At Seraph, we’ve helped hard-tech startups and established OEMs navigate the transition from prototype to volume production across automotive, aerospace, and defence. The pattern is remarkably consistent: the companies that stumble at scale aren’t the ones with inferior technology. They’re the ones that underestimated what it takes to build it, repeatedly, reliably, and profitably. The eVTOL industry is about to learn this lesson at speed. 

The Certification Milestone Is Not the Hard Part 

There is a prevailing narrative in the eVTOL sector that once an aircraft achieves type certification, the path to commercial success is largely clear. Certification is undeniably difficult and rightly demanding. But it proves that an aircraft can be built safely. It does not prove it can be built at rate, at cost, or at the quality levels required to sustain commercial operations. 

The automotive industry has decades of hard-won experience on this point. Tesla’s “production hell” during Model 3 ramp-up is the most public example, but the pattern repeats across every sector where complex engineered products must transition from hand-built prototypes to volume manufacturing. The gap between building one and building thousands is not linear. It’s exponential in difficulty. 

eVTOL manufacturers are entering this gap now, and most are doing so without the institutional manufacturing knowledge that legacy OEMs accumulated over generations. 

Design for Manufacturability Cannot Be an Afterthought 

Too often in the eVTOL sector, product design is led by aerospace engineers optimising for performance, weight, and certification compliance, with limited input from manufacturing, quality, or supply chain functions. The result is an aircraft that performs brilliantly in test but presents significant challenges on the production line. 

Tolerance stacking issues that were manageable in a hand-built prototype become systemic quality problems at rate. Assembly sequences that worked with highly skilled technicians become bottlenecks when performed by a broader workforce. Material specifications chosen for performance create supply chain vulnerabilities when demanded at volume. 

These aren’t hypothetical risks. They’re the exact problems that have derailed launches in automotive and aerospace for decades. The eVTOL sector is not exempt because its aircraft are novel. If anything, the novelty makes these risks more acute, because there’s no established playbook to fall back on. 

The Supply Chain Is Not Ready, And Most Companies Don’t Know It 

New eVTOL companies face a supply chain challenge that is qualitatively different from what traditional aerospace manufacturers encounter. Many cannot access established Tier 1 suppliers, either because their volumes are too low to be commercially attractive or because the components they need don’t yet exist in an industrialised form. 

This forces startups toward smaller, niche suppliers with genuine technical capability but no experience of volume production. The components may be excellent when hand-built in small quantities. Whether those same suppliers can deliver consistent quality at 10x or 100x the volume, on time, with the process controls required for aviation-grade production, is a fundamentally different question. 

The tendency is to evaluate suppliers primarily on piece price and technical capability. Detailed assessments of production capacity, quality management systems, process maturity, and financial stability are treated as secondary. This is a mistake that compounds rapidly. When a critical supplier fails to deliver, whether on quality, quantity, or schedule, the cost of remediation through expedited freight, line stoppages, engineering workarounds, and quality containment activities almost always exceeds any piece-price savings that motivated the original sourcing decision. 

Workforce Readiness Is Earned, Not Assumed 

Building a novel aircraft requires a workforce that doesn’t yet exist in the labour market. There are no experienced eVTOL production technicians. Every line worker will be learning a new product, new processes, and often new materials simultaneously. 

Companies that underinvest in training, and this is remarkably common, pay for it through reduced line speeds, elevated defect rates, and workarounds that become embedded in the production culture. Half-hour training sessions before putting a technician on the line do not build capability. They create the illusion of readiness while setting the stage for quality and throughput problems that are far more expensive to fix after the fact. 

Alongside training, measurement matters. Lineside throughput is usually tracked. But broader operational performance, first-pass yield, rework rates, supplier quality metrics, inventory turns, is often measured inconsistently or not at all in early-stage production environments. If you’re waiting for the financial statements to tell you whether the operation is working, you’re several months too late.  

Leadership Experience Matters More Than You Think 

Start-ups, by nature, tend to hire for potential, cultural fit, and cost efficiency. These are reasonable considerations in early-stage product development. They become dangerous in the launch and post-launch phases, where execution depends on operational leadership that has navigated scale-up before. 

We’ve seen this repeatedly: key roles in purchasing, quality, logistics, and production management filled by individuals who are talented but have never led a programme through launch. They don’t know what they don’t know. The result is predictable, sourcing decisions that don’t account for total supply chain cost, quality issues that escalate because the team lacks the experience to contain them early, and logistics planning that collapses under the demands of actual production schedules. 

This isn’t a criticism of the individuals. It’s a structural risk created by underestimating the experience required for roles that are, in practice, some of the most consequential in the organisation during ramp-up. 

The Cost of Avoiding Outside Support 

There is a strong cultural resistance in many eVTOL start-ups to engaging external operational expertise. The reasoning is understandable: budgets are tight, the team is passionate, and there’s a belief that the people who designed the aircraft know best how to build it. 

But designing and manufacturing are different disciplines, and the cost of learning manufacturing lessons on the job, through quality escapes, supplier failures, line stoppages, expedited freight, excess inventory, and workforce turnover, almost always exceeds the cost of engaging experienced operational support earlier. 

The companies that reach stable, profitable production fastest are consistently the ones that recognise this distinction early and bring in manufacturing, supply chain, and quality expertise before problems become crises. 

