China’s consumer drone makers shift focus to commercial sector for growth

Although demand for consumer drones is still expanding globally, an increasing number of Chinese drone makers are feeling the heat in both the retail and capital markets, prompting many to shift their focus to the commercial sector.

The market for consumer drones is still there, but for most Chinese manufacturers the competitive situation is getting tougher as there’s little room left given the domination of brands like DJI, said Zeng Xiangfeng, a sales manager from Shenzhen Aero Sunfly Co.

“Shenzhen had about 300 drone brands in 2016, and 20 per cent of them exited the market last year. The consumer drone market is dominated by DJI and barely any of these drone manufacturers in Shenzhen raised new capital last year,” Zeng told the South China Morning Post.

Shenzhen is home to the majority of Chinese drone makers, accounting for more than 70 per cent of global shipments of unmanned aerial vehicles (UAVs) – commonly known as drones. The city’s customs data showed that the value of drone exports soared 76.9 per cent to reach 5.47 billion yuan (US$796.5 million) in 2016.

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Meanwhile, Shenzhen-based DJI, the world’s largest consumer drone manufacturer, said its revenue in 2016 surged 60 per cent to 10 billion yuan, of which 80 per cent was from overseas sales.

However, CB Insights data indicates the drone industry is losing its shine as there was only US$55 million in venture capital invested in eight drone industry deals in the third quarter of 2016, a sharp decrease from the almost US$106 million and 13 deals in the previous quarter, and US$134 million in 12 drone-related companies in the same period a year ago.

3D Robotics, an American start-up focused on consumer drones, has axed more than 150 staff and burned through almost US$100 million in venture capital funding, with its troubles attributed to the rapid rise of DJI which is valued at US$8 billion, according to Forbes reports.

Aero Sunfly specialises in agricultural drones for crop dusting. Unlike consumer drones, whose markets are primarily outside China, demand for specialised drones are mostly inside the country and business prospects are huge due to the limited penetration in the market, according to Zeng, who added that a number of Chinese drone brands are making a U-turn to seek opportunities in the commercial industry.

The overall UAV market in China is expected to reach 75 billion yuan by 2025, of which consumer drones will contribute 30 billion yuan while agricultural and forestry drones, as well as security drones, are likely to account for 20 billion yuan and 15 billion yuan respectively, iiMedia Research said in its latest report.

In particular, agricultural UAVs are facing less regulatory risks but even larger market demand, according to Justin Gong, chief managing officer of Guangzhou-based XAircraft, another commercial drone manufacturer specialising in agricultural services.

However, it takes time for commercial drone makers to tap the markets as many people are used to traditional methods and could be cautious about “technology breakthroughs”, said Gong. The company’s P20 crop protection drones are able to spray 60 acres of land in just one hour, whereas it takes a whole day for an individual to do it manually.

XAircraft used to dispatch service teams directly owned by the company to provide such services. But since October 2016 it has started to sell and lease its products to farmers in China to conduct their own crop dusting. Sales and leasing transactions have exceeded 2,500 so far, according to Gong.

The business potential for agricultural drones is huge as data indicates the adoption rate of drones to carry out crop protection is still well below 1 per cent in China.

Research agency IDC predicted recently that annual sales of commercial-quality drones will reach 950,000 units in China by 2019, representing an increase 300 per cent over four years.