Visions of the future often depict a world full of robots – robots that help us around the house, that drive us autonomously and that run entire production lines. For some time now those visions have been coming to life, certainly in factories around the world where automation has revolutionised the production line in an environment that rewards greater efficiency and productivity. While robotics has been a familiar investment theme, there have been many advances in the technologies and applications which have complemented the secular growth and indeed the investment theme associated with robotics.It’s helpful to begin with some context. We think of robots as machines which are programmed to perform a complex series of actions. They can vary dramatically in size and application, they typically operate in an autonomous manner with limited human guidance and they are typically housed in cages for safety reasons. In the current decade we have seen the rise of the collaborative robot, or “cobot”, which is designed to perform specific tasks in physical interaction with humans in a shared workspace. They are typically smaller in size, having built-in sensors which enable them to safely work alongside humans and receive human instruction.
So where does robotics fit it investment-wise?
The Nanuk New World Fund is wholly invested in companies and industries associated with and contributing towards greater environmental sustainability and resource efficiency. The Fund invests globally in companies involved in clean energy, energy efficiency, agriculture, water, waste management, recycling, pollution control and advanced manufacturing and materials. Robotics and automation improve resource efficiency, and fall within the broader theme of Industrial Efficiency. Robotics is a broad space with many interesting areas of development. We have chosen to focus on three core themes. The first is strong structural growth – always a prospective source of investment opportunities. The second is the development of applications beyond the traditional (‘caged’) industrial setting, such as ‘cobots’ – collaborative robots.
The third is the transition of these industrial technologies to consumer products and applications.
Robots are becoming increasingly more common, simply because robotics technology itself is improving rapidly. Key to this growth is the development of artificial intelligence and machine vision, which is allowing machines to navigate independently and adapt to non-standard and changing environments. This moves robots from being limited to a production line and a repeatable action – for instance, attaching a bottle cap – to move around a warehouse for example. In addition to improved use, the cost of components of a robot are rapidly declining. Robotics, like many digital technologies involving software, has benefitted tremendously from Moore’s Law (“the number of transistors on an integrated circuit doubles approximately every two years”). This has led to a massive drop in the cost of computing power and related core components: since 2010 the average robotics sensor cost has dropped by 50%. For context, the cost of lithium-ion batteries has fallen 75% over the same period.
In its Q3 2016 report, the International Federation of Robotics forecast that the number of industrial robots deployed globally will rise to 2.6 million units by 2019, meaning that more than one million units will be added from 2016 to 2019. The sale of traditional industrial robot machines (in units) has grown multiple times in the last decade, with emerging applications such as cobots growing at double digit figures. Teradyne, a company whose primary business is making automatic semiconductor test equipment has seen revenue from its cobot business (it acquired Universal Robotics in 2015) grow 6.5 times over the last four years. This growth has been driven by the improving cost competiveness of cobots vs wage growth in historic manufacturing hubs, particularly China. As cobots become cheaper, they’re gaining market share and this enables a virtuous cycle of increased economies of scale. A great example of a robotics application beyond production lines is in the area of logistics, where deployment has been critical to the rise of ecommerce, allowing