The Window Is Now

The eVTOL industry’s transition from prototype to production is not a future challenge. It is happening now. Certification timelines are crystallising, delivery commitments are hardening, and the operational decisions being made today, on supply chain architecture, manufacturing strategy, workforce development, and organisational readiness, will determine which companies lead this market and which become cautionary tales. 

The technology is extraordinary. The operational fundamentals required to deliver it at scale are not new. They’re well understood. They just require the discipline, humility, and experience to execute them.

Seraph is a global operations and management consulting firm with deep experience in new product introduction, supply chain resilience, and operational excellence across aerospace, automotive, and advanced manufacturing. We work inside organisations to drive launch readiness and production performance. Contact us to schedule a discovery call, or explore our case studies to see how we’ve helped manufacturers navigate scale-up. 

Executive Summary

Governments across Europe have made clear commitments to increase defence spending, strengthen sovereign capability and reduce reliance on external suppliers. The funding is substantial, but more importantly, it is sustained and politically anchored. This is not a short-term stimulus cycle; it is a permanent structural shift in how Europe thinks about security and industrial resilience.

At the same time, the automotive sector is working through its own transformation. Electrification, demand volatility and global competition have created pressure on margins and left parts of the industrial base underutilised. In many cases, capacity exists, but it is no longer aligned with future automotive demand.

These two trends are increasingly intersecting. Defense requires industrial capacity at scale; automotive has capabilities, facilities and talent that are, in some areas, not fully deployed.

From our work at Seraph across both sectors, what we are seeing is not a wholesale pivot, but a growing number of pragmatic, targeted moves. Companies are not abandoning automotive — they are looking for ways to extend and rebalance their portfolios.

That said, entering defence is not simply a matter of redirecting production. It requires a different way of operating, a different approach to customers, and a level of organisational discipline that many companies underestimate at the outset.

A Structural Shift in Demand — and in Expectations

It is easy to frame the current defense spending environment as a reaction to geopolitical events. While that is certainly the catalyst, it understates the depth of the change underway.

Across Europe, defense budgets are rising not just in absolute terms, but as a share of GDP, with multi-year commitments now embedded in national policy. At EU level, large-scale programmes are being introduced to coordinate investment and encourage intra-European sourcing.

What matters operationally is that demand is not the constraint. The real challenge is converting that demand into output.

Defense manufacturers are facing long order backlogs, constrained supply chains and limited surge capacity. In several areas — from munitions to mechanical subsystems — production simply cannot be scaled quickly enough using the existing industrial base.

This is why governments and primes are increasingly looking beyond traditional defense suppliers. The conversation has shifted from “who designs the system” to “who can actually build it at scale, reliably, and within Europe.”

That shift has direct implications for the automotive sector.

Why Automotive Capabilities Are Coming Into Focus

At its core, the automotive sector has developed a set of industrial strengths that are difficult to replicate quickly elsewhere. These include the ability to run complex, multi-tier supply chains; to manufacture at scale with high levels of precision and repeatability; and to integrate mechanical, electronic and increasingly software-driven systems into cohesive products.

When we look at defence requirements today, particularly in Europe, there is a growing need for exactly these capabilities.

That does not mean the sectors are identical — far from it. Defense has different tolerances, different certification requirements and a very different commercial structure. However, the underlying engineering and manufacturing competencies are often closer than expected.

In practical terms, this creates a number of natural points of alignment:
• Mechanical and precision components, where automotive suppliers already operate at tight tolerances and high volumes
• Power systems and thermal management, which are becoming increasingly important in both traditional and hybrid military platforms
• Electronics and control systems, particularly as defense platforms become more software-defined
• Platform engineering and systems integration, where experience from automotive programmes can be highly relevant

From Seraph’s perspective, the most interesting opportunities are not at the level of complete platforms, but within subsystems and components — areas where defence is struggling to scale and where automotive suppliers can integrate more readily.

What We Are Seeing on the Ground

This is already starting to play out across Europe. In Germany and other industrial regions, a growing number of mid-sized companies are exploring defense opportunities, often building on existing product lines. This is sometimes driven by necessity — declining automotive volumes forcing a search for alternative revenue streams. In others, it is a more proactive strategy to position for long-term growth.

Larger suppliers are also beginning to test the water, typically through partnerships with defence primes or by adapting specific components for military applications.

What is notable is that very few companies are attempting a wholesale pivot. The more successful approaches tend to be incremental — starting with a specific capability, a defined customer need, and a limited scope of engagement.

The Reality Check: Defence Is a Different Operating Environment

One of the consistent themes we see in early-stage discussions is a degree of underestimation of how different the defense sector is in practice. From an operational standpoint, several differences are worth highlighting.

First, demand is less predictable and more programmatic. Automotive production is built around relatively stable volumes and clearly defined product cycles. Defense programmes, by contrast, can span decades, with funding, timelines and specifications evolving over time.

Second, product lifecycles are significantly longer. Equipment is expected to remain in service for 20 to 40 years, which has implications for everything from materials selection to documentation and aftermarket support.

Third, the regulatory environment is materially more complex. Export controls, security requirements and certification processes introduce layers of governance that are unfamiliar to many automotive organisations.

