because you've got this. You actually have supply chains rather than just kind of all production within one country. And so we're just seeing the first conflicts based on that. There's a book called Producing Security, which is about. It's about a number of things, but it talks about defense industrial supply chains becoming multinational. So it's not just like you produce your battleships and they produce their battleships, but you can't produce your battleships without components from their country. And we've got like Chinese rare earths in our fighter jets and Chinese components in our drones. And they have US AI chips and their supercomputers that are simulating their weapons explosions. And so you've got this deeper integration than you ever had before when it comes to the defense industries.
- [30:25]
Host (possibly Jordan or another ChinaTalk host)
And back to cat. Let's pick it up at the Russia, China drone connection.
- [30:31]
Kat Pachatsky
Yeah, yeah. So it's interesting because I think Russia and Ukraine have two very different relationships with China when it comes to, to the manufacturing dependency. So China will absolutely sell to both sides. And it's also one of the reasons why actually a few of our manufacturers, when you talk to them and you ask them about whether they're concerned about China and their supply lines, quite a few of them will tell you no, because it's big business for them and the Chinese are primarily businessmen. And so they understand that, that China, although it's definitely trying to tip the scales in some ways or another, there's a belief amongst some of the manufacturers that, like China will never really cut off Ukraine completely. And that's not a real threat because they just can't afford to lose that business. I mean, no one else other than Russia is buying at that scale. So about 40 per. I would say about 40, 30 to 40% of Ukrainian manufacturing manufacturers just really don't see that as a threat, which is interesting. I think one of the differences in the relationship between the Russian manufacturers and the Ukrainian manufacturers is that the Russian manufacturers are integrated in the level that they're like localizing and those supply chains within Russia and moving them into the Special Economic Zone. And China's allowing them to kind of buy up these entire assembly lines and relocate them, which is scary because it means that slowly Russia is developing this domestic industry and it's already doing that with like the fact that it localized production of Iranian shaheds in the Alabuga Special Economic Zone. A lot of the other. I think this is one of the quotes, if not in the Financial Times article, then definitely in the report that we had released, which is that sometimes there will be assembly lines in China that are working on a particular component and the Ukrainian manufacturers don't have access to it for a year at a time. And then they'll come back to them being like, hey, no worries, we just finished. The Russians relocated it partially to Russia. Now we can accept some orders again for what we have left and what we're doing now. And that type of relationship is something that we don't have access to. So Ukraine isn't able to replicate that. It isn't able to bring that over. I mean, partially we don't share a border with China. Right. And second of all, we don't have that special economic relationship. So I think that it's something that's going to compound and I'm very, very worried about the fact that in a few years the Russian industrial base might be significantly less dependent on China for certain things in terms of the manufacturing know how and the amount that they're able to localize and they're going to be able to outpace us. I mean, they really already mostly outpace us in most things. But like, it's genuinely concerning that this is kind of spreading beyond China and that these industrial capacities are now kind of localizing the other axis of evil in a way. And that's concerning to me. And I think that that special relationship stands out and is very different from the relationship that the Ukrainian manufacturers have with China.
- [33:45]
Host (possibly Jordan or another ChinaTalk host)
Yeah, I want to stay on this very interesting series of decisions that Chinese central policymakers have made over the course of, of this war. So, you know, famously you have Xi and Putin very generously postponing the invasion of Ukraine until after the Beijing Olympics as well as right before then they say, you know, we're, you know, we're, you know, we're best buds. We have the best strategic partnership ever. As Kat, you walked us through, for the first year or so of the war, drones were not the central dynamic. Everyone was talking artillery, artillery, artillery. And then there was still kind of like an infantry manpower, a little bit of tanks and fighter jets that people were very focused on. And in that time period, it would sort of make sense that this wasn't necessarily something front and center for Chinese policymakers. And hey, a few drone manufacturers can make an extra eight figures here or there. Great. Why not? But as you as, as drones increasingly become critical to Ukraine's ability to defend itself and Russia's ability to, you know, inflict pain both on the front line and then deeper into Ukraine, you have a slow creep of export controls. But clearly, one, clearly this effort has not been been sort of pushed to the extreme that it would be if, say, you know, China was directly in conflict. And we famously have some quotes from Wang Yi from this past summer saying that, you know, on the what, like, if Russia, if China wanted to end this war the next day by fully supporting Russia, it would, but also that saying that, you know, Beijing didn't want Russia to lose the war in Ukraine because it thought the US Might then shift its focus to China and Asia. Now, the, you know, my conspiracy question here for you, and maybe this is a Chris one as well, is like, you know, do they also not want the Ukrainians to lose? Because it doesn't really seem to me to be like, you know, like, like, like selling drone parts to Ukraine is not a central pillar of the, of the Chinese economy. Right. There has to be some sort of larger strategic calculus which is going on, on to allow this amount of parts to continue to flow to the Ukrainian drone base.
