World Reimagined

What to Know About the Growing Drone Market

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As we pass the one-year anniversary of the Ukraine invasion, this war will likely be known as one of the major catalysts for growth in the drone market. Just last week, Anton Gerashchenko, an adviser to Ukraine's minister of internal affairs, told Newsweek, “this war is a war of drones, they are the super weapon here."

Add on the acceleration in Artificial Intelligence (AI) and growing legislative support, and we are looking at a drone market set to take off. Here's what you need to know about the growing drone market, and the ways to invest in it. 

What, When and Where of Drones

A drone commonly refers to any remotely piloted aircraft (RPA) of various forms and differing degrees of autonomy, under the control of a human pilot or with the ability to perform fully autonomous flights. These devices can be small enough to fit in the palm of your hand or as large as a traditional aircraft and are controlled remotely with a smartphone app or dedicated controls, most of which make heavy use of AI. We have been using drones in the military since World War I when Orville Wright and Charles Kettering developed the Kettering Bug, the world’s first self-flying aerial torpedo. 

While the war in Ukraine is making drones increasingly known for their role in modern warfare, they are used in everything from studying remote areas, including other planets, to assisting law enforcement, from moviemaking to search and recovery efforts during disasters such as in the aftermath of the earthquakes Turkey or the recent floods in Kentucky.

The Drone Market

The drone market is expected to enjoy outsized growth in the coming years.

  • According to Insider Intelligence, total drone industry shipments are expected to experience a compound annual growth rate of 66.8% in 2023, with total global shipments reaching 2.4 million. By 2025, shipments are expected to reach $63.6 billion.
  • BlueWeave Consulting estimates that the global commercial drone market will experience a CAGR of 29% between 2022 and 2028, reaching a value of $54.17 billion by 2028.
  • According to Drone Industry Insights, the global drone market is expected to grow from $26.3 billion in 2021 to $41.3 billion by 2026.
  • According to Statista, the global consumer segment is expected to grow from around $4 billion in 2021 to $8.66 billion by 2026, more than doubling in just five years - good news for GoPro (GPRO), which produces drones and wearable cameras.

Drone market segments include commercial, law enforcement and defense, but the segment we are most likely to experience firsthand is the consumer or recreational market. As of April 2022, the total number of registered drones in the U.S. was over 853,800, with 531,800 recreational drones, excluding those used by hobbyists, which historically did not need to be registered, and just under 320,000 commercial drones, according to Statista. Currently, all non-recreational drones (regardless of weight) and all recreational drones over 250 grams must be registered. 

Drones are particularly applicable in search and rescue operations, making them increasingly prevalent in disaster management. According to Fact.MR, “The global emergency drone market is set to enjoy a valuation of US$ 4,245.1 million in 2022 and further expand at a CAGR of 13.1% to reach US$ 16,729.8 million by the end of 2033."

Which Companies Lead the Drone Market?

Chinese manufacturers currently dominate the drone market. As of March 2021, the Shenzhen, China-based company DJI (Da-Jiang Innovations) was the world’s leading drone manufacturer, with 76% of total global sales volume. The company is well known for its consumer drones, but also manufactures drones for farming, infrastructure and public safety. All the other players are small in comparison, with Intel holding 4.1% of the market, Yuneec at 3.6%, 3D Robotics at 2.6%, Parrot SA (PAOTF:OTC) at 2.5% and EHang (EH) at 0.6%.

Military and Police Drones 

The war in Ukraine is depleting the resources of Russia and Ukraine and militaries worldwide that are sending their support. A meaningful portion of this support involves drones, which means those nations will need to restock their supplies, a tailwind to military drone manufacturers. We are also seeing growing interest from police departments using drones for surveillance. 