Finally, procurement itself operates differently. Defense is, in most cases, a government-driven market. Relationships, track record and credibility play a far greater role than in typical automotive sourcing decisions, and timelines are often measured in years rather than months.

None of this should be seen as a deterrent, but it does mean that a “lift and shift” approach rarely works. Companies that succeed tend to recognise early that they are entering a different system and adapt accordingly.

Where to Play — Starting with a Clear View of Fit

The first strategic question for any automotive player is not whether to enter defence, but where to focus. In our experience, the companies that make the most progress are those that start with a clear-eyed assessment of their own capabilities and how these map onto specific areas of demand. This typically involves three steps.

1. Understand Your Own Capability Base

This goes beyond high-level descriptions and requires a detailed view of your:

• Core manufacturing processes and limits
• Existing quality systems and certifications
• Engineering capabilities across mechanical, electrical and software domains
• Supply chain dependencies and potential constraints

2. Identify Where Defence Needs Capacity

At the same time, it is important to understand where defence is currently constrained. These are often not the headline systems, but the components and subsystems that sit beneath them — areas where production capacity has not kept pace with demand.

3. Focus on Credible Entry Points

In most cases, the most effective entry strategy is relatively focused:

• Supplying components or subsystems rather than complete platforms
• Partnering with established defence primes
• Targeting areas where scaling production is a clear priority

There is often a temptation to think in terms of large, visible programmes. In reality, value is more often created by becoming a reliable supplier in less visible, but critical parts of the value chain.

Preparing the Organisation — What Needs to Change

Once a company has identified where it wants to play, the next challenge is preparing the organisation to operate effectively in a defence environment. This is where many initiatives slow down. From an operations perspective, four areas typically require attention.

Production Systems

Automotive production is optimised for volume and efficiency. Defence requires greater flexibility, with smaller batch sizes, higher levels of customisation and full traceability at component level.

Supply Chain

Defense supply chains are increasingly shaped by geopolitical considerations. There is a strong emphasis on sovereignty and resilience, which may require rethinking sourcing strategies and reducing dependence on certain regions.

Compliance and Governance

This is often the most significant gap. Export controls, security clearance, data handling and certification processes all require dedicated capability and cannot be managed as an extension of existing systems.

Workforce and Culture

Defense programmes demand a different level of documentation, discipline and long-term accountability. This can require both training and, in some cases, the introduction of new roles or teams. A pattern we see repeatedly is that manufacturing capability is rarely the limiting factor. The real challenge lies in building the surrounding systems that allow that capability to be deployed in a compliant and credible way

Entering the Market — Practical Routes

There are several ways for automotive companies to enter the defense sector, but in practice most fall into three categories.

The most common route is to become a supplier to an existing defense prime. This allows companies to leverage their existing capabilities while relying on the prime for system integration and customer access.

A second route is through partnerships or joint ventures, particularly where there is a need to combine manufacturing scale with defence-specific expertise.

Direct contracting with governments is possible, but tends to be limited to specific niches and requires a level of procurement capability and credibility that takes time to build.

From what we see, the most effective approach is usually to start within the existing ecosystem and expand from there, rather than attempting to establish a standalone position too early.

Scaling — From First Contract to Sustainable Position

Securing an initial contract is an important milestone, but it is not, in itself, success.

The real value lies in building a position that can scale with the market.

This typically involves:

• Standardising components and processes where possible
• Maintaining flexibility between automotive and defence production
• Investing selectively in capacity where there are clear bottlenecks
• Building long-term relationships with customers and partners

One of the advantages automotive companies bring is their experience in industrialisation — the ability to move from prototype to scaled production efficiently. In defence, this capability is increasingly valued, particularly as the focus shifts towards higher-volume, more affordable systems.

Common Pitfalls

There are a number of recurring challenges that are worth calling out.

Some companies approach defence as simply another customer segment, without recognising the structural differences in how the market operates.

Others underestimate the complexity of procurement and compliance, leading to delays or failed bids.

There is also a tendency, in some cases, to overcommit capacity before demand has fully materialised.

Perhaps most importantly, cultural differences are often overlooked. The pace, decision-making processes and risk tolerance in defence are not the same as in automotive.

These are all manageable, but they require awareness and deliberate management.

What Good Looks Like

At an organisational level, companies that succeed in defence tend to develop a slightly different operating model alongside their core automotive business.

This often includes:

• Dedicated teams focused on defence programmes
• Adapted production systems that can handle lower volumes and higher traceability
• Strengthened compliance and governance capabilities
• A commercial approach built around long-term programmes rather than short-term transactions

Importantly, this does not require abandoning existing strengths. The objective is to extend them into a new context.

Where to Start — Practical Next Steps

For operational leaders, the priority is to move from concept to action.

In the near term, this typically means:

• Conducting a detailed capability assessment
• Mapping potential customers and partners
• Initiating early discussions with defence players
• Identifying key gaps in compliance and certification

Over the following 6–12 months, the focus shifts towards pilot projects, initial contracts and targeted investment.

The companies that move early tend to benefit from learning effects and relationship building that are difficult to replicate later.

Conclusion: A Pragmatic Opportunity

The intersection between automotive and defense is becoming increasingly relevant in Europe. What remains uncertain is how broadly and how quickly it will develop.