- [36:20]
Kat Pachatsky
I mean, I don't think that China wants Ukraine to lose. And the reason being that I don't think China and Russia are real friends, and I don't think China minds depleting Russia's arsenal. I mean, China doesn't really need Russia for the most part. Russia, I mean, at this point, there's a lot more kind of economic interaction with Russia. But in terms of its defense and the role that Russia plays in the world, I think that China sees it as a defeated. Has been power. I think China understands that, frankly, the US Also doesn't see Russia as its greatest threat. I mean, read the recent National Security Strategy. It's barely, barely in there about Russia being, being a bigger threat than China and the US is all focused on China. And so I don't think that she really cares if Ukraine is able to continue to attrit the Russian defense industry. I think that for them, winning, playing both sides is a win win scenario because they keep their biggest ally dependent on them because the Chinese defense industry is going to be stronger than the Russian defense industry and Russia is going to continue to need to buy things, things by parts from China. And also, frankly, they're exacerbating the divide. If you're thinking about great power politics like China's only getting stronger, Russia's only getting weaker and it's not going to be a tripolar world between Russia, the US and China. Like they're going to want to make it a bipolar world and Russia is going to be dragged into that orbit in so long as Ukraine continues to weaken its global position and sanctions continue to be be held and things like that. And I think that the fact that China and this might be, I think it's a bit of a hot take in Ukraine as well. But I think the fact that China did put in place export controls to both sides, technically, technically export control to Russia as well, and the fact that China was not extremely explicit in its support for Russia in the war and has mostly maintained like an outward political neutrality means that China doesn't really care about what happens to Russia that much. And they particularly care about their standing with the United States and like how they compete there. So, yeah, I don't think that China wants Ukraine to lose. I think that it's in their interest to keep it, to keep it going.
- [38:57]
Chris Miller
Kat, could you talk about the export controls in detail? Because on the one hand you've had these controls put in place over the last couple of years. Ukraine's drone industry has grown by every measure. But your research shows that that doesn't mean that extra controls haven't mattered. In fact, they've been disruptive in a number of ways and there's been rerouting of components. So walk us through what has actually been the impact of those restrictions.
- [39:20]
Kat Pachatsky
I mean, I think the biggest impact of the restrictions is the logistics challenge, the fact that we have difficulty with a lot of suppliers buying directly and shipping directly from China and especially buying it up scale. So the fact that we've been forced to reroute, like we can't have mass DGI Mavic procurement from the government, we have to have it from volunteer networks, which is actually a significant impact like we have a Mavic shortage on the front line right now and we're taking a big hit because of it. It's widely talked about in Ukraine that we don't have enough Mavics in our entire entire ISR ecosystem is basically dependent on having a continuous steady flow of Mavics flying on the front line. So the fact that we cannot procure that from the government level at scale is quite a challenge. And we have to have these volunteer spread out networks. Second, it can sometimes be a little bit of like a playing a game of whack a mole. So we have these shell companies that are selling to Ukraine, but then once someone finds out on the other side that they're selling to Ukraine, they have to shut down and then they have to reopen under a different name somewhere else, et cetera. And you can have Russia can play this game as well where Russia can put in certain reports of, hey, this company is actually doing this and that and that and through a long chain of command like selling to Ukraine or something or another. And in certain high tension political situations, it has resulted in that company not being able to sell to that Ukrainian manufacturer anymore. They don't, I want to be wary of kind of like they don't pull that many strings. I say China's very much in control of this. Russia does not have as much leverage as I think it would like to have. But I think the, our inability to work directly and particularly on the systems front like the DJI Mavic procurement is very difficult for us and we feel significant impact in the sense of that we sometimes can't get certain components fast enough to cover up to go past this bottleneck. And then we have just less coverage and less visibility on the front line, which leads to less successful strikes. It also means more deaths on our side. And so it's very tangible when we have these problems.