  • The Ukraine conflict has increased awareness of AeroVironment’s (AVAV) drones, and its Switchblade tactical missile system in particular.
  • Boeing (BAis also a drone manufacturer, although drones make up only a small portion of its revenues. It made headlines in 2021 when its MQ-25 Stingray unmanned tanker drone completed the first-ever mid-air refueling with an F-35 fighter jet.
  • Other companies specializing in this space include Lockheed Martin (LMT)Red Cat Holdings (RCAT), Northrop Grumman (NOC) and Kratos Defense & Security Solution (KTOS).
  • Draganfly Inc (DPRO) has solutions covering nearly the entire gamut, including military, environmental, insurance, agriculture, public safety and delivery.

Delivery Drones

Within commercial applications, the most high-profile opportunity is in goods transport, but such opportunity comes with regulatory complexity. We are still in the very early days, but there are efforts on Capitol Hill to support American competitiveness, particularly in light of China’s dominance. On February 7, U.S. Senators Mark Warner (D-VA) and John Thune (R-SD) introduced the Increasing Competitiveness for American Drones Act of 2023, which seeks to streamline the approvals process for beyond visual line of sight (BVLOS) drone flights, and to clear the way for drones to be used for commercial transport of goods across the country. BVLOS is considered a game-changer for the industry. So far, drone transportation of goods has been more hype than reality, primarily due to regulatory challenges, but that seems likely to change. 

  • Mid-2020, Amazon (AMZNreceived approval from the FAA to use unmanned aircraft to deliver packages. In November 2022, the company’s Prime Air program announced its next-generation delivery drone, the MK30, which is expected to come into service in 2024. The head of Prime Air, David Carbon, told reporters at an Amazon event last November that by the end of the decade, the goal is to deliver 500 million packages by drone annually. But by mid-January 2023, the company had delivered to fewer than 10 homes according to The VergeThe Information recently reported, “Apparently the FAA is blocking Amazon’s drones from flying over roads or people without case-by-case permission,” illustrating the need for the legislation introduced earlier this month.
  • UPS’ (UPS) Flight Forward subsidiary is focused on the last-mile and was formally launched in July 2019. It was the first company to receive the FAA’s full Part 135 Standard certification, which allowed it to operate an unlimited remote-controlled delivery network in the U.S. In June 2020, the company partnered with CVS to deliver prescriptions to residents of the retirement community The Villages in Florida. 
  • Rather than developing in-house, FedEx (FDX) has partnered with other companies to explore last-mile solutions. In 2019, it announced the first completed residential delivery via drone to a home in Christiansburg, Virginia, using Wing Aviation. In 2022 the company partnered with California-based Elroy Air to test autonomous cargo delivery systems in 2023.

Other Commercial Drone Uses 

Other commercial applications include inspecting infrastructure assets like powerlines, pipelines and aqueducts. Those responsible for managing these infrastructure assets are increasingly turning to drones to identify potential risk areas before problems arise, something that in many cases would be too costly using any other method of detection. For example, American Robotics showcased its autonomous drone-in-a-box solution last November at the Hart Energy Executive Oil Conference. The FAA allows its Scout System to operate without a human pilot.

Farmers are also using drones, such as those from AgEagle Aerial Systems (UAVS), to survey their operations and crops, monitor and map crop health, scout and locate diseased plants and benchmark growth rates. Some are sophisticated enough to identify specific types of insect damage. Drones combined with AI are even being used to count trees.

Other Ways to Invest in The Drone Market

Other ways to invest in the drone market include companies such as Ambarella (AMBA), Qualcomm (QCOM) and NVIDIA (NVDA), which supply semiconductors to drone manufacturers. There is an ETF focused on the sector, AdvisorShares Drone Technology (UAV), and others that include the drone market, such as ARK Autonomous Technology & Robotics ETF (ARKQ), Innovator Loup Frontier Tech ETF (LOUPand SPDR S&P Aerospace & Defense (XAR).

Bottom Line

Last year, Artificial Intelligence technology hit a significant inflection that will positively impact the drone industry by expanding capabilities and interest. Geopolitics are likely to create legislative tailwinds as well, given Capitol Hill's interest in decreasing dependence on technology coming out of China and improving the U.S.’s competitiveness globally in emerging technologies.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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