Ahead of the Curve ™

Deus Ex Machina, Part 1

Dec 6 2018

Report by Joseph Giordano, CFA, J. Derrick Wood, CFA, Tristan Margot, CFA, Robert Jamieson and Andrew Sherman, CFA

Part I of a collaborative, multi-part series examining the global robotics landscape. As robots continue to evolve from programmed pieces of hardware used to accomplish simple tasks towards vision based, adaptive tools to increase broader process efficiency, it opens up new investment opportunities in a rapidly changing environment that is being defined today. Part I focuses on industrial robots.

Global Megatrends Ultimately Will Require Increased Robotic Investment – Landscape Combines Multinational Powerhouses and Innovative Upstarts Ripe for New Investment

A rising global middle glass demands more complex, customized, higher precision products. Consistent wage inflation in traditional manufacturing centers supports the call for increased robotic deployment both on a gross basis and in terms of density (robots per 10k workers). Advances in robotic capability and affordability, coupled with decreased leverage from foreign labor as wages scale support a potential re-shoring of manufacturing towards traditional importers of products (like the US) and more regionalized production bases as power cost begins to replace baseline labor cost as the hinge variable. Across the manufacturing landscape, a lack of skilled labor is highlighted as a bottleneck, and a recent study by Deloitte and The Manufacturing Institute calls for 2.4MM unfilled manufacturing jobs by 2028 (despite continued robotic deployment). E-Commerce trends exacerbate the issue – for scale, in the US alone over 10B hours per year are spent shopping at grocery stores – if this is shifted away from individuals and towards fulfillment how is that accomplished? It would require essentially every unemployed person in the country 16 years and older working 40 hours a week to satisfy that demand.

The robotics landscape is both old and new, established and developing. Industrial robotics – the focus of this report – forms the backbone of the industry – a ~$50B global market growing in the mid teens dominated primarily by large Japanese and European players with a focus on automotive and electronics industries. Warehouse / logistics robots and collaborative robots represent emerging sectors (in addition to the $50B industrial market) with far more market fragmentation and likely corporate action over the next several years. These will be the focus of upcoming reports as part of the series we launch here.


There is Clearly a Major China Story, but it’s Much More Nuanced and Complex Than One Might Think; Emerging Asia Stepping In Meaningfully

China is the global leader in robotic demand at nearly 40% of the 421k units estimated shipped in 2018 by the International Federation of Robotics (IFR) – more than Japan, Korea, the US, and Germany (the next largest) combined. However, despite consistently strong annual demand, China only recently surpassed Japan as the region with the largest installed base (nearly 500k installed industrial robots out of IFR’s 2017 global estimate of ~2.1MM). At an estimated 97 installed industrial robots per 10k manufacturing employees, IFR sees China only slightly above the global average of 85 in terms of robotic density – roughly 2x below the US and 7x below South Korea. That suggests that each 1 robot added per 10k employees in China would represent an incremental 1+% to global demand. Given China’s position in global auto and electronics markets – the most dense by application – expansion here is likely and should help offset cyclical dynamics to some extent.

Global trade tensions with China have forced multinational companies to re-contemplate existing supply chains and evaluate other low cost manufacturing countries. Vietnam, for example, saw robotic investment move from an average of <400 multipurpose robots annually over 2012-2015 into the 7th largest robotics market in the world in 2017 at over 8k units. That is a 12x change in market share vs. 5 years ago.