From our perspective, the opportunity is real, but it is also nuanced. Not every capability will translate, and not every company will find a natural position. For those that do, the prize is not just incremental revenue. It is the opportunity to participate in the rebuilding of Europe’s industrial base, while making more effective use of existing assets and capabilities.

The companies that approach this with a clear understanding of their strengths, a realistic view of the challenges, and a willingness to adapt their operating model are likely to be the ones that establish a durable position.

The rest may find that the window, while open today, does not remain so indefinitely.

At Seraph, we specialise in operational due diligence and industrialization for automotive and defense manufacturers.

Contact us www.seraph.com/contact-us/ to schedule a rapid readiness review.

The eVTOL industry is entering its most consequential phase, the shift from certification milestones to commercial operations. For manufacturers, investors, and supply chain partners, understanding these trends is no longer optional. It is the difference between leading the market and being overtaken by it. 

The Hype Cycle Is Over. The Execution Cycle Has Begun. 

After years of prototypes, funding rounds, and conceptual renders, the eVTOL industry is reaching a genuine inflection point. Regulatory bodies are issuing certification frameworks, order books are deepening, and the first commercial operations are within striking distance. The global eVTOL market, valued at roughly $2.8 billion in 2025, is projected to grow at a compound annual growth rate exceeding 30% through the end of the decade, with some estimates placing it north of $50 billion by 2035. 

But market projections don’t build aircraft, and order backlogs don’t deliver passengers. The companies that will define this industry are the ones executing on eight critical fronts. 

1. Commercial Launch Is No Longer Theoretical 

2026 is the year eVTOL moves from “coming soon” to “operational.” Joby Aviation has entered the advanced stages of FAA certification and is pursuing commercial air taxi services in Dubai. Archer Aviation has an order book exceeding $6 billion and is targeting shuttle services in high-congestion corridors like Los Angeles and New York. In Europe, Volocopter has launched a sandbox programme to simulate real-world passenger and emergency medical operations. 

The FAA’s new Special Federal Aviation Regulation for powered-lift aircraft, the first new civil aircraft category since helicopters, has created a defined certification path. EASA’s SC-VTOL framework is doing the same in Europe. For manufacturers, this means the regulatory ambiguity that once justified slow timelines has largely been resolved. The pressure now is on production readiness. 

2. Battery Technology Is Evolving Fast, But Not Fast Enough 

Current lithium-ion battery technology limits most eVTOL aircraft to approximately 100–150 miles per charge. That’s sufficient for urban hops, but falls short of the regional connectivity that would unlock the sector’s full commercial potential. 

Progress is real. Semi-solid batteries are emerging as the near-term upgrade for 2026-era aircraft, offering meaningful improvements over conventional lithium-ion while manufacturers refine full solid-state production processes, a capability most expect to reach commercial scale between 2028 and 2030. EHang has already demonstrated solid-state battery flights achieving 48 minutes of continuous operation, roughly a 90% improvement over traditional systems. Advances in silicon-based anodes and lithium-sulphur chemistry are pushing energy densities toward 400 Wh/kg, compared to 250–300 Wh/kg for today’s standard cells. 

3. Urban Air Mobility Is Being Built City by City 

The urban air mobility vision, point-to-point travel that bypasses surface congestion, is moving from concept to city-level planning. Dubai, Los Angeles, Shenzhen, Singapore, Seoul, and Bangkok are among the cities actively developing regulatory sandboxes, air traffic management frameworks, and vertiport networks. In Dubai, Joby Aviation is constructing a network of vertiports at locations including Dubai International Airport and Palm Jumeirah. 

High-density Asian cities, particularly Beijing, Seoul, and Singapore, are taking aggressive positions on low-altitude air traffic management, recognising that the infrastructure layer, not just the aircraft, will determine which cities are first to market.  

4. Hybrid-Electric Propulsion Is the Pragmatic Bridge 

Fully electric remains the long-term goal, but hybrid-electric architectures are gaining ground as a practical solution for extending range and payload capacity. By combining electric propulsion with a combustion-based range extender, hybrid systems allow operators to serve routes beyond the 100–150 mile ceiling of current battery-only designs, opening up regional aviation corridors that pure electric cannot yet reach. 

This isn’t a compromise. It’s a commercially rational response to where battery technology is today, and it positions manufacturers to transition to fully electric as energy density improves. The automotive industry learned this lesson: the path from internal combustion to full electrification ran through hybrid, and the companies that resisted the interim step often lost market share. 

5. The Partnership and Consolidation Phase Is Accelerating 

The eVTOL landscape is rapidly consolidating around strategic alliances. Joby Aviation has deep backing from Toyota. Archer has manufacturing partnerships with Stellantis and route agreements with United Airlines. At CES 2026, Archer announced integration of Nvidia’s IGX Thor AI platform into its Midnight aircraft. Volocopter has been absorbed into the Diamond Aircraft Industries portfolio. Boeing’s Wisk and Embraer’s Eve continue to leverage their parent companies’ manufacturing and certification expertise. 

This isn’t just about capital. These partnerships bring production know-how, supply chain depth, and regulatory experience that pure-play startups simply cannot build fast enough on their own. At the same time, companies without strong manufacturing partners are increasingly vulnerable as the industry shifts from design to volume production. 

