Neros Technologies and the Pentagon’s Office of Strategic Capital (OSC) announced a conditional loan commitment of up to $450 million on Monday, November 2, to expand drone and component production at its factory in Torrance, California. Neros says it is committing $165 million in equity alongside the loan, bringing the total project to $615 million.

The announcement on Neros’s website finishes that sentence by saying the deal gives “the American taxpayer an ownership stake in the company.” The PR Newswire version, timestamped 11:43 a.m. Eastern, ends the same sentence at the $615 million figure. OSC’s release describes a conditional loan made alongside additional private capital and does not mention a government ownership stake.

OSC Wants Neros To Supply Motors And Radios To Other Drone Makers

OSC’s release says the money backs vertically integrated production of drones, ground control systems and components including motors, radios, flight electronics, sensors and batteries, and that the Torrance plant would also sell NDAA-compliant parts to other American and allied drone manufacturers.

James R. Shanahan, OSC’s senior managing director for investments, said the United States has to build complete drone systems at competitive prices “for both military and non-military applications.” OSC Director David A. Lorch, who is also a senior advisor to Deputy Secretary of War Steve Feinberg, said Neros has already shown it can design, build and deliver small drones.

Nothing is final yet. Before financial close, Neros still has to satisfy financial, legal, technical, investment and due-diligence requirements, the same kind of conditions OSC attached to its $820 million commitment to Performance Drone Works.

Neros Needs Sixteen Times Its August Output To Reach 2028

CEO Soren Monroe-Anderson says the capital puts Neros “on the path to one million drones per year by 2028.” Neros was building about 1,200 drones a week in August, or roughly 62,000 a year, so reaching that target takes about a sixteenfold increase in output.

The million-drone goal is older than the loan. Monroe-Anderson repeated it when Neros raised $250 million at a $2.5 billion valuation in August, and the company named an interim target of 10,000 drones a month by the end of 2026. Its 14,000-drone Gauntlet II order in September, worth more than $100 million, is less than three months of production at the August rate.

Neros Is The Second Company From The Journal’s May List To Sign

The Wall Street Journal reported in May that the Pentagon had identified Performance Drone Works, Unusual Machines and Neros as candidates for OSC financing that could combine debt and equity. PDW signed its conditional loan on July 31. No OSC release posted on war.gov since mid-July names Unusual Machines.

I closed DroneXL’s May article on those talks by asking whether equity would survive into the final terms or give way to OSC’s usual conditional loan. PDW got a loan. Neros got the same structure on paper, and its website says the deal gives taxpayers an ownership stake. Neither Neros’s two announcements nor OSC’s release says what form that stake takes or how much of Neros it covers.

Between the two drone deals, OSC announced commitments to Sila Nanotechnologies, Niron Magnetics, Sunrise Energy Metals, Wolfspeed, PsiQuantum, Antheia and Stoke Space. Sila’s $1.4 billion covers a battery cell factory aimed partly at military drones, but none of the seven builds drones. Under Secretary of War Emil Michael told the White House drone industry meeting on August 18 that more OSC deals were coming within two weeks, and Neros is the first drone maker named in an OSC release since.

DroneXL’s Take

Neros is the right company for this money. It delivered its full 2,400-drone Gauntlet I order by July, when most of the 11 winners were still short of theirs. I have no problem with OSC lending money to a drone maker that actually ships.

The ownership stake is a different matter, because it would turn Washington from a creditor into a shareholder in a company that competes for Pentagon orders against the same drone makers OSC wants it to sell motors and radios to. Every Gauntlet rival that buys Neros parts has a reason to know what the government owns and on what terms. Across the three announcements, the only description of that stake is one clause on Neros’s website. OSC should publish the terms before financial close, because that is when the stake, if there is one, becomes real.

Sources: Office of Strategic Capital, US Department of War, Neros, PR Newswire.

DroneXL uses automated tools to support research and source retrieval. All reporting and editorial perspectives are by Haye Kesteloo. Read our editorial standards.