BLUF: Ukraine’s defense components market is rapidly expanding, with new manufacturers now able to supply most required parts. Ukrainians now manufacture 80+ percent of structural parts and batteries, and 60+ percent of flight controllers. However, financial challenges remain, along with a dwindling (but still-present) reliance on Chinese parts.
Enterprises that operate critical infrastructure (i.e. energy, water supply, and transportation) in Ukraine will take part in air defense as part of an innovative pilot project with the military.
A major EU-Ukraine grant program is offering up to €150,000 for projects to develop interceptors and radars.
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How Ukraine’s defense components market operates
The components market in Ukraine has grown significantly since the start of the full-scale invasion, with the development of a domestic components industry seen as a top priority for the country.
Up until 2022, virtually no defense components were produced in Ukraine, according to Maksym Klymenko, a representative of Ukrainian Drone Components, which manufactures components for FPV drones.
Some individual elements were made for the internal needs of large manufacturers, he said, but it was still far from a full-fledged market. The growing needs of those fighting on the front forced engineers to shift from imports to local production.
More than three years after the war transformed the industry, many developers have emerged on the market to supply almost all the components needed for unmanned systems.
They are also able to meet most of the demand for components used in EW and electronic intelligence systems, said Yurii Lomikovskyi, co-founder of the IRON Cluster, a coalition of defense tech companies.
Nowadays Ukraine can domestically produce high-quality thermal cameras, video transmitters, flight controllers, communication systems, electric motors, structural elements, fiber-optic reels, and modules for various purposes, he said.
Oko Camera products. Photo by the manufacturer.
The challenges of scaling production
Despite all these new capabilities and the large number of new manufacturers, companies often hit a wall when it comes to scaling up production.
They face a long list of obstacles, from difficulties in obtaining financing; to a shortage of engineers; and the absence of long-term contracts from end manufacturers who purchase components, said Denys Nikolayenko. He’s the CEO and co-founder of Oko Camera, which manufactures ultra-sensitive thermal imaging cameras for unmanned systems.
At the state level, grant programs are available to help with costs, such as those provided by the Brave1 defense cluster or some offered by the Ministry of Economy.
State banks also offer loans with relatively low interest rates, Klymenko told The Arsenal. But this presents another hurdle for startups, since to qualify for credit, they have to meet formal requirements that include operating for at least one year and demonstrating profitability.
Another challenge is the lack of domestic production capacities. Ukraine doesn’t have a full-fledged chemical industry capable of producing plastic materials or components on the same level as China, South Korea, or Japan. Solving this issue would require a reform of the entire industrial sector, and doing so during a war is difficult, Klymenko said.
Zmiyar products. Photo by the manufacturer.
Reliance on the Chinese market
Chinese imports are still heavily relied upon, especially for electronic components. However, Ukrainian manufacturers are working to reduce their reliance on Chinese components by either producing their own products or importing from other countries. Reducing reliance on Chinese exports is strategically necessary due to China’s support for Russia and its reluctance to supply components to Ukraine.
“Thanks to the development of the components sector over the past year, we have moved away from complete dependence on China for certain components, and the market is now competitive,” Lomikovskyi said.
Oko Camera is a Ukrainian company whose products don’t contain any Chinese parts. Since its founding in 2022, the company has focused on local and Western components.
The startup Zmiyar, which produces advanced military hardware, has also started looking for ways to stop relying on the Chinese market. “Right now, it is still cheaper to manufacture in China, but if China completely bans cooperation with Ukraine, we will quickly import these components from Europe, though they will be more expensive,” explained the company’s CEO, Viсtor Shapovalov.
According to him, it would be impossible at this point to completely abandon Chinese components. But Ukrainian manufacturers have already drastically reduced their use.
Key drone components are one major weak point, however, as Ukraine is currently unable to produce them. This primarily concerns electronic elements like resistors, transistors, capacitors, and microprocessors, as well as high-level multilayer printed circuit boards.
To manufacture these components, Ukraine would need not only complex production processes but also large industrial facilities and a substantial domestic market to sustain them. Countries that make such parts can do so because they rely on exports, Shapovalov said.
There are also downsides to using Ukrainian components that may complicate things for some companies.
Using them increases supply stability and reduces risks, but it also doesn’t always lower production costs, and in some cases, increases them, Nikolayenko explained.
The final products are sometimes more expensive than imported alternatives due to Value Added Tax (VAT) on materials and the lack of tax incentives for component manufacturers, he said.
Despite those challenges, Ukrainian manufacturers now cover more than 80 percent of the demand for structural parts and battery modules, as well as over 60 percent for flight controllers, Lomikovskyi noted.
For more complex components, only 15–20 percent of demand is met by Ukrainian companies, but under favorable conditions — with predictable regulations and access to financing — that market can grow, he said.
Localization is also progressing for more complex systems, like components for armored vehicles and artillery, with some key elements already fully produced in Ukraine, according to Shapovalov.
These include thermal imaging cameras with a full production cycle, certain types of communication systems, ballistic calculators, and various types of sights, both standard and thermal.
The introduction of long-term government contracts is also vital for the components market, as it would allow companies to invest in expanding production and developing R&D, manufacturers emphasized.