- [41:48]
Chris Miller
It's interesting to think through the US and Europe have these export controls on the transfer technology of the Russian military and China's got them on Ukraine's drone industry. I wonder whose is more impactful. I think there's plenty of leakage in both.
- [42:03]
Kat Pachatsky
Well, I mean, the US and Europe have export controls to Ukraine as well. So we also have trouble. That's something that isn't really as well spoken about. But our manufacturers have had trouble procuring from European component suppliers because they don't let the systems go to Europe, Ukraine. So that's kind of another thing about the Russia China Partnership that is interesting because I think that there is a tendency in the west to be worried about how much China can control Ukraine's drone industry and how much leverage China has without them realizing that actually Europe could probably help Ukraine a lot more if it didn't have certain export controls for us to get European components and decouple from China via procuring from the West. But we can't because of itar. We can't because of European export controls. I mean, we have. I don't know if this anecdote is in the report, but we had another anecdote where one of our drone companies wanted to procure a certain component from the French and the French refused to let them have it because it had like some sort of super classified super glue on the component and they didn't let them have it. So the knife cuts both ways a little bit. So yeah.
- [43:21]
Chris Miller
So Kat, you, you've helped us understand how Ukraine now assembles millions of drones per year. But as you've noted, some of those components are sourced locally, many are not. Walk us through how the component supply chain has evolved over the last few years.
- [43:39]
Kat Pachatsky
So the component supply chain has become, has grown significantly. So again, going back to something that I said in the beginning, if, if in 2022 we were importing 99% of the finished systems, the trend has completely reversed insofar as in 2025, I think was the last data that we got, we were now importing like 99% of the components. And so it's been in the tens and tens of millions of dollars of imports from China per year, year of, of the components themselves. And the supply chain has also evolved significantly insofar as China has understood that this is becoming a massive industry in Ukraine and it's now becoming a massive priority to be able to have domestic production and like vertically integrate the manufacturing for the unmanned systems. And China has become, has begun to play a little bit with the policy making in order to affect, affect our supply, not only through export control. So one of the things that they like to do is to affect the prices so that it's significantly more attractive for us to buy the final components instead of the like pieces for the components that we don't learn how to, you know, like buy the specific chemicals and buy the specific parts of it so that we can make the component from scratch. And so as right now, I would say the Ukrainian components industry is getting pretty good already at, at final assembly of the motors, final assembly of the battery packs and things like that. And we're now turning our focus on mining the rare earth minerals on getting that even more vertically integrated. And so in the end of 2025 there was a really big initiative by the Ukrainian government essentially, so brave one is a mechanism by the Ukrainian Ministry of Digital Transformation that has been pretty pivotal in stimulating the Ukrainian drone industry. And they finally turn their attention into components and basically started giving out different grants and started giving out different funding incentives for manufacturers to start producing components in house. And so we turned our attention to that and then realized pretty quickly that the price is significantly different to buy the like finished motor from China versus buying the actual magnets that we need from the motor to make it even more challenging for us to kind of establish that supply line. And there's also a lot more expert controls on having the raw material materials. And so I think that the trend for the Ukrainian industry this year is going to be, I mean, there's going to be a continuation of this trend because the Ukrainian government is pouring a significant amount of money into getting the raw materials supplied. And so I'm hoping that maybe by the time that we chat next, in half a year from now, that I'll be able to tell you that like from the last year or so, we've put so much money and state policies in place that we now have actual rare earth mining, that we have raw materials that we've invested in that with the help of the United States. But I don't know what that's going to look like so far. But I think the main changes in the supply line now is that we're just seeing so much intake of the individual components that we just were not seeing at all in 2022, 2023. And it's now become a very, very critical backbone of the industry, especially as it's become more and more decentralized for the Ukrainian R D shops to kind of need to buy up and do their own assembly and work on the modularity of the drones. So it's a huge like decentralized industry, which is also part of the reason why we're able to, I think, skirt around export controls in a way because you just have so many different buyers. It's not one centralized node and people kind of find their way around.