6. Vertiport Infrastructure Is the Emerging Bottleneck 

You can certify an aircraft. You can build an aircraft. But you can’t operate an aircraft without somewhere to land, charge, and turn it around. Vertiport infrastructure is rapidly becoming the most significant constraint on commercial eVTOL deployment. 

The energy demands alone are substantial. According to the National Renewable Energy Laboratory, an average vertiport requires a minimum charging capacity of 1 megawatt, equivalent to powering approximately 800 homes. A busy multi-pad facility could consume over 5 megawatts, requiring dedicated grid infrastructure, substations, and potentially on-site energy storage systems of 1 to 5 MWh. The estimated infrastructure cost per vertiport for charging equipment alone ranges from $500,000 to $2 million, before accounting for land, construction, and grid upgrades. 

The good news: investment is surging. Major real estate developers are beginning to incorporate vertiport-capable infrastructure into premium commercial developments. But the pace of vertiport construction will ultimately determine how quickly operators can scale from a handful of showcase routes to viable urban networks. 

7. Autonomy Is Coming, But Piloted Operations Will Dominate the Near Term 

EHang’s EH216-S became the first pilotless eVTOL to conduct human-carrying flights under Thailand’s Advanced Air Mobility sandbox initiative in late 2025, a milestone in autonomous flight. Archer’s Nvidia partnership is explicitly designed to make the Midnight aircraft “autonomy-ready.” The trajectory is clear. 

But for the first wave of commercial operations, human pilots will be in the cockpit. Public trust, regulatory caution, and the complexity of urban airspace management all point to a phased transition. The economics are compelling, removing the pilot is the single largest lever for reducing per-flight operating cost, but the regulatory and social licence requirements are non-trivial. 

8. Cost Competitiveness with Helicopters Is the Real Benchmark 

The economic proposition for eVTOL isn’t about competing with ground transport on price, at least not initially. The real market opportunity is offering a cheaper, quieter, and more accessible alternative to conventional light helicopters for VIP services, airport transfers, medevac, and corporate shuttle operations. 

Helicopter operating costs are substantial, driven by fuel, maintenance intensity, noise restrictions, and pilot wages. eVTOL aircraft promise significantly lower per-flight-hour costs through electric propulsion, simplified drivetrains with fewer moving parts, and reduced maintenance requirements. If operators can deliver reliable scheduled service at a price point meaningfully below helicopter charter, the addressable market expands dramatically. 

What Comes Next 

The eVTOL industry is past the point where a compelling aircraft design is enough. The winners in this space will be defined by their ability to scale production, manage complex supply chains, launch into regulated markets on schedule, and sustain operational performance after day one. 

That’s a very different capability set than what gets a company through prototype and certification. It’s the capability set that separates manufacturers from companies that built a prototype. 

Seraph is a global operations and management consulting firm that helps manufacturers navigate the transition from development to scaled production. From new product introduction to supply chain resilience and operational excellence, we work inside organisations to deliver results, not recommendations. Contact us to discuss how we can support your eVTOL programme. 

Introduction: Reindustrialising for Security

European defence manufacturing stands at a critical inflection point. As outlined in Seraph’s report “European Defence Manufacturing Ramps Up: 10 Actions for Manufacturers“, Europe faces an urgent need to scale its industrial base to match geopolitical realities.

Europe is accelerating its rearmament efforts in response to a resurgent Russia, evolution in US strategy and broader geopolitical instability.  Defence manufacturers are being called upon to deliver at a pace and scale not seen since the Cold War. The EU has recently announced the Security Action for Europe (SAFE) instrument,  a large-scale defence investment programme worth €150 billion . SAFE is the first pillar of the European Commission’s ReArm Europe Plan/Readiness 2030 which proposes to leverage over €800 billion in defence spending.

With defence spending rising and the strategic landscape evolving, operational leaders must navigate a complex threat environment—one in which supply chains, particularly those involving China, present growing risks.

So, while the European defence industrial base ramps up production, it is doing so with a critical vulnerability: deep, and in some cases opaque, dependencies on Chinese supply chains. This article explores the specific risks these dependencies pose, the mechanisms through which they could be exploited, and what strategies operational leaders should consider to ensure resilience in the long run.

Why Defence Manufacturing Is Uniquely Vulnerable

The unique operational demands of military supply chains distinguish them from conventional commercial ones in three key respects:

1. Long Development Timelines: Advanced military systems often require 5–10 years from design to deployment. Dependencies embedded at the early stages become difficult to unwind later.
2. Limited Substitutability: Many critical raw materials (CRMs) used in defence have no near-term substitutes. Their performance characteristics in missiles, radar, and space systems are often unmatched.
3. Geopolitical Exposure: Adversaries can exploit these dependencies in times of conflict or coercion. As the Ukraine conflict illustrates, supply resilience is not optional—it is a prerequisite for sustained operations.

Supply Chain Dilemma: Ramping Up Under Constraint

Europe’s defence manufacturers are being asked to scale quickly. Ammunition stocks are depleted. Equipment must be replaced or modernised. Collective defence readiness across NATO and the EU has become a top political priority.  Yet Europe’s industrial base is fragmented, undersized, and has limited surge capacity due to decades of underinvestment.

In this race against time, manufacturers naturally look to global supply chains to fill capacity and sourcing gaps. And that poses a risk.

