The Russia-Ukraine war has ushered in a new era of unmanned combat. Investors and the Pentagon are betting that AeroVironment can produce deadly drones at an industrial scale.
By Jeremy Bogaisky, Forbes Staff
On a hot August morning in the foothills of the Santa Susana Mountains north of Los Angeles, Wahid Nawabi, the CEO of drone maker AeroVironment, is bouncing down a dirt road in a Chevy Traverse. Somewhere in the skies overhead, one of his company’s gull-winged Puma electric surveillance planes is hunting for us – quietly and autonomously.
The trim, affable Nawabi shares the screen of a tablet computer that shows an aerial view of the grassy canyon we’re driving through relayed from the Puma, 1,300 of which have been supplied to Ukraine for the price tag of $318 million. It’s using computer vision to navigate, comparing landmarks to internal maps as it zeros in on a target it can autonomously seek: a tank, rocket launcher or in this case, a white SUV. They’re capabilities AeroVironment deployed in Ukraine last year to overcome Russian jamming of GPS signals and communications links.
“Look, it found us,” says Nawabi, pointing out our vehicle, which now appears on the tablet display outlined in a white box.
In the Russo-Ukrainian war, what might come next is a pinpoint strike from the deadly Switchblade, a weapon central to Nawabi’s ambitions to make AeroVironment a multibillion-dollar company in the next three to five years, up from $717 million in revenue in its fiscal 2024.
Switchblade is a loitering munition, an expensive type of one-way kamikaze drone designed to circle the battlefield awaiting a good opportunity to obliterate its target. Both the Russians and Ukrainians are using them in a war where dense networks of antiaircraft systems have pushed fighter jets and bombers to the margins.
Starting in 2022, the U.S. supplied Ukraine with 700 Switchblade 300s, a $50,000 missile small enough to be carried in a soldier’s rucksack and launched with minimal effort. It was quietly used by U.S. special forces in Iraq and Afghanistan in the past decade to take down “high-value” insurgents at a distance of as much as 6 miles. More recently, Ukraine has been hunting valuable Russian air defense batteries with a newer, larger version, the Switchblade 600, a $200,000 weapon with 25-mile range. Ukraine has received hundreds, with another 600 promised in a recent U.S. aid package.
The Ukraine war has been a buzzing laboratory for unmanned aircraft, where makers test and improve their designs. AeroVironment’s got off to a rough start against Russian electronic warfare, which reportedly has hampered many sophisticated Western drones, but the company is now looking like one of the winners. (Nawabi says modifications to overcome jamming and better training have pushed Switchblade’s effectiveness rate north of 80%.)
Last month, the Army handed AeroVironment a contract worth up to $990 million – the company’s largest ever – to cover Switchblade purchases through 2029. And the company is in the running for contracts from other branches of the military and foreign allies as they accelerate their adoption of drones based on their deadly effectiveness in Ukraine.
Plenty of companies are chasing the opportunity: A study last year by the Vertical Flight Society counted 123 entities in 32 countries that were producing one-way attack drones. They include the Israeli pioneers of loitering munitions, like Elbit Systems, and buzzy defense-tech startups like Anduril, which has supplied a larger, longer-range, winged drone, the Altius 600, to Ukraine in undisclosed numbers. Anduril recently raised $1.5 billion and is plowing some of that into building a giant 1.5-million square foot factory called Arsenal-1.
But AeroVironment, which has quietly been the Defense Department’s main supplier of small drones for the past two decades, may have the relationships, technology and industrial experience to better satisfy the U.S. military’s sudden desire for unmanned systems en masse.
“There’s no free lunch in manufacturing and the rigor that goes into making products at the U.S. DOD level,” says Nawabi. “A lot of competitors claim they’re going to make thousands of these overnight. They just don’t know what they’re talking about.”
In May the Pentagon awarded AeroVironment a contract to build Switchblades for its Replicator project, which aims to enlist defense contractors and startups to crank out thousands of autonomous drones by mid-2025 for the U.S. military to use against China if it invades Taiwan. AeroVironment is so far the only company that’s been named publicly as having been tapped for such a deal. The funding will speed up the Army’s acquisition of Switchblade 600, which will give infantry the ability to independently knock out tanks from long range.
