Not made in America: Chinese drones banned by US tech supplier

With increased tension between Beijing and Washington, California-based company Cape pivots towards US manufacturers.

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    A DJI Inspire 1 Pro drone is flown during a demonstration at the SZ DJI Technology Co. headquarters in Shenzhen, China [Qilai Shen/Bloomberg]
    A DJI Inspire 1 Pro drone is flown during a demonstration at the SZ DJI Technology Co. headquarters in Shenzhen, China [Qilai Shen/Bloomberg]

    A supplier of drone technology to dozens of state and local law enforcement and public safety agencies, located in the U.S. and a handful of other countries, will stop working with Chinese drone manufacturers, citing security concerns.

    Cape, a Redwood City, California-based startup, plans to inform customers Wednesday that it will stop selling software compatible with Chinese drones to its clients, most of whom use the tools to remotely dispatch and operate the small aerial vehicles to surveil possible incidents or crime scenes. It's a blow to China's DJI, the world's top maker of drones that has spent years trying to calm fears that its products could be used for espionage.

    The ban is the latest illustration of how technology companies are in the crossfire of the deteriorating relationship between the U.S. and China. American companies relying on global supply chains have seen their costs increase, while Chinese technology companies are increasingly viewed with suspicion in the U.S.

    Michael Oldenburg, a spokesman for DJI, wrote in an email: "We are disappointed to learn about Cape's decision, which is based on false speculation, and remain committed to continuously working with all of our customers - including more than 520 public safety agencies who trust our products to conduct critical missions."

    DJI's situation has echoes of Huawei Technologies Co., the Chinese telecommunications equipment company that the Trump administration has targeted as a national security threat for months, using these concerns to restrict its access to the U.S. market. DJI's domination of U.S. drone sales has long raised its own suspicions. The U.S. Army expressed cybersecurity concerns with its drones in 2017, and Homeland Security issued an alert last month saying it was worried about sensitive video footage being sent to China.

    "The statements from different federal agencies have caused partners and prospective customers to have concerns," said Chris Rittler, Cape's chief executive officer. "That's real."

    But in blacklisting Chinese drones, Cape runs the risk of hampering its own business, at least in the short term. DJI currently accounts for every single drone that runs Cape's software commercially. The company declined to specify how many that is, saying only that it has flown more than 150,000 trips.

    Cape will begin asking new customers to choose from a list of approved manufacturers that, for now, has only one name on it: Skydio Inc. The startup is located a mile from Cape's headquarters in Silicon Valley and recently began working with the Defense Department. Cape will allow existing clients to use their DJI drones until the end of their contracts, which last no longer than a year.

    In a letter DJI sent to a Senate subcommittee last month, the company denied charges that it sends video footage abroad and said it has built custom drones without internet capabilities for use in government projects. It blamed criticism on a desire to squelch competition from China.

    This month, the Interior Department published its analysis of DJI's drones designed for government use. The agency recommended approving DJI's products but suggested limiting their use to non-sensitive missions involving data that could safely be made public. One reason the department cited for approving DJI was the lack of any viable domestic alternatives.

    Government officials and American investors have long pined for a competitive drone industry in the U.S., but China has established a stranglehold. "The market pressures have declared them the winner," said Jim Williams, a former official at the Federal Aviation Administration who is now a consultant for clients using drones. "They've got the technology; they've got the low-cost manufacturing; and they continue to innovate. It's going to be a while before anyone can challenge them."

    Cape was founded in 2014 as a way for people to make rad skiing videos. It first edged toward law enforcement in 2017 while testing drones in Ensenada, a Mexican beach town about 70 miles south of Tijuana. Officers from the city's police department caught wind of the tests and asked Cape to run a pilot program. So the company outfitted a single consumer-grade DJI drone with its software, which combines autonomous flying features with remote controls.

    Police in Ensenada began using the drone to respond to emergency calls. Last summer, city officials said the drone had aided in more than 500 arrests and that the device had led to a 10% drop in crime. Public safety clients now make up about 70% of Cape's business, according to the company. The remainder are oil and gas companies and public utilities; skiers are no longer a focus.

    Rittler, the CEO, declined to identify which customers voiced concerns about Chinese equipment. Increased geopolitical conflict between the U.S. and China over the last several months, he said, wasn't a major factor in the decision to break ties with DJI. "Tension has been underground, or behind the curtain," said Rittler. "You're hearing more and more of it come to the forefront."

    SOURCE: Bloomberg