The Drone Market This Week: The Army’s First Laser Production Contract, a Tariff Trade That Went Sideways, and Germany Builds 5,000 Drones for Ukraine

Directed energy stopped being a science project this week. The Army awarded AeroVironment $464.8 million to produce 30-kilowatt LOCUST lasers, the first time the U.S. military has ever bought a laser weapon in production rather than as a prototype, and the Pentagon reported that drone activity on the southern border has fallen 75% since laser systems arrived. That is the counter-UAS story finally showing a return. The procurement story is messier. Tariffs of up to 100% on imported drones went live September 3, and the domestic names that were supposed to benefit sold off. Meanwhile the Air Force is racing to field cheap drones after heavy MQ-9 losses in Iran, lawmakers want to know why the Army dissolved the one unit built around Ukraine’s drone lessons, and Germany began building strike drones for Kyiv at scale.

Here’s the breakdown:

AeroVironment was awarded a $464.8 million U.S. Army contract on September 2 under the Enduring High Energy Laser program for its LOCUST family of laser weapons. The award is the first production procurement of a directed energy weapon in U.S. military history, moving lasers out of the prototype pipeline where they have lived for two decades. AeroVironment will deliver dozens of 30-kilowatt LOCUST X3 counter-UAS systems over the next few years, integrate them onto platforms including the Joint Light Tactical Vehicle, and supply sustainment and training. The program builds on AMP-HEL prototype work and testing at White Sands Missile Range.

Five days later the company disclosed its first international LOCUST order, a direct commercial sale valued at more than $50 million covering an initial delivery of systems and support. AeroVironment is putting more than $30 million into expanding its Albuquerque manufacturing campus to meet the demand, adding more than 450 jobs. The company puts the cost of a LOCUST engagement at less than $10 per shot.

That $10 figure is the entire argument. A counter-drone interceptor missile costs six figures. A fighter sortie to shoot down a Shahed costs more than the Shahed. Every counter-UAS conversation for three years has circled the same problem, which is that the defender is spending more per engagement than the attacker, and no defense budget survives that math at scale. Lasers invert it. The magazine is electrical power, the marginal cost per shot rounds to nothing, and the constraint moves from inventory to generation and cooling. Confirmation showed up on the border this week: the military reported drone activity across the U.S.-Mexico frontier has dropped roughly 75% since directed energy systems were deployed. This is a behavioral response from actual operators who concluded the crossing was no longer worth attempting, and it is the strongest field evidence the technology has produced.

The Section 232 tariffs went live September 3, with rates reaching 100% on Chinese drones and components and 10% to 15% on products from allied nations. This was the moment the domestic drone industry had been positioning for since the proclamation was signed. The trade did not cooperate. Coverage split within hours, with Investor’s Business Daily reporting drone stocks flying on the news and Barron’s running a piece on why the tariff was not lifting the sector as domestic names sold off. Both were describing the same tape.

The reconciliation is that the tariff was announced weeks ago and priced immediately, so the effective date delivered no new information, while the operational reality underneath got clearer and it is not clean. American manufacturers still buy Chinese parts. Motors, magnets, batteries and camera modules do not have deep domestic supply chains, and a tariff on components raises the input cost for the same U.S. companies the policy is designed to protect. Unusual Machines announced a partnership with Altana on September 3 specifically to automate supplier verification against NDAA and FCC rules and to shorten Blue UAS Framework qualification timelines, which tells you how much friction sits in proving a part is compliant.

The other constituency is public safety. Police and fire departments built their programs on inexpensive Chinese airframes, and their replacement options now cost multiples of what they were paying with procurement cycles measured in quarters. Those agencies are the ones absorbing the transition cost, and their budgets do not flex the way a defense program’s does. None of this changes the medium-term direction, which still favors domestic manufacturers with real production capacity. It does mean the reflexive tariff trade is done and the market has moved on to asking which companies can actually build at volume and at margin.