The Marines are also outfitting rifle squads with an upgraded version of Switchblade 300 that can attack armor as well as troops. It’s a key part of a force redesign in which the leathernecks are dumping heavy weapons like tanks and much of their artillery to make expeditionary units faster and harder to target.
And the interest in loitering munitions goes beyond ground troops: the Navy, Marines and Army are experimenting with packing them into launchers on boats, helicopters and armored vehicles.
There are also growth opportunities for AeroVironment’s surveillance drones and small ground robots, which last year rang up $448 million in sales, 60% of total revenues. The company is in the running for potentially lucrative Army programs to field new medium- and long-range recon drones.
Meanwhile, international sales are gearing up: The United Kingdom, France and Lithuania have made initial purchases of Switchblade, and the State Department in June approved a $60 million sale to Taiwan. AeroVironment says over 20 countries are seeking to buy Switchblade.
Investors are keen on the opportunities for the only public pure-play supplier of drones to the Pentagon. They’ve pumped AeroVironment’s stock up almost fourfold since Russia invaded Ukraine in Feb. 2022, giving the company a $5.9 billion market capitalization. The company reported $60 million in net income for its fiscal 2024, which ended April 30, on nearly double its 2020 revenue, with loitering munition sales up 60% to $193 million. AeroVironment is so confident in its prospects, it’s promised Wall Street at least 20% annual sales growth for the next three years.
If peace were to break out tomorrow between Russia and Ukraine, AeroVironment would still have big opportunities in a world where the thinking has changed about how wars can be fought, defense analysts say.
“For a country that can’t easily afford squadrons of $100 million airplanes or attack helicopters at $30 or $40 million, this is a solution to a problem,” said Byron Callan, managing director at Capital Alpha Partners.
It’s a heady turn for the company, which is nominally headquartered in Arlington, Virginia but remains centered in its birthplace of Southern California. For decades after AeroVironment’s 1971 founding, it cultivated a reputation as an environmentally friendly, grant-funded R&D shop with a spotty record on commercializing the cutting-edge technology its engineers developed.
Founder Paul MacCready had a knack for designing energy efficient vehicles – he built the first human-powered aircraft capable of sustained flight to win a cash prize and pay off a $100,000 debt. In the 1980s AeroVironment built solar-powered planes and designed a solar-powered car for General Motors that won a race across Australia in 1987. It followed up by designing an electric car for GM that became the focus of environmentalists’ conspiracy theories when the automaker in 1998 aborted a plan to bring it to market.
But AeroVironment scored big after 9/11 with the Raven, a 4-pound, hand-launched electric airplane that was small enough to be carried in a rucksack by soldiers in Iraq and Afghanistan. For the first time it gave ground troops the ability to independently get a bird’s eye view over the hill of their surroundings.
When the company went public in 2007, the same year MacCready passed away, its small drone business was thriving, booking $146 million in revenue. By 2013, the company could boast that it had made 86% of the drones in the DoD’s inventory. Most of those were Ravens: AeroVironment has made 25,000, which the company says makes it the most-produced military aircraft in history.
With the Switchblade 300, which debuted in 2012, AeroVironment for the first time gave soldiers a backpackable weapon (three rounds and a launcher weighed under 25 pounds) that allowed them to attack enemies at a distance that had previously required calling in an airstrike or artillery. The Pentagon bought 6,000 of them in the following decade, but officials didn’t buy AeroVironment’s pitch that the weapon could be useful beyond counterinsurgency operations.
The war in Ukraine changed that, providing vindication for AeroVironment and Nawabi, who made a perilous escape from Soviet-controlled Afghanistan in 1981 at age 14. Nawabi’s father was a government official who had become suspect due to his U.S. education, and his parents booked a flight to Delhi without their children to reduce suspicion they were fleeing. Nawabi says he and his three sisters traveled together overland, evading police patrols, for 58 days as they made their way from Kabul through Pakistan to India. Nawabi takes satisfaction in paying it back: “Fast forward, here I am, making Switchblade, kicking Russians’ ass.”
