Neros Technologies, a drone manufacturer based in California, has received a $450 million conditional loan from the Department of War to expand domestic production of small drone components. The company is a frontrunner in a Department of War competition focused on small drones for combat.

Neros plans to commit another $165 million to the project, bringing the total investment to $615 million. The financing was provided by the Department of War’s Office of Strategic Capital, known as OSC.

Ross Pederson, Neros’ head of growth, described the expansion of the American small drone industry as “a huge benefit to the American taxpayer.” He also pointed to the expected importance of such systems in future warfare.

“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,” Pederson 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.”

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Pederson argued that OSC loans awarded to Neros and drone manufacturer PDW will strengthen the American industry. PDW received an $820 million loan in July, while Chinese companies currently supply the vast majority of components used to assemble drones.

China has “completely dominated” the sector, Pederson said. The new financing gives domestic manufacturers significant resources to expand production instead of leaving American drone makers dependent on a market overwhelmingly supplied by China.

David Lorch, director of OSC, said Neros “has already demonstrated an ability to design, manufacture and deliver exceptional small unmanned aircraft systems.” His statement highlighted the company’s existing performance as the Department of War moves to increase domestic manufacturing capacity.

Neros is among the leaders in the Pentagon’s Drone Dominance Program. The competition is intended to identify the best quality and most affordable small drone for combat use.

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“OSC’s investment will turbocharge Neros’ ability to manufacture drones and components critical for the production of drone systems,” Lorch said in a statement. The loan directly supports the company’s effort to bring more component manufacturing into its own facilities.

The federal government has taken additional steps during the past year to expand the domestic small drone industry. Those actions have included prominent competitions and tariffs on imported drone components.

Although the Trump administration’s broad use of tariffs on consumer goods has faced criticism, drone industry experts have credited the import duties with encouraging companies to pursue domestic alternatives. Brett Velicovich, author of Drone Warrior and head of drone company POWERUS, praised the policy in October.

Velicovich called tariffs on drone components “one of the smartest things the White House has done in decades.” He argued that American export restrictions had placed “handcuffs” on the domestic industry while China operated under fewer constraints.

According to Velicovich, that imbalance helped China capture the overwhelming majority of the global market for small drones and their components. He acknowledged that the tariffs created a component bottleneck that has “been hard on everyone,” but said companies were being pushed toward compliant parts and 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,” Velicovich said.

Pederson said tariffs are not necessarily the primary factor driving domestic sourcing for military customers. The Department of War has long been prohibited from buying drones containing electronic components from certain foreign countries, including China, he explained.

“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,” Pederson said.

Before the loan, Neros did not manufacture its own components. It contracted with other companies to produce parts, then used those parts to assemble its drones, but the expansion is expected to change that arrangement.

Neros has already expanded its internal motor production and will soon begin manufacturing surface-mount technology components used to populate circuit boards. Pederson expects most of the drone’s dollar value to come from production inside the company’s own facility.

“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 disclose the loan’s interest rate or repayment timeline. He said the loan is not eligible for forgiveness and that the Department of War has established manufacturing goals centered on producing components in the United States and making them broadly available to the market.

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