Examining the Supply Chain – The China Risk

This need for expedience has led to increased entanglement with, what the EU terms a ‘systemic rival’, China. From critical raw materials (CRMs) and rare earth elements (REEs) to electronic components and software modules, many inputs essential to modern defence platforms are produced—entirely or primarily—by Chinese firms or within Chinese-controlled markets.

The European Commission currently designates 34 raw materials as “critical” due to their economic importance and supply risk. For eight of these—including bismuth, magnesium, and manganese—EU imports from China exceed 65%, a threshold indicating dangerous concentration. In some cases, the dependency is even more severe: China refines 87% of the world’s rare earths and produces 83% of the permanent magnets used in electric motors, missile guidance systems, and advanced sensors.

Recent Chinese export controls on gallium and germanium—used in advanced electronics and military applications—underscore the political leverage Beijing can exert through its dominance in strategic materials. As relations between the EU and China continue to cool, the risk of sudden supply shocks looms large.

The defence sector’s vulnerability isn’t limited to raw materials. Chinese-sourced dual-use components such as microchips, batteries, and optical elements are embedded in supply chains for everything from drones and radar to communications systems. Even tier-one or tier-two European suppliers often unknowingly rely on components with Chinese origins.

In the defence context, China’s leverage manifests in three core risk vectors:

1. Access Disruption: Political or military crises could result in sudden cutoffs of critical raw materials or component supplies, delaying production or maintenance of critical systems. China has a track record of using economic coercion as a geopolitical tool. The 2010 embargo on rare earth exports to Japan demonstrated how even modest supply chain leverage could be weaponized. More recently, Beijing has used informal pressure and bureaucratic hurdles to limit exports of gallium and germanium, two metals crucial to semiconductor and military-grade electronics production.
2. Quality and Counterfeit Risks: Investigations have previously found counterfeit or substandard electronic components originating from China embedded in Western military platforms, raising serious questions about reliability and security
3. Cyber and IP Threats: Chinese-made components and software have been associated with risks of hidden vulnerabilities or ‘backdoors’, potentially compromising the integrity and confidentiality of defence systems. Modern military systems increasingly integrate artificial intelligence, satellite communications, and advanced sensors. Many of these technologies are built on components from commercial sectors where China dominates production. For example, the global semiconductor industry remains critically exposed, with China playing a pivotal role in the back-end processing and assembly stages. Moreover, in a worst-case scenario, Chinese suppliers—under direction from the state—could restrict software updates, deny access to system upgrades, or introduce delays that impact system availability.

Strategic Blind Spots

The allure of low-cost components and rapid procurement timelines has historically led many European defence programs to tolerate or overlook third-country exposure in their supply chains. However, as the European Defence Industrial Strategy (EDIS) and White Paper on Defence Readiness 2030 highlight, this approach is increasingly seen as a systemic vulnerability.

One pressing issue is the lack of visibility across multi-tiered supply chains. Many prime contractors rely on mid-tier suppliers who, in turn, source globally without full transparency. This makes it difficult to assess cumulative exposure to Chinese inputs, especially for complex platforms with thousands of components.

“The mid-stream part of a defence manufacturing  supply chain is a noted blind spot”.

Ambrose Conroy, Founder & CEO, Seraph.

The beginning and the end of defence supply chains are often clear. Upstream materials such as aluminium and steel for example.  Downstream, the processes for assembling complex equipment such as aircraft are clearly known and managed.  But the mid-stream elements often contain thousands of components from thousands of companies across various regions.  Several tiers of suppliers are involved adding high levels of complexity, increasing risk of bottle-necks and points of failure.

Risk Mitigation for Operational Leaders: 6 Actions

In order for manufacturers to play an active role in anticipating, absorbing and reacting to disruptions, there is an increased need for risk mitigation actions.

European defence manufacturers must shift from reactive supply chain management to strategic resilience planning. Seraph recommends the following priorities:

1. Map Tier-N Dependencies Move beyond Tier-1 suppliers. Understand where CRMs, semiconductors, and specialised electronics originate.

Implementation Framework:

• Conduct deep-tier supplier audits to trace components back to their ultimate source
• Map critical path dependencies that could be subject to Chinese control or influence
• Identify “choke points” where Chinese suppliers hold dominant market positions
• Establish regular monitoring systems to track changes in supplier ownership and control structures

2. Dual-Source Critical Components Where China is the dominant source, identify and qualify alternative suppliers—even if they are more expensive or require co-investment. Examples include processors, capacitors, and rare earth magnets.
3. Invest in Domestic and Allied Processing Support EU initiatives like the Critical Raw Materials Act, which aims to process at least 40% of strategic materials domestically by 2030. Defence firms should align sourcing strategies with EU industrial policy and participate in public-private partnerships and government or European Defence Fund-backed consortia.
4. Build Strategic Stockpiles Like fuel or ammunition, key inputs should be stockpiled. This is especially true for components with long lead times or volatile availability.
5. Redesign for Resilience Where feasible, redesign components to reduce reliance on scarce inputs. Embed design-for-resilience principles in new platforms and upgrade cycles.
6. Embed Supply Chain Risk in Board-Level Governance Make supply chain resilience a standing agenda item. Incorporate risk metrics, scenario analyses, and progress on diversification into quarterly reviews.

