Industrial Robotics Predictors Suggest Continued Growth in 2023
2022 marked the 60th anniversary of the world’s first industrial robot. Not too long thereafter, in the early 1970s, the auto industry was the first industry to make practical use of this futuristic technology. Fast forward to today, industrial robotics remains in the early stages of adoption globally, with only 141 robots per 10,000 employees in the manufacturing industry. 1 However, we expect robot density increase over the next few years, potentially reaching more than 500 robots per 10,000 manufacturing employees. As demand grows, driven by better technology and declining costs, labor shortages, aging populations, and reshoring, it’s important to understand the factors that may impact industrial robotics over the short term. In this piece, we assess the three main factors that tend to drive the industrial robotics market: 1) Japanese semiconductor equipment billings, 2) industrial production in Japan, and 3) exports value of electrical machinery and equipment from China. Supported by a multiple regression analysis of these three factors, we explain our positive view on the industrial robotics outlook as the global economy increasingly turns to automation for new efficiencies. Key Takeaways Valuable predictors of industrial robotics demand point towards further strengthening, particularly as China’s Zero-COVID policy comes to an end. Recent industrial robotics production levels reached record highs despite challenging macroeconomic conditions. Expected revenue growth rates of major robotics companies remain robust amid the continued shift towards automation. Why Japan and China Are Strong Predictors of Industrial Robotics First, almost all end-user industries are heavy users of semiconductors, particularly the automotive and electronics industries. Semiconductors are also essential for major robotic processes such as sensing and motion control. Given Japan’s global leadership in industrial robotics, Japanese semiconductor equipment billings go a long way in explaining industrial robotic production. Second, industrial production is a leading indicator of Japan’s gross domestic product (GDP) growth, which in turn is an industrial robotics market driver. Historically, global robotics demand is highly correlated with Japanese industrial robotic production, as almost half of the world’s industrial robotics are manufactured in Japan. 2 The third factor is China’s exports value of electrical machinery and equipment, which is one of the largest sources of demand for industrial robotics, followed closely by automobiles. China is the world’s biggest market for industrial robots, and the government’s most recent Five-Year Plan involves making China a global leader in robot technology and industrial advancement. 3 A multiple regression analysis on these three factors versus Japanese and Chinese industrial robotic production produces a coefficient of determination, also known as R^2, of 91%. The coefficient of determination can be understood as a model’s goodness of fit. In essence, it reveals the proportion of the variation in the dependent variable that is explained by the independent variables. In this case, the dependent variable is industrial production and the independent variables are the three factors. An R^2 of 100% would mean that all variation can be explained by the model’s inputs. So an R^2 of 91% means that the factors considered are strong predictors of Japanese and Chinese industrial robotic production, which we view as a proxy for global industrial robotic production. Factors Suggest Industrial Robotics Can Continue to Trend in 2023 Japan set a record high for industrial robotics production in March 2022, and it remained strong throughout the year, despite short-term fluctuations. 4 In October 2022, production increased 15.5% YoY (year-over-year), which followed September’s 15.4% and August’s 21.3% YoY increases. 5 Recent strength in the industrial robotics market can be traced to the acceleration that occurred towards the end of 2020 when pandemic-induced labor shortages had companies turning towards automation. In addition, the broader pullback in globalization and countries moving to re-shore manufacturing further magnifies the shift towards automation. When analyzing the performance indicators for 2023, we see that semiconductor billings in Japan reached record levels in July 2022 before peaking at 381 billion yen last September. 6 The numbers softened slightly in October and November but remained higher than any other month prior to August. 7 Management commentaries on semiconductors have been more cautious recently, but the semiconductor supply crunch has not yet had a meaningful effect on factory automation demand. The backlog of unfulfilled orders may continue to secure demand for the next couple of quarters, as long as companies don’t start to defer orders due to weaker end-market demand. In our view, the long-term outlook for semiconductors is positive given the resiliency in industrial and automotive demand. According to some estimates, the market is expected to surpass $1 […]
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