The Air Force is speeding up a new low-cost drone program in direct response to heavy MQ-9 Reaper losses in the war with Iran, according to reporting published September 4. The service has been losing Reapers to Iranian air defenses at a pace that no peacetime attrition model contemplated, and the aircraft costs roughly $30 million each. ABC News separately reported this week that the U.S. is scrambling to adapt in what it called the country’s first major drone war.

The Reaper was designed for uncontested skies. It is large, slow, expensive and superb at loitering over an adversary with no meaningful air defense. Against a state with layered surface-to-air systems and a mature electronic warfare capability, it is a target that cannot be easily replaced. Iran does not need to win engagements against American air power. It needs to keep the exchange rate favorable, and it has.

What makes this different from the usual lessons-learned exercise is the speed. Acquisition reform in the Air Force is normally measured in program cycles, and the service is instead compressing a low-cost drone effort because the operational demand will not wait for the standard timeline. Eleven countries have asked Ukraine for help with Iranian drone warfare tactics, which is its own signal about where institutional knowledge now sits. The procurement implication is straightforward: budget share is shifting from a small number of exquisite airframes toward large quantities of cheap ones, and the companies positioned for that shift are mostly not the primes that built the Reaper.

Lawmakers pressed Army leadership this week over the decision to terminate a specialized unit’s drone warfare mission, a mission built explicitly around lessons from Ukraine. Members expressed what DefenseScoop characterized as deep concerns and asked the Army to explain the rationale. The reporting landed the same week that Army Secretary Dan Driscoll submitted his resignation.

The unit existed to institutionalize what the Army learned from three years of watching small drones reshape ground combat: FPV attack tactics, electronic warfare countermeasures, rapid iteration on commercial hardware, the entire body of practice that Ukraine developed under fire and that no American formation had a home for. Standing that capability down while the Air Force sprints to field cheap drones and the Army buys lasers to shoot them down is, at minimum, an unusual sequencing choice.

For investors the signal is about institutional friction, not budget direction. The money is moving toward drones and counter-drone at every level of the Pentagon, but the organizational structures that decide what gets bought are still contested, and specific programs get created and killed inside that fight. Congressional attention usually means the decision gets revisited. It also means the Army will be answering questions about small drone doctrine in an appropriations season where its laser and counter-UAS lines are expanding fast.

Germany started mass production of long-range strike drones for Ukraine this week, with reporting indicating an initial run of 5,000 aircraft, while Volodymyr Zelensky said Kyiv is finalizing a broader drone agreement with Berlin. Ukraine has separately told partners it needs $27 billion in additional defense funding for air defense and drones. Russia continues iterating on its own one-way attack systems, with analysts tracking the evolution from Shahed to the domestically produced Geran line and a new generation of jet-powered variants that Ukrainian officials describe as a significantly harder intercept problem.

Germany producing strike drones at scale is a change in the European industrial posture. For two years European support ran through existing inventory and financing, with production staying inside Ukraine. Building the aircraft in Germany means German manufacturing capacity, German supply chains and German industrial jobs are now attached to long-range strike drones, which is far harder to unwind than a funding tranche.

The jet-powered escalation is the part worth tracking. Propeller-driven one-way attack drones fly slow enough that gun systems, interceptor drones and even helicopters can engage them. Jet propulsion changes the closure rate and pushes the defender back toward missiles and directed energy, which is exactly the cost problem the Army is spending $464.8 million to solve. The offense and defense sides of this market are compounding against each other in real time, and both sides of the trade are now funded.

NATO scrambled fighter aircraft on September 1 after drones entered Estonian and Romanian airspace on the same night, with Turkish jets deployed as part of the alliance response over the Baltics. The Kremlin followed with a warning to Baltic states of a devastating response, and NATO’s secretary general described Russia as increasingly reckless. Romania’s prime minister used the incident to push for greater alliance focus on the eastern flank and the Black Sea.

