Badland Batteries Built the Factory. Now Comes the Supply Chain.

Approximately $87 million in disclosed federal awards has flowed to Packet Digital's Badland Batteries subsidiary since November 2025, and the 80,000-square-foot cell plant in Fargo is built. Against the standard that will actually govern procurement, the 95% functional-component-cost-origin test under NDAA Section 842, the distance remaining runs through every major cell component. For most of them, the non-FEOC supply base Badland would need to draw from does not yet exist at the required scale or qualification level.

Three contracts in under six months, all with Navy sponsorship, all aimed at standing up domestic drone battery cell production. The contract velocity is notable. The gap between a commissioned facility and a qualified defense supplier remains wide.

The Contract Ladder

Award	Date	Sponsor	Described Purpose
Up to $50M via APFIT	Nov 2025	Navy (APFIT)	Production-stage cell manufacturing plant
$27M NAWCAD SBIR Phase III	Apr 8, 2026	NAWCAD	Scaling domestic cell manufacturing
$9.8M Phase 3 Navy	May 5, 2026	Navy	Same program name as $27M award

APFIT is a DoD mechanism exclusively for technologies that have completed development and are crossing into production, with awards ranging $10M–$50M. The "up to" language on the $50M signals a ceiling, not a fixed disbursement. Contract fees are deducted before funds reach the company. Senator Hoeven's July 2025 support letter described the project as establishing a lithium-ion cell manufacturing plant for unmanned aircraft, space systems, and submersible systems.

Whether the $27M and $9.8M awards are separate contract instruments or tranches of a single vehicle is not determinable from public disclosures. This matters for reading the program's scope: if they are tranches, the total disclosed Navy commitment and the work it funds read differently than if they are independent awards funding distinct activities. Both are described as SBIR Phase III, announced 27 days apart.

What Phase 3 Actually Covers

The Phase 3 announcement provides the most operationally specific language in any Badland public disclosure. Phase 2, now complete, "focused on cell manufacturing plant design, equipment selection, installation and facility construction." Phase 3 will focus on:

Read that list closely. Equipment is not yet fully qualified. Material supply chains have not been validated at production scale. Manufacturing throughput has not reached Navy-required rates. Phase 3 is funded to accomplish these activities. All of them remain ahead of Badland.

The scope described is consistent with a multi-year effort in commercial cell manufacturing. Defense qualification layers additional requirements on top: specific test protocols, lot acceptance testing, platform-specific integration validation. No domestic cell manufacturer has been publicly confirmed as qualified against a specific platform power specification or MIL-spec. The timeline from commissioned facility to first qualified production lot is not disclosed, but the activities listed in Phase 3 place Badland at the beginning of this process.

Absent from any public document: specific cell chemistry (LFP, NMC, or otherwise), equipment suppliers, production rate targets, cells-per-day or kWh-per-month figures, specific Navy platform designations, and cell performance specifications. The Badland website states the facility is "designed to support multiple lithium-ion chemistries," which is consistent with a flexible manufacturing line but reveals nothing about what is actually being produced or qualified today.

One figure that has circulated in coverage, 120 MWh annual nameplate capacity, could not be verified in any Packet Digital filing, Badland disclosure, DoD announcement, or trade press source reviewed for this assessment. It is treated here as unconfirmed. The denominator is equally opaque: DoD's aggregate annual drone battery demand by category is not synthesized in any public source. Without disclosed production targets on one side and a public demand figure on the other, the capacity-to-need ratio cannot be assessed.

What is confirmed: Packet Digital operates a separate 24,000-square-foot facility for battery pack assembly and testing with approximately 50 personnel. The new cell plant, once producing qualified cells, would feed into that existing pack operation.

The Component-by-Component Gap

Badland's own baseline framing is that more than 90% of the U.S. drone battery supply chain relies on Chinese-made battery cells. This is directionally consistent with industry data. IDTechEx estimates approximately 70% of global cell production is Chinese, with Chinese companies controlling dominant shares of cathode, anode, electrolyte, separator, and current collector production. For drone-specific cells, lower volume and more specialized than EV cells, the concentration is plausibly higher.

