China is the world’s largest market for industrial robots, accounting for about 30 per cent of global demand. But despite increasing its demand by an estimated 58 per cent in 2017, China imports four-fifths of its robots, mainly from Japan and Europe.
Is strong demand sustainable? Although volume growth is particularly strong in China, its industrial robot density – 49 for every 10,000 workers – is much lower than in developed countries. The global average is 69 and Beijing aims to increase China’s density to 150 units by the end of 2020. President Xi Jinping has called for a ‘robot revolution’ to push the country up the technology ladder and upgrade industry.
Higher labour costs and a workforce constrained by the ageing population are driving China’s demand.
Where is the demand coming from? Once the motor industry was the dominant buyer of industrial robots: now automation is growing in areas such as electronics, semi-conductors, smart factories, logistics, household appliances and electric vehicles.
Driver 1: logistics automation: China's online retail market is now the largest in the world. E-commerce sales of USD750 billion last year were nearly double the US total and require an extensive network of increasingly smart distribution centres.
The automated guided vehicles that service these warehouses has a lower technical entry barrier and Chinese companies dominate the domestic market for these low-tech robots, supplying more than 90 per cent. Sales rose 54 per cent in 2016 and increasing competition between local manufacturers has led to a 10 per cent fall in average prices.
Driver 2: lithium batteries: Electric-vehicles should be an even greater market though. China plans to end sales of petrol and diesel cars in the longer future. It is already the biggest market for electric vehicles, overtaking the US. From a small base, sales are forecast to increase tenfold over the next decade.
Driver 3: white-goods industry: China is also home to some of the world’s leading appliance makers. They face the same challenges of stronger competition, higher material prices and rising labour costs, so they too are working with robot makers to increase the current 20 per cent automation ratio. By 2020, we expect it to increase to 45 per cent for white-goods, 28 per cent for audio and video products, and 25 per cent for other kitchenware.
Who will benefit? However the superior technology and monopoly on key components of Japanese and European companies makes China buy high-quality robots abroad. Its own robot-makers are strong in the low-to-medium market but are trying to acquire the technology to narrow the gap. Last year, one Chinese white-goods maker paid EUR4.5 billion for a German robot company.
Major European companies plan to double their production capacity in China and Japan’s leading supplier is building new manufacturing plant in Japan. But despite this, we think there is little risk of overcapacity because imports represent about 80 per cent of the Chinese market.
What does the next generation of robot look like? As competition rises and prices fall, the race is on to make robots stronger, faster and smarter. The major manufacturers are working with ethernet and deep-learning specialists to move into fields such as edge computing, the Internet of Things, and artificial intelligence. This will allow robots to acquire skills such as predictive maintenance, interactive programming and forecasting production costs.
Disclosure and disclaimerMore, collapsed
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Helen Fang
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