Conclusion: A New Strategic Posture

Europe’s rearmament plan comes at a crucial time. European sovereignty in defence manufacturing is an essential part of the plan but cannot be achieved without decisive action on supply chain vulnerabilities.

China-related risks must be treated with the same strategic urgency as cyber threats or force readiness. The choice is not whether to decouple entirely from China—that is neither realistic nor desirable. The choice is whether to identify and mitigate risks before they materialise.

Operational leaders in Europe’s defence sector hold a pivotal role in this transformation. With the right focus, tools, and political support, Europe can reindustrialise with resilience at its core—ensuring its defence base is ready not just for today’s challenges, but for those that lie ahead.

Next Steps: Is Your Target Ready?

At Seraph, we specialise in operational due diligence for defence manufacturers.

Contact us www.seraph.com/contact-us/ to schedule a rapid readiness review.

To access the full PDF article now just complete this short form:

From 2027, the Digital Battery Passport (DBP) becomes mandatory for most EV and industrial batteries in the EU. But for Defence and Aerospace manufacturers, compliance is only the beginning. 

The DBP will transform how battery data is captured, verified, and shared across global value chains. For strategic industries – where traceability meets national security, performance requirements, and geopolitical risk – the challenge is not just ticking boxes. It’s ensuring the passport works in the real world. 

Understanding the Regulatory Scope

The EU Battery Regulation (Regulation 2023/1542) applies to a wide range of battery types – from portable to EV to industrial – with a particular focus on batteries over 2 kWh, the kind used in vehicles, energy storage systems, and heavy-duty equipment. 

However, batteries used exclusively in defence equipment are formally exempt from the regulation.  

But here’s the catch: 

Most OEMs and Tier 1 suppliers do not operate in isolation. They produce dual-use systems - drones, marine vessels, trucks, or portable energy banks – that serve both civilian and defense contracts. Batteries used in such platforms may still fall under regulatory scope, particularly when integrated into civilian infrastructure (e.g., ports, commercial vessels, humanitarian missions). 

Furthermore, traceability and ESG expectations don’t stop at exemptions. Even when formal compliance isn’t required, public procurement, allied cooperation, or sustainability mandates often push for alignment with EU-compliant traceability and digital documentation standards. 

In short: Exemption doesn’t mean insulation. The data trail, ethical sourcing, and safety expectations built into the DBP are increasingly seen as baseline criteria, even in defense-adjacent sectors. 

What These Sectors Need Now 

These sectors operate under different rules, priorities, and risk profiles. The real question is not how to comply – it is how to exploit DBP as a strategic edge when others treat it as red tape. What these areas need is a DBP that works in their world – where durability, security, and lifecycle predictability matter more than ticking boxes. 

To be truly exploitable in defence OEM environments, the Digital Battery Passport must do more than meet civilian regulation: 

1. Safety Monitoring That Doesn’t Stop at First Life

In military and marine deployments, batteries are exposed to unpredictable environmental and mission-critical stressors – making safety monitoring non-negotiable. Done right, this becomes a revenue enabler: enabling proactive maintenance contracts, performance-based warranties, or second-life readiness scoring – not just regulatory box-ticking. 

• Defence: Batteries may be stored for years, then deployed into extreme heat, cold, or kinetic environments 
• Marine: Saltwater exposure, vibration, and high discharge loads demand active, context-aware safety signals 

What is needed: Smart integration of BMS data, event logs, and second-life risk indicators into DBP fields – not just for compliance, but to prevent failures. 

2. Operational Data That Survives Ownership Transfer

OEMs and fleet operators often lose visibility once a battery leaves their system – whether sold, leased, or handed off to a different division. This breaks the chain of operational intelligence, reducing chances for repair, reuse, or second-life deployment. 

What is needed: A well-designed DBP makes every battery a long-term asset – traceable, recoverable, and resellable – even across sectors. A DBP that maintains structured, transferable lifecycle data across owners and applications. Military and marine sectors require continuity even when equipment changes hands or is repurposed. 

3. Air-Gapped Environments: Traceability vs. Tactical Obscurity

Digital traceability sounds great – until you realize your fleet may be broadcasting sensitive lifecycle data in hostile waters. 

In military and classified marine operations, visibility is a double-edged sword. Battery data traveling via satellites or networked DBP systems could reveal ship locations, mission timelines, or maintenance vulnerabilities. This is not just a compliance issue – it is a national security one. 

In fact, for some missions, vanishing is the strategy. Systems must be able to function, log, and even certify without live connectivity or cloud exposure. 

That’s why DBP solutions for military and marine use must: 

• Operate air-gapped when necessary 
• Store lifecycle and safety data locally 
• Sync selectively at trusted intervals 
• Be audit-capable without constant transmission 

The exploitable angle? Vendors who develop secure, offline DBP infrastructure – including encrypted portable systems and ruggedized local diagnostics – won’t just meet compliance. They’ll be the go-to partners for defense and dual-use contracts, where invisibility is not a flaw but a feature. 

4. Dual-Use and Export Complexity: Traceability Without Exposure

Defence applications are often subject to export controls, ITAR, or classified use. The DBP must be secure – balancing traceability and accountability with IP protection and geopolitical sensitivity. 