He believes the world is just now catching up to the future he’s been preparing for since taking over as CEO of AeroVironment in 2016, when he sold off its electric vehicle charging division, doubling down on unmanned aircraft. A future where militaries increasingly rely on drones to ferry supplies, scout enemy positions and attack – with little human involvement.
“We’re at an inflection point because what we bet on the last seven, eight years is becoming a reality,” he said.
But AeroVironment doesn’t have a lock on the market.. In the U.S., AeroVironment is facing competition from Teledyne Flir and Anduril for the Marines’ infantry loitering munitions program— the three won exploratory contracts in May. Uvision, an Israeli competitor, has racked up sales of its Hero loitering munitions to U.S. special forces and foreign militaries. But the Marines quietly canceled a contract UVision won in 2021 for a vehicle-mounted version of Hero because it didn’t meet the service’s expectations, Forbes has learned, opening up the possibility AeroVironment could take the business. Uvision’s U.S. partner, Mistral, said the problems involved a command and control system and radio from other suppliers, not the Hero.
Then there’s Aevex Aerospace, maker of a mysterious, low-cost family of drones called Phoenix Ghost of which not even photos have been seen publicly that the Pentagon rushed into Ukraine early in the war. The California company says it’s taking lessons from Ukraine to compete for U.S. loitering munitions contracts.
Despite proliferating competition, Nawabi believes AeroVironment is uniquely positioned to dominate the market. He argues the company can innovate faster than larger defense contractors like Lockheed Martin, whose Terminator loitering munition Switchblade 300 beat out for repeat Army buys. Those companies typically wait for the Department of Defense to fund development of a prototype; AeroVironment risks its own capital to develop products before the Pentagon asks. This year Nawabi says the company will spend a whopping 30% of its expected $800 million in revenue on R&D, which includes funds the DoD has provided for research.
Meanwhile defense tech startups may be able to field flashy prototypes, but they don’t have the know-how AeroVironment has developed to turn them into something that can be manufactured at scale, he says.
In a bet more orders are coming, AeroVironment is in the middle of doubling production at its Switchblade plant to 6,000 a year, and it plans to build another factory by 2027 to raise output to 10,000. That would mean about $1 billion in revenue at full rate. It’s also doubling production capacity of its surveillance drones so it can crank out $1 billion worth of them each year.
There’s big money at play. Teal Group predicts the world military drone market will expand 50% over the next 9 years to $30.9 billion in 2033 — and that excludes loitering munitions; the consultancy says it’s too early to forecast since the DoD has yet to publicly signal where its strategy lies on the curve from cheap and numerous to more accurate, jamming-proof and expensive.
Ukraine has pulled the lever on cheap and numerous: small companies and volunteer groups in the country are churning out $500 first person-view drones based on hobby racing quadcopters by the tens of thousands a month. These short-range, jury-rigged systems, which often carry modified grenades and RPG warheads, have made it so the Ukrainians don’t need a Switchblade 300 to attack nearby machine gun nests and entrenched grenade launchers, the company admits. But Nawabi said the garage-built drones aren’t much of a threat to his business: The higher prices of AeroVironment’s loitering munitions are a direct result of the more sophisticated features that the Pentagon requests. Half the cost of a Switchblade comes from the powerful warhead and its sharper sensor systems, he said.
That said, the company is quietly working to provide the Pentagon with more for less. Executives guardedly discussed a weapon under development that’s suitable for use over the vast reaches of the Pacific, one that can fly hundreds of kilometers and could be mass produced for a price under $50,000.
And continuing the company’s long heritage in efficient flight, it’s been working since 2019 to perfect a solar-powered plane capable of staying aloft 12 miles high in the stratosphere for weeks at a time. The effort is being funded by SoftBank, which wants to use the aircraft to deliver 5G mobile service to the 2 billion people outside the range of cellular towers. If it works, it could be a multibillion-dollar opportunity, said Nawabi.
But AeroVironment doesn’t have to win on all the opportunities it’s pursuing to prosper, he said. “Fundamentally, our strategy is that if we make one or two of these shots on the goal, we will be multiple sizes bigger than we are today.”