- [47:37]
Chris Miller
So we could start with the motors and dig into a couple of kind of key components. So you mentioned it's possible to import a finished motor. It's also possible to try to import the parts to the motor. And pretty interesting that the parts cost more than the motor itself, if I understood you right, which is the opposite of what you'd expect what's the hardest thing to make inside of a motor and walk us through the pathway to indigenizing that capability?
- [48:04]
Kat Pachatsky
I mean, the hardest thing to make inside of the motor are the, are the magnets. And it's not really something that you can make. It's just something. It's a matter of whether you even have that natural resource in your country or not. And so having neodymium reserves and being able to mine that in order to produce the magnets is a bottleneck, essentially. It's a choke point. Ukraine actually does have the natural resources to do a lot of this. So we actually do have lots of large reserves also of lithium, because I would say that the lithium for the batteries as well is a bottleneck. And so we actually do have a lot of the natural reserves. We don't have the know how or the infrastructure in order to mine, which is why the, like, rare earth seal with the United States was such a huge deal for us, because we're hoping that we would get support from the US Industry and the US Government in order to help us establish that. But we basically, we really don't have a established structure or, you know, like the know how the IP to be able to access those raw materials. Not only that, but it's quite difficult for Ukraine at wartime to even do that at that scale, because actually most of our, many of our critical minerals reside in the occupied territories in eastern Ukraine. And so. So even if we wanted to, and even if we were to invest significant infrastructure into setting up raw materials production and processing plants, a lot of it just resides under occupied territory. A lot of it would require pretty heavy lifting on our side that would most certainly become targets for Russian attacks. We have already a huge problem with our defense industry being crippled by Russian attacks and getting production capacity just getting completely wiped out. And so it's a significant challenge for Ukraine in particular to do the lifting in order to be able to access like the neodymium to make motors ourselves, or lithium to make batteries ourselves. Because of those myriad of factors.
- [50:12]
Chris Miller
Then if you dig into the sensors that are on drones too, you've got optical sensors and infrared sensors and all sorts of chips managing communications. Those supply chains, I'm sure, are heavily centered in East Asia. Is there an effort to domesticate some of that, or can you get the resilience you need by sourcing from multiple suppliers, not only Chinese ones?
- [50:37]
Kat Pachatsky
Yeah, I mean, we're sourcing right now. We've seen an uptake in sourcing from South Korea, from Japan and from Taiwan. We're obviously always looking to diversify. There is a bit of an effort to do PCBs and do that in Ukraine. I think one of the most interesting trends is that it's not even necessarily that we've already started setting up those factories because setting up a PCB plant in Ukraine right now that's gonna be good and do anything to the skill we need is going to be an extreme challenge. But what I have seen is that we're starting a few steps back from that and there's a lot of educational program right now. So some of our major universities right now, now have like master's degree programs in PCB manufacturing and you could actually get a degree in that and you can learn how to do it. And again we're investing into the long game. And so one of the, like another interesting master's program that I saw recently was also about like UAV manufacturing and design and components design. And so we're hoping to raise this next generation of engineers that's going to be able to not only know how the systems work, how to design systems and products, but actually really, really get down to the granular level of like we want to raise the next wave of engineers that are going to be able to make the PCBs that are going to be able to make the chips, the motors, the, you know, the magnets, everything in between. So get back to us in a few years and see where our industry is at. I'm hopeful that we're going to be able to build that know how, even if we don't have it right right now. And those programs are made in collaboration with engineers from all around the world. I think the lead engineer on one of those master's programs is from Sweden or something like that and it's pretty cool. And so we're making a long term investment into the fact that Ukraine's defense industry from down to the micro component level all the way to the final systems is going to be Ukraine's biggest, biggest leverage. It's going to be Ukraine's biggest brand and it's going to be our biggest export in a few years. And so we're investing in making this a long, long term infrastructure within, within Ukraine.