What is needed: Configurable access tiers and metadata abstraction. OEMs and defense suppliers need to demonstrate ESG compliance without exposing strategic data or operational context. Controlled sharing is not just a risk mitigation tactic – it is an opportunity to enter sensitive supply chains that require auditable but secured ESG and origin data. 

5. Lifecycle Control as a Strategic Asset

For OEMs in particular, DBP offers more than compliance – it is a way to retain value post-sale. Battery-as-a-service, warranty optimization, and second-life repurposing all depend on granular, verified lifecycle data. 

What is needed: Integration of DBP into ERP and product design systems. Traceability is not an afterthought – it starts at cell sourcing and extends through circularity. For OEMs, DBP is no longer a record – it’s a business model lever. Those who build in lifecycle intelligence from the start can unlock leasing, remanufacturing, and modular battery services before competitors even react. 

What is Next? 

Digital Battery Passport systems will not work if they are designed for ideal conditions. The defence, marine, and related OEM sectors must push now for DBP frameworks that: 

• Work in low-visibility, high-risk environments 
• Offer control over what data is shared and with whom 
• Capture second-life and end-of-life value 
• Are resilient, secure, and aligned with real-world operational constraints 

As EU Battery regulation moves from paper to enforcement, these sectors need not just compliance – but strategic advantage. While in exempt environments, DBP principles may not be enforced, but they are becoming indispensable. For military, marine, and dual-use OEMs, those who adopt traceability, lifecycle data control, and modular safety systems early won’t just stay ready – they’ll stay ahead. 

That said, these sectors producing dual-use systems have a narrow window to shape a DBP that fits their world – or be forced to retrofit it later. 

The opportunity? Influence, intelligence, and long-term control. 

The risk? Irrelevance in a compliance-driven commodity market. 

The time to shape the DBP for their world is now.

Dual-Use Battery Examples: Regulatory Applicability Table 

Under the EU Battery Regulation (Regulation (EU) 2023/1542), batteries placed on the EU market must comply with strict sustainability, safety, and circularity requirements – including the Digital Battery Passport (DBP), carbon footprint declarations, recycled content rules, and due diligence obligations for raw materials. 

However, Article 2 of the Regulation outlines certain exemptions, notably for military equipment, security-specific systems and space applications. This can create uncertainty for OEMs manufacturing dual-use products – i.e., products used in both civilian and defence/security contexts, such as drones, vehicles, or maritime equipment. Refer to our table below  

Key Takeaways for Dual-Use OEMs 

Exemptions depend on use, not technology 

A battery is only exempt if it is exclusively destined for military, space, or specific security use – not because it’s technically advanced or ruggedized. 

1. Police, fire, and civil security ≠ military 

Batteries for police vehicles, firefighting robots, or disaster relief are civilian applications under EU law and must comply with the Battery Regulation. 

2. Dual-use = assume compliance 

If your product is used both in civilian and military settings, or even has the potential for civilian sale, assume Digital Battery Passport (DBP) and full compliance apply. 

3. Sales channel determines regulatory outcome 

Even military-grade batteries sold to civilian buyers (e.g. NGOs, journalists, commercial operators) are subject to DBP and due diligence rules. 

4. All dual-use batteries must be manufactured to regulation –  even if the DBP is never activated 

OEMs must design and produce dual-use batteries with DBP capability, because you can’t retrofit compliance after production. 

For batteries that end up only in exempted military, space, or specific security applications, the DBP may never be activated – but the battery itself must be built with DBP-readiness from the start. 

At Seraph, we help companies use circularity indicators not just to comply – but to compete. Whether it’s redesigning for faster disassembly or benchmarking data flows for traceability, the future belongs to those who translate sustainability into smart economics. 

Ready to harness the DBP for operational advantage? 

If you need support, guidance and insights on defence manufacturing excellence, Let’s talk  https://seraph.com/contact-us/

About Seraph  

Seraph is a global operations and strategy consulting firm, that leads value chain improvements, restructurings, and turnarounds. We unite the disparate roles in operationally intensive businesses to create efficient operations, bridging the divide from concept to production. High-level decision-makers in manufacturing and industrial organizations rely on us to solve complex issues and launch initiatives that ensure success and sustainable change.

Seraph is a member of the BASE Battery Passport for Transparency and Circularity consortium.

The BASE project has received funding from the Horizon Europe Framework Programme (HORIZON) Research and Innovation Actions under grant agreement No 101157200 

Visit the BASE website here: https://base-digibattpass.eu/

As European nations ramp up defence spending and seek strategic autonomy, alliances and joint ventures (JVs) have emerged as pivotal tools to meet soaring military demand, boost industrial capacity, and ensure resilience amid geopolitical uncertainty.  

From our extensive industry experience, we have condensed our strategic learnings on how to navigate, structure, and optimise such alliances. You’ll find this insight collated in our latest defence paper where we unpack the drivers, strategic value and benefits of JVs.  

We take a closer look at each of the essential steps that help maximise production efficiency:

8 Essential Steps to Optimise your Defence Manufacturing Joint Venture:

Next Steps: Is Your Target Ready?

At Seraph, we specialise in operational due diligence for defence manufacturers.

Contact us www.seraph.com/contact-us/ to schedule a rapid readiness review.

To access the full European Defence Manufacturing Joint Venture PDF now just complete this short form: