1/ Yet another import substitution scandal, in which a Russian drone manufacturer was caught red-handed passing off Chinese-made drones as Russia, has highlighted a persistent weakness in drone manufacture: economies of scale dictate Chinese dominance of components. ⬇️
2/ An ongoing investigation into fraud at the drone manufacturer Transport of the Future has reportedly found that the company was relabelling imported Chinese drones as its own products. Its CEO, Yuro Kostarenko, was arrested in May. bsky.app
1/ A high-profile figure in Russian drone development has been arrested on charges of large-scale fraud. It's another illustration of how Russia's pervasive corruption is hampering its efforts to become a leading developer and producer of drone technology. ⬇️
3/ Billionaire Valery Kustov, the founder and majority shareholder of the Russian agribusiness group Efko, was arrested last week along with Efko’s director of strategic development, Vladislav Romantsev, and deputy development director Ekaterina Kustova.
4/ Alla Polovchenya, the deputy head of the Industry and Trade Ministry’s department of unmanned systems and robotics, was also arrested alongside Romantsev and Kustova.
5/ Transport of the Future was originally an internal venture within Efko before being spun off into a separate LLC. It was intended to provide drones for Russia's 'national project for unmanned air systems', a state-funded initiative running from 2025 to 2030. 6/ Even before the arrests, there were already rumours in the Russian blogosphere that Transport for the Future was "hiding ... the classic resale of Chinese imports at a markup." It seems that this was likely what was going on. 7/ Russian drone developer Alexey Chadayev points out that the colossal economies of scale that China enjoys makes it very hard for any other country to compete on price in drone manufacture, which provides a powerful incentive for import substitution and fraudulent relabeling: 8/ "I'll make a disclaimer right away. I have very few reasons to defend the TB and EFKO teams; on the contrary, I have many reasons NOT to... And yet. I would urge commentators not to be fooled by the online boos and to delve deeper into the matter. 9/ "Any production is a chain of stages: from raw material extraction to the final product. Drone manufacturers are the finalists, the last stage. The ones immediately before them are the manufacturers of large components: motors, controllers, batteries, communication units,… 10/ …cameras, frames, and propellers. If you go further down the chain, for example, a motor consists of a rotor, stator, bearing, magnets, wires, and adhesives. And so it is for any component. 11/ "For example, the task is to make a completely Russian-made motor. You can machine the rotor and stator, but Russia doesn't produce any neodymium dust, which is used to make magnets. Launching such production in a cost-effective manner takes years and billions. 12/ "At the same time, I must say, we have the necessary raw materials in Russia and are even mining them, but all projects to organize such production fell through at the stage when the raw material producer… 13/ …couldn't guarantee prices for any length of time, long enough for the investment model to work. The parties simply couldn't reach an agreement. 14/ "Unlike China, we don't have that one person from the relevant department of the Communist Party Central Committee who can sit two respected guys down and dictate to each of them what their share of the profits will be. 15/ "And without him, it all boils down to the well-known Russian conversation: "And who the hell are you?" So, you manufacture a component (like the motors) from some domestic and some imported components. 16/ "No matter how hard you try, it will end up more expensive than the exact same motor bought from China. And it's even worse, because adhesives, for example, don't meet our quality standards and don't pass all tests (and that's a question for the chemical industry). 17/ "Then the drone manufacturer has a choice: either use these "Russian" motors or Chinese ones—cheaper and better. 18/ "The same applies to all other components. At one meeting at the Ministry of Industry and Trade, Andrey Cherezov (bless him) said very bluntly: I can make a completely Russian drone; the only problem is, it won't fly. Or it will cost so much that you'll never buy it from me. 19/ "As drone manufacturers, we've always found ourselves caught between two fires. There's the Ministry of Defence, which doesn't care what a drone is made of, as long as it flies properly and costs a reasonable amount. 20/ "And then there's the Ministry of Industry and Trade, which strictly enforces localisation, under Decree 719. Many do this: they order small batches of components from Russian manufacturers specifically "for the Ministry of Industry and Trade," so they can show them at an… 21/ …exhibition or test site and then certify a "fully Russian drone," but for larger quantities, they still use China for military supplies. 22/ "And not because they want to save money (that's no longer always the case). But simply because when motors (the adhesive) start burning in the heat, no military officer will say "bad motors"; they'll say "bad drone." It's a question of the weapon's reputation. 23/ "That's the logic. Drone production itself can be quite small and artisanal, even boutique. Component production is already a mid-range production line; it must be large enough to enter the market. 24/ "Production of basic components for components (such as neodymium for magnets or purified lithium for batteries) can only be massive, because the economics only begin to converge at truly gigantic sales scales. 25/ "The investment capacity of "import substitution" at the final stage of processing is x. At the second-to-last stage, 10x. At the next-to-last stage, 100x. That's roughly it. 26/ "It was precisely the lack of understanding of this fundamental mechanics that led to the collapse of the national UAS project." /end Sources: 🔹 t.me 🔹 themoscowtimes.com