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1. Critical infrastructure enterprises will take part in air defense
The Cabinet of Ministers has approved a pilot project to allow critical enterprises— those in charge of strategic sectors like energy, water supply, and transportation—to have their own air defense and be integrated into a unified air defense system.
The air defense units will operate exclusively under the commands of military leadership, with verified personnel and digital control, Defense Minister Denys Shmyhal announced. Air defense equipment will be purchased or received in accordance with procedures approved by the Ministry of Defense.
General Cherry, a UAV manufacturer, said the move is necessary in light of massive attacks on critical and military infrastructure. “In fact, this opens up the possibility for enterprises to become part of a unified anti-aircraft missile and drone air defense ecosystem, but with full control and commands from the military leadership,” the company told The Arsenal.
General Cherry said it is considering joining the project. In order to do so, enterprises need to prepare their staff, integrate into the digital air defense control system, and operate in full synchronization with the command. The project could be launched relatively quickly, depending on the enterprises' readiness to meet all requirements.
2. A new EU-Ukraine grant program to boost defense innovations
The Brave1 defense cluster, together with the EU4UA Defence Tech program, announced the launch of a major grant program with a total fund of €3.3 million (approximately $3.8 million). This is the first EU grant initiative aimed at supporting Ukrainian defense innovations, noted First Deputy Prime Minister Mykhailo Fedorov.
The first stage of the program will provide up to €150,000 ($174,000) per project for the development of high-speed interceptors and radars, twice the amount of a standard Brave1 grant. Companies whose technologies have already reached TRL 5–6, meaning they have a working prototype tested in near-real or real conditions, are eligible to apply.
Applications are open until January 14, 2026. Two additional stages are planned for 2026, with topics to be aligned to the needs of the frontline.
3. The government’s list of military-controlled goods gets an update
The Cabinet of Ministers has approved Resolution No. 1514 of November 26, 2025, which expands the list of items subject to state control during export, import, and other international operations.
According to the law, the following categories of military goods and technologies are subject to expansion:
aviation engines and modified components;
laser systems;
сhemical substances;
space vehicles and satellite systems with updated definitions for military use.
Ukrainian orders/legislation we’re tracking:
By: Oksana Zabolotna
Updates to Mobilization Deferral Rules
Resolution of the Cabinet of Ministers of Ukraine №1475 of November 13, 2025
Why it’s important: Clear and consistent rules for deferring conscription-eligible employees are critical for the uninterrupted work of Ukraine’s defense-tech sector. The updated procedure strengthens legal certainty for enterprises that supply the Armed Forces, ensuring they can retain key personnel and maintain stable production cycles, accelerate development of new technologies, and meet urgent defense procurement needs. This directly supports the resilience and scaling of Ukraine’s defense-industrial base during wartime.
Proposals:
The number of employees in these companies eligible for deferral is determined by a quota linked to contracts with the Ministry of Defense.
The list of enterprises eligible for critical-importance status has been expanded, including defense-innovation companies.
Document requirements have been clarified: Enterprises must submit copies of tax returns together with official confirmation of their submission (tax office stamp, electronic receipt, or postal delivery confirmation).
Financial indicators for Diia.City residents can be confirmed through a simplified three-month procedure.
Stage: Entered into force on November 15, 2025.
Initiator: Cabinet of Ministers of Ukraine.
What’s next: Implementation of the resolution.
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Former U.S. Secretary of State Mike Pompeo has joined the advisory board of Fire Point, a Ukrainian drone and missile maker.
The Defense Procurement Agency, which supplies the Armed Forces of Ukraine with UAVs, ammunition, and equipment, has a wide range of vacancies across different departments.
Postup Solutions develops a portable sensor fusion system that protects vehicles from fibre-optic FPV drone attacks. It identifies threats, pinpoints their direction and position, and neutralises them. It can handle standard FPVs at a range of 100 meters.
"The prototype was created during defence tech hackathons and tested in a lab. We're seeking funding to finalise the field-ready product and conduct the real-world experiments," said Vlad Kozak, CEO of the company.
The Postup Solutions team has a successful track record in sensor fusion applications for drone surveys, including MinesEye - a leading landmine detection system in Ukraine.
Ukraine and the Netherlands have signed an agreement to jointly produce drones for Ukraine, with production to take place in both countries. The deal aims to scale up Ukraine’s domestic drone manufacturing capabilities and deliver new unmanned systems to the Ukrainian Armed Forces.
VYRIY, a UAV developer, has added a cruise control system to its serial FPV drones, allowing them to autonomously maintain speed and altitude even if the connection is lost. This upgrade makes drones more resilient to electronic warfare and less likely to crash.
Russia has used an R‑60 air‑to‑air missile on a Shahed drone for the first time. This combination is likely intended to target helicopters and tactical aircraft that hunt Shaheds, effectively turning the drone into a platform for counter‑air operations.
The Ukrainian company Ptashka Drones has introduced an 18‑inch FPV drone. Its increased size allows for greater payload capacity and extended flight range while remaining effective for tactical missions at distances of up to 5 km.
NATO will create a cloud-based service for sharing combat data in order to consolidate information from the Ukrainian battlefield and make it accessible to allies. The new platform, to be hosted on NATO infrastructure, is expected to become operational in January 2026.