This is the fourth or fifth variation on the same event this year, and the repetition is the point. Cheap drones are testing NATO airspace on a near-weekly cadence, and the alliance keeps answering with fourth-generation fighters. Every one of those intercepts is a demonstration of resolve and a demonstration of an unsustainable cost structure, and Moscow gets to observe both for the price of an airframe that costs less than the fuel burned intercepting it.

European counter-UAS procurement is the fastest-moving line in continental defense spending as a result, and the buying is starting to reflect the lesson. The Netherlands turned to Elbit this week to upgrade its counter-drone system from soft kill jamming to hard kill interception, which is the same progression the U.S. Army just made with lasers. Soft kill is cheap and defeats cooperative targets. Hard kill costs more and works on drones built to ignore jamming. Every European buyer is now working through that upgrade, and the addressable market for hard kill counter-UAS in Europe is expanding faster than the supply base can serve it.

AeroVironment (AVAV) had the most consequential week in the group by a wide margin. The $464.8 million E-HEL production award for 30-kilowatt LOCUST X3 systems is the first directed energy production contract the U.S. military has issued. The follow-on international LOCUST order of more than $50 million arrived days later, establishing that the export market is live and not waiting for the domestic program to mature. AeroVironment also won a NASA Jet Propulsion Laboratory contract to co-design and co-manufacture three autonomous Mars helicopters for the SkyFall mission targeting a November 2028 launch.

Ondas Holdings (ONDS) signed a definitive agreement to acquire Aran Defense, the defense division of Israel’s Aran, for approximately $33 million in cash or stock, roughly 1.3 times expected 2026 revenue. Aran Defense generated about $12 million in revenue in 2024 and $17 million in 2025 and is expected to reach roughly $26 million in 2026 with positive adjusted EBITDA, operating 4,400 square meters of engineering and manufacturing space including CNC machining, classified production and prototyping. The deal adds captive Israeli manufacturing capacity to a company that just booked a multi-million dollar Israeli Ministry of Defense tender for the Digital Bat tactical attack drone program. Ondas is carrying a $757 million pro forma backlog and $1.4 billion in cash against full-year guidance of $525 million to $550 million.

Red Cat (RCAT) spent the week on integration and structure rather than headline awards. The maritime Blue Ops division partnered with Havoc to integrate collaborative autonomy and command-and-control software across multiple uncrewed surface vessels including the Variant 7, with joint operational fleets planned at the two companies’ Rhode Island and Florida sites. The company promoted Mitch McDonald to divisional CEO of its unmanned aircraft operations, unifying Teal Drones and FlightWave under one leader focused on manufacturing scale.

Kratos Defense (KTOS) participated in the defense budget rally and continues to be framed by analysts as the pure-play alternative to the primes in collaborative combat aircraft. The Air Force’s accelerating low-cost drone push is directly aligned with the Valkyrie franchise, and any program that compresses timelines for cheap, attritable jets moves in Kratos’s favor.

Mobix Labs (MOBX) moved further into domestic drone manufacturing as its acquisition of Vision Aerial neared close, with U.S.-made Vulcan drones entering production and the target projecting revenue growth of roughly 93% in 2027. It is a small position in a large trend, and the trend is that every company with a compliant American airframe is now a strategic asset.

A $464.8 million Army award for 30-kilowatt lasers, the first of its kind in US military history, followed by a $50 million international order and a $30 million plant expansion. Drone activity on the southern border down 75% since lasers arrived.
Tariffs live at 100% and the domestic trade selling off anyway, because American manufacturers still buy Chinese parts.
The Air Force compressing a low-cost drone program because Reapers are not surviving Iranian air defenses.
Congress demanding answers on why the Army dissolved the unit built around Ukraine’s drone lessons.
Germany mass producing 5,000 long-range strike drones for Kyiv while Russia fields jet-powered attack drones that are harder to intercept.
NATO scrambling fighters over two member states in a single night.
Ondas buying Israeli manufacturing capacity for $33 million and Unusual Machines growing revenue 687%.

The theme running through all of it is cost per engagement, and this was the week the defense side finally got an answer that pencils.

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