A factory in Fargo addresses cell assembly. The 95% component-cost-origin test requires non-FEOC sourcing across every major functional component simultaneously. Component by component:

Cathode active material accounts for roughly 40% of cell material costs, per ICCT analysis of EV-scale cells. Drone cells may differ in format and chemistry, so this ratio is directional rather than specific to Badland's undisclosed configuration. If Badland is producing LFP cells, more than 90% of global LFP cathode production is Chinese. If NMC, the picture is somewhat less concentrated but still heavily dependent on Chinese precursor processing. Since Badland has not disclosed its cell chemistry, the severity of this specific constraint cannot be precisely assessed. It is significant under either scenario.

Anode graphite is the starkest bottleneck. Since 2020, China has accounted for close to 100% of anode material shipments to the US, both natural and synthetic. Qualification periods for new anode suppliers typically run three to five years. Domestic projects exist: Syrah's Vidalia plant in Louisiana is operational, Westwater Resources' Alabama facility is in late-stage construction. None has been publicly linked to Badland's supply chain. Defense-grade qualification for a specific cell manufacturer's process would be a separate, additional step beyond commercial production readiness.

Separator film and electrolyte are predominantly sourced from Chinese producers. LiPF6, the dominant lithium salt in commercial electrolytes, is overwhelmingly manufactured in China. No US-based non-FEOC LiPF6 supplier at production scale was identified in this review.

Lithium carbonate is the one component with a named sourcing signal. A November 2025 MOU with LibertyStream, in partnership with Wellspring Hydro, commits to "technical data sharing and joint planning to secure future supply volumes." The operative word in the original filing is "propose." This is not an offtake agreement. LibertyStream's Texas operations began production in April 2026 from a refining unit capable of up to 10 tonnes per annum, with a 1,000 tpa facility targeted for December 2026. LibertyStream's own risk disclosures acknowledge that production estimates may prove incorrect and that full-scale operations may be delayed or not occur. A North Dakota track, funded by a $700,000 state-backed grant, has announced no production milestones.

Even the lithium carbonate node, the one with a named domestic partner, remains at the MOU-and-pilot stage. No other domestic raw material sourcing partnerships for anode, separator, electrolyte, or foils appear in any Badland Batteries public statement.

What Would Need to Be True

DoD has committed meaningful and accelerating capital to Badland. Three awards in under six months, with the Navy as consistent sponsor, signals genuine institutional intent to stand up a domestic drone cell supplier. The APFIT mechanism specifically targets production-ready technologies. The contract ladder is real and its pace is notable.

For Badland to clear the 95% cost-origin threshold, the following would need to be true simultaneously:

• Non-FEOC cathode active material sourced and qualified at production scale
• Non-FEOC anode graphite secured from a supplier that has completed a three-to-five-year qualification cycle for Badland's specific cell process
• Domestic or allied-nation separator film and electrolyte salt supply established where none currently exists at commercial scale
• All of these materials validated through Badland's manufacturing line and then through the additional layer of defense-specific qualification testing

Each of these is a necessary condition. None is publicly confirmed as met.

Phase 3's own description confirms that large-scale material supply chain validation is a current activity. The January 2028 new-contract deadline under Section 842 is nineteen months away. The scope of work described in Phase 3, overlaid with the anode qualification timelines documented in industry literature and the absence of disclosed non-FEOC sourcing for most cell components, suggests the gap between Badland's current position and a 95%-compliant qualified supply chain is measured in years.

Public evidence cannot yet tell us whether that gap will close in time. Cell chemistry, production rate targets, equipment suppliers, specific qualification milestones, and Navy acceptance criteria are all absent from the public record. The contract values and phase descriptions are what we can see. Whether Badland can source, qualify, produce, and certify cells that meet both performance specifications and origin requirements is the work that $87 million is funding. That work has started. How far it has progressed, on the evidence available, is impossible to say with precision.