The Aerospace & Defense sector for Canaccord Genuity, a global investment bank, has just published an expansive whitepaper on unmanned systems titled “Age of Autonomy: Economic Opportunities in the New Drone Industry.” This whitepaper provides a deep-dive analysis of all major aspects of the drone sector, with the discussion organized into military and commercial applications.
Executive summary
The military drone (unmanned) market is undergoing a revolution in operating capabilities and change as the U.S. DoD increasingly focuses on near-peer threats and asymmetrical warfare. While this market is relatively mature, we believe the next five years will be defined by a rapid proliferation of unmanned systems across all domains as capabilities in AI, swarming, and autonomy open up new applications. Moreover, the DoD is aggressively expanding its supplier base as it focuses on technology insertion and innovation in the area of unmanned.
We believe the commercial drone market is reaching a point of maturity that will represent a positive inflection point. The technology and opportunity are enabling forward movement on the regulatory front, which remains the key factor in the timing of many commercial market opportunities. However, we believe the space is increasingly investable and see several positive trends and companies that we believe will define this market over the next 12-36 months.
The following are the key trends that we believe will help to define the unmanned, or drone, landscape over the next several years:
- The military will remain the technological standard as emerging threats evolve and the pivot to near-peer competition increases.
- The military unmanned investment landscape is relatively mature, but we continue to see a scarcity of public equity investment opportunities as a key support for valuations.
- Leading private unmanned companies to watch include Ascent Vision Technologies, General Atomics, Martin UAV, and Sierra Nevada.
- The counter-UAS market (defense and civil) is starting to see significant growth as drone threats evolve and disruptions become increasingly frequent.
- Drone package delivery represents the next major market, but adoption and integration will likely go slower than anticipated due to regulatory and technical issues.
- However, the technology required to make drone delivery possible, such as electric VTOL flight, computer vision, and autonomous flight and navigation, is advancing rather quickly.
- We believe drone delivery represents the largest potential drone market and is thus too large to ignore from an investment standpoint.
- Industrial applications are starting to gain traction (representing the market with the most near-term upside potential), and we see near-term growth in construction, agricultural, infrastructure, public safety and other applications, but these are likely to remain niche markets.
- The market won’t support the number of platforms currently under development, but we believe there is considerable opportunity for component suppliers (propulsion, avionics, sensors, software, communications), who by default will work with a range of OEMs as the landscape evolves.
- We believe the broader ecosystem will create significant investment opportunities and expect the infrastructure to support broader drone adoption (airspace management, maintenance, systems integration) to be a key source of innovation and returns.
- Much of the initial investments have come from larger companies and leading OEMs, which possess the system technology integration and certification capabilities to turn large opportunities into market revenues. However, we see substantial innovation coming from the smaller companies that are attracting greater amounts of capital and attention.
- Several major aerospace companies, including Boeing (BA-NYSE : $313.37 | HOLD; Analyst: Ken Herbert), Airbus and Textron (TXT), are developing prototype urban air mobility (UAM) vehicles. That being said, the regulatory hurdles for unmanned transportation of human beings is likely to be even more stringent than for drone delivery, and market acceptance will likely take longer than expected.
- The FAA, while attempting to be fairly accommodative to commercial drone operators, is still in the planning stages of establishing the regulatory requirements necessary to enable U.S. nationwide unmanned commercial flights.
- Considering the challenges in approving wider commercial drone activity in places like the United States and Europe, it is likely that developing countries like China and India will leapfrog US enterprise in expanding drone-based services thanks to more relaxed regulations.
- The combination of Canada’s sparse population distribution and adverse weather conditions makes it an interesting test bed for delivery/logistics- related drone applications. In addition, Canadian regulators have demonstrated a willingness to adapt to this rapidly evolving technological landscape.
- We expect the public markets to play a greater role in financing the industry growth, and we view the successful U.S. listing of EHang Holdings as a positive indicator.
To obtain your free copy of this 84-page report, contact Ken Herbert at Canaccord Genuity:
+ 1-415-229-0646