- [52:54]
Chris Miller
And then how do you guys think about cost in this context? Obviously if you know China's going to sell you a finished motor for cheaper than the components, if you buy the components, you, you're spending more money over a million drones. I'm sure that starts to add up. Walk us through the kind of trade offs you face around cost versus indigenization and how different companies think about that.
- [53:17]
Kat Pachatsky
Yeah, that's actually probably the biggest barrier to Ukraine's component industry because when you talk to the manufacturers and you ask them why they haven't switched from Chinese components, there is usually the, the kind of trifecta of speed, scale and price. Even if Ukrainians can nail down the speed and the scale, the price is a significant barrier. However, I think this will change in peacetime potentially. If we see if we reach a ceasefire agreement of any sort and we kind of have a, like a recovery rebuilding mechanism where Ukraine's budget gets a little bit more support, I think that we might be able to focus a little bit more on investing more money into this, which we aren't looking at now at all. During wartime, it's basically impossible for us to be thinking about making those kinds of investments. And it's really challenging to build long term infrastructure with those price trade offs because the biggest priority right now on the ground is immediate relief and immediate support to the armed forces in a way that isn't going to wreck our budget and in a way that's going to continue to keep the economy afloat. And so when you're a policymaker and you're thinking about this and you're thinking, okay, well, I know it's going to pay off in the long term for a myriad of reasons, but we have to invest several more millions of dollars into buying up these raw materials right now in a way that isn't even going to have an immediate payoff because we don't actually even have the processing power to intake those raw materials because we haven't done that before. So we need to understand those manufacturing processes. We need to understand what to even do with this raw material. And so you wouldn't see an immediate payoff. And unfortunately, war is a game of immediate payoffs. Like you kind of, you need to have that now, otherwise you're putting putting people at risk, you're putting lives at risk. And so I don't see this being a major investment while Ukraine is still in active conflict. But I see this being a major investment during a ceasefire scenario, which is also why I think we're investing more heavily into the education part of it, because we understand that in a few years maybe we'll be able to have an educated workforce that's going to be able to kind of step into that role and focus more on the vertical integration aspect side of manufacturing that we just cannot afford to look at right now.
- [55:55]
Host (possibly Jordan or another ChinaTalk host)
Kat, what's up with the controllers,
- [56:00]
Kat Pachatsky
flight controllers are an interesting one. We've been slightly more successful at diversifying from that, I will say. So I think that we're getting quite a lot of flight controllers from, from Taiwan, although I'm not sure if that's less of a supply chain risk than China, depending on what happens there. But flight controllers, we've also been able to do some local production of, luckily because Ukraine's. I don't know what it is exactly about our workforce, but Ukraine's software talent and that kind of engineering talent has been able to, to see more success in the flight controller world. But again, scale is important, which we haven't quite nailed down yet, especially considering the amount of millions of systems that we go through. So that's going to be the next challenge. But in terms of know how and in terms of kind of like ability to execute, I think we, it's less of a challenge than the know how on the motors and the batteries and.
- [57:07]
Host (possibly Jordan or another ChinaTalk host)
Chris, flight controllers are legacy chips.
- [57:11]
Chris Miller
Legacy chips and displays and printed circuit boards and many other things that you need to put them together.
- [57:20]
Host (possibly Jordan or another ChinaTalk host)
Okay, well let's zoom out then and talk a little bit about broader lessons. What are your big takeaways, Kat? After watching this industry develop over the
- [57:31]
Kat Pachatsky
past four, four years, I think my biggest takeaway is investing in R and D is super important because your, your drone or your final system is never going to be stagnant in an actual wartime scenario. And you have to have the flexibility baked into your actual assembly process. It's not enough to kind of have a separate branch that works on R and D and kind of develop, develop separate product lines, but you really have to have the flexibility and the modularity to be able to adapt to whatever the end user's needs are at the time, which is really, really hard for a country that's not at war. And I think the US gets a lot of flack for not having the same innovation cycles as Ukraine and not moving as fast. And I will say, like, I, I empathize because I think it's, it's genuinely difficult. I mean, you're not going to be able to have that R and D if you don't have someone using your product every single day in real world conditions being like, hey, this is the next big thing. This is how we need to change it. This is what we're going to need next. Like, the US just isn't in a conflict scenario to have to intake all of the lessons. And so it's hard to replicate. But I do think that considering Those processes. It should be a priority for US Defense companies that are looking to scale and actually looking to provide real solutions, solutions to the Department of War to pretty early on form some kind of like R and D relationship with the end user units that are going to be using their products. Because without that and having this like consistent stream of communication and also being able to adapt and making sure that you're not locked into any one particular like final product, like making sure that your products are very, very easily assembled together and also very easily disassembled together so that you can kind of of plug and play with whatever payload, whatever vtx, whatever camera a particular mission might need is probably how you best set yourself up for success. Because it's hard to say one particular lesson like you should build this thing because in six months from now it could look very different. But I think the lesson of you should be able to build a lot of different things in a flexible, timely manner at scale is probably the biggest takeaway.
- [60:03]
Chris Miller
It's sort of crazy. We kind of get back to this is sort of a facile analogy. But being customer focused and understanding what the end user actually wants is really important. And I sort of came away from this conversation. Jordan was the. I think you're on the side of Xiaomi, not Apple. Right, Jordan, if I'm remembering our last conversation. Right. But actually this sort of supply chain management and understanding your customer skills end up seeing seeming shockingly important, even if you.
- [60:30]
Host (possibly Jordan or another ChinaTalk host)
As long as you can get access to the parts. Right.
- [60:32]
Chris Miller
Agree.
- [60:33]
Host (possibly Jordan or another ChinaTalk host)
No, no, that's the unique piece of this case is that the supplier is willing to maybe not give you 100%, but give you 70 or 80% of what you need and you can kind of make the most of that. Right. And I think there are conflicts where China would not really care, you know, if we needed a lot of drones to invade Mexico or something horrible like that. But for an Asia contingency, this, this dynamic is not necessarily the case. And well, and while the US would have a better chance of kind of spinning up that chemical material and electronic expertise that has atrophied relative, relative to say Ukraine, it's still not a straightforward thing. And there's also a time lag that would be associated with that which could prove decisive. So, I mean, yeah, I found your research on this broader arc of building an entire core pillar of your national defense in an existential war on imported parts to be a fascinating one. And you know, I'm not entirely sure, you know, there are like, clearly there are, there are some lessons, but that, that fundamental kind of dependency which Ukraine has been able to live with over the past four years. I mean, not really just on, on, on China for drone parts, but from the rest of the world for a lot of other kind of inputs to its, its defense posture is just, you know, it's, it's different when, you know, we're, we're talking World War three and Taiwan. So.
- [62:27]
Kat Pachatsky
Yeah,
- [62:31]
Host (possibly Jordan or another ChinaTalk host)
well, what's, what's, what's on, what's next in the pipeline for you, Kat? What other research are you guys working on for this year?
- [62:39]
Kat Pachatsky
Well, we're about to release, very timely, but in about a week, we're about to release out our big overview of Ukraine's defense tech industry as of February of 2026. So we'll have updates on what components are gaining traction, what industries are popping up, and then we're mainly going to be focusing on also doing a little bit of work with Russia's supply chains and Russia's defense tech industry because I think, you know, as much as we talk about Ukraine and other countries being dependent on Chinese components, I think it's really worth looking into and mentioning the fact that actually Russia uses a lot of west components in its drones as well, which is important, and they haven't been fully export controlled and fully sanctioned enough to kind of cripple those supply lines for them. So we might be seeing a big report soon on how Russia still sources Western components and what we can do about it.
- [63:37]
Host (possibly Jordan or another ChinaTalk host)
Chris, anything else to add?
- [63:40]
Chris Miller
No, I think that that's a great place to wrap up. Thanks, Yad.
- [63:43]
Host (possibly Jordan or another ChinaTalk host)
All right. This was a pleasure. Thanks so much for being a part of chinatalk hat.
- [63:47]
Kat Pachatsky
Thank you for having me.