California-based drone maker Neros Technologies, a frontrunner in a Defense Department competition for small drones for combat, received a $450 million conditional loan from the DoD to expand domestic manufacturing of small drone components.
In an interview with Military Times, Ross Pederson, Neros’ head of growth, called the expansion of the U.S. small drone industry “a huge benefit to the American taxpayer.”
“I don’t think you have to squint too hard to convince yourself that small drones are going to be very, very important in the future of warfare,” he said. “And if you look at the status quo ante, which is that 99% of them are made in China, that’s not a tenable place for the U.S. to be.”
The Defense Department’s Office of Strategic Capital, or OSC, provided the loan. Neros said it will commit an additional $165 million to the expansion, which brings the total investment to $615 million.
Pederson argued that OSC loans to Neros and drone maker PDW, which received an $820 million loan in July, will strengthen the U.S. industry. China has “completely dominated” the sector, he said, with Chinese companies supplying the vast majority of components used to assemble drones.
Explaining its reasoning for giving Neros the loan, David Lorch, director of the OSC and senior advisor to the deputy secretary of defense, said the company “has already demonstrated an ability to design, manufacture and deliver exceptional small unmanned aircraft systems.”
The company is one of the leaders in the Pentagon’s Drone Dominance Program, a competition that seeks to find the best quality, most affordable small drone for combat.
“OSC’s investment will turbocharge Neros’ ability to manufacture drones and components critical for the production of drone systems,” Lorch added in a statement.
The federal government has taken other steps over the past year to expand the domestic small-drone industry, ranging from launching high-profile competitions to imposing tariffs on imported drone components.
Although the Trump administration’s broad use of tariffs on consumer goods has drawn criticism, drone industry experts say the import duties have helped encourage companies to seek domestic alternatives.
In October, Brett Velicovich — author of Drone Warrior, which documents his military experience using small drones in combat, and head of drone company POWERUS — told Military Times that tariffs on drone components were “one of the smartest things the White House has done in decades.”
He argued that the U.S. had put “handcuffs” on its domestic industry through export restrictions, while China faced fewer constraints. That imbalance, he said, helped China capture the overwhelming majority of the global market for small drones and their components.
The tariffs have created a bottleneck for components that has “been hard on everyone,” Velicovich said. But he argued that they have also pushed domestic companies to “now focus on (National Defense Authorization Act)-compliant parts” and “forces all of us to find new supply chains.”
“In the end, it’s what’s good for America because we can’t continue to be reliant on China. We can’t continue to be reliant on those systems,” he said.
Neros Technologies CEO Soren Monroe-Anderson, center, flies one of the company’s Archer drones on June 26, 2025, during a Defense Innovation Unit test event in Fairbanks, Alaska. (Courtney Albon)
But tariffs aren’t necessarily the main driver of domestic sourcing for military customers, according to Pederson. The Defense Department has long been prohibited from purchasing drones containing electronic components from certain foreign countries, including China, he said.
“When it comes to that specific customer set, the tariffs aren’t necessarily the driving factor. It’s really the prohibition that the Department of War has on purchasing Chinese electronics,” he said.
Before receiving the loan, Pederson explained, Neros didn’t manufacture its own components. Instead, it contracted other companies to manufacture parts that it then used to assemble drones. That is expected to change as the company expands its domestic production capabilities.
Neros has already expanded its in-house motor production and will soon begin manufacturing surface-mount technology components, which are used to populate circuit boards, Pederson said.
“By late next year, somewhere in the like 80% by dollar value of the drone should be made in-house, like in the same physical space where the drones are being assembled,” he said.
Pederson declined to provide specifics about the loan’s terms, including its interest rate and repayment timeline, but he said it is not subject to loan forgiveness and that the Defense Department has manufacturing goals for the company.
“They’re all centered on making these components in the United States and making them available broadly to the market, not just to ourselves,” he said.