Europe’s race to develop drones is an urgent feature of discussions around the continent’s defense policy and investment. This year, venture capital funding for European defense start-ups is projected to quadruple to €10.5bn ($11.8bn), with about three-quarters going to drone development and manufacturing.
The scale and pace of this build-out is spurring demand for materials. Key among these are a set of critical minerals, including gallium for semiconductors, germanium for optics, rare-earth elements for brushless motors, and cobalt and graphite for batteries, which are all crucial in drone production.
While drones may only use these minerals in small or even trace quantities, sourcing is a challenge as supply chains are often murky, concentrated, and at risk of disruption.
Extraction is only part of the problem. While more than 60% of cobalt, which is widely used in batteries essential for powering drones, is extracted from the Democratic Republic of Congo’s Copperbelt, for example, more than 70% of world supply is refined in China.
This dynamic is not unique to cobalt, and many mineral supply chains are highly concentrated at intermediate refining stages, according to the International Energy Agency (IEA) Global Critical Mineral Outlook, and this trend is accelerating.
This suggests geology, or where mineral reserves are located, is not necessarily a deal-breaker, and that significant supply chain diversification can be achieved by focusing on refining and recycling when feasible.
The EU has already begun taking measures to address these challenges, and initiatives like the 2024 Critical Raw Materials Act (CRMA) and the 2025 RESourceEU Action Plan are designed to expand refining capacity.
In early October, the Commission announced 46 “Strategic Projects” under the CRMA, of which 30 focus on refining and recycling. The goal is to ensure capacity meets at least 10% of the EU’s consumption for extraction, 40% for processing, and 25% for recycling by 2030.
Scaling domestic production to match demand will take time, and in the interim European manufacturers will continue to face supply chain risk.
To meet this immediate shortfall, the EU has actively engaged with new suppliers as a means of diversifying its imports of critical minerals. This has led to the signing of numerous bilateral strategic partnerships and agreements that uniquely target critical minerals and supply chain diversification.
Recent years have provided many examples of how reliance on single suppliers, countries, and shipping routes can pose existential risk to industries. With almost surgical precision (down to individual product codes), countries can restrict, tax, and even ban the export of key products, for example, crippling downstream industries and competitors.
The risks of supply concentration can be seen in the case of Sweden’s Northvolt, once one of Europe’s most promising battery manufacturers, and its decline and eventual bankruptcy. While several factors were at play, one was Northvolt’s reliance on graphite imports, with China accounting for roughly 90% of global refined graphite production.
The risk was highlighted when Chinese export licensing requirements were reportedly employed to block exports of graphite products to Sweden starting in 2020. While the impact of this export licensing on Northvolt’s decline was never fully determined, this remains an unsettling episode for companies which rely on concentrated supply chains.
In the following years, as Northvolt faltered, Chinese investment in European battery and electric vehicle production grew rapidly, suggesting supply chain concentration not only poses a risk to industry, but can also be used as a means of strategic geopolitical leverage.
Any industry which relies on global supply chains has to factor in these risks, and how easily geopolitical factors can translate into losses. Reliance on distant markets and tenuous supply can translate into structural disadvantage.
The drone industry’s demand for minerals like gallium, germanium, and certain rare earth elements has also been met with higher European market prices, limiting the industry’s competitiveness. The 2026 IEA outlook emphasized, for example, that European spot prices for these three materials are between 3 and 5 times higher than within China.
This gap reveals market imbalances that hinder non-Chinese suppliers and buyers while the Chinese drone industry benefits from supply chains largely contained in its domestic market.
Europe’s drone industry faces challenges shaped not only by geology, but by a lack of refining capacity, volatile and divergent prices, and dependence on opaque, concentrated supply chains.
The ability of the EU and member states to mitigate these issues, and to secure access to these minerals, will underpin European ambitions to establish a competitive drone industry, and ultimately the role that industry can play in achieving strategic autonomy.
Nathan Alan-Lee is a former OECD Trade Policy Analyst and doctoral researcher at University College London.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
