The Pentagon Wants 300,000 Drones But China Controls The Magnets

The Pentagon recently placed the largest drone order in American history — 30,000 one-way attack drones, with plans to scale past 300,000 by early 2028. There’s one major problem: every one of those drones runs on a rare earth magnet. And according to Goldman Sachs, roughly 98% of the world's magnets are manufactured in China.

That's the dilemma REalloys (NASDAQ: ALOY) has spent years building to solve. The company holds the only fully non-Chinese “mine to magnet” heavy rare earth supply chain in North America — from processed metals to finished alloys to the magnet-ready inputs that defense contractors actually need.

To understand why the Pentagon is moving this aggressively, you have to look at what happened in Ukraine.

Over the past two years, drones have fundamentally reshaped modern combat like no other technology since the machine gun. Ukraine built over 1.2 million of them in 2024 alone.

The magnets that powered nearly every single one came from China. That means that one move from China could potentially shut down the military of major countries in the West.

The Pentagon has watched that play out in real time. And its response has been the most ambitious autonomous weapons program in modern American history.

In June, President Trump signed an executive order titled "Unleashing American Drone Dominance" that would help boost drone production both in commercial and military sectors.

The next month, Defense Secretary Pete Hegseth issued a memo planning to build up drone manufacturing by approving the purchase of hundreds of American products.

Add to that a defense budget for 2026 with $13.6 billion for autonomous systems, and it's becoming clearer by the day just how committed the U.S. is to drones as a part of their defense strategy.

However, allocating billions of dollars to the problem can't fix the supply chain issue behind the manufacturing of these magnets.

Today, at least 80,000 components across 1,900 U.S. weapons systems depend on Chinese-sourced rare earths. That's not just drone motors — it includes guidance systems, sensors, and virtually every platform the Pentagon fields.

The Pentagon’s drone push is already reshaping the broader defense supply chain, with companies like AeroVironment Inc. (NASDAQ: AVAV), Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS), and Palantir Technologies Inc. (NASDAQ:PLTR) all expanding deeper into autonomous warfare, AI-driven targeting, and next-generation battlefield systems. But whether it’s attack drones, autonomous surveillance platforms, or AI-enabled combat software, nearly every platform ultimately depends on the same fragile rare earth magnet supply chain that still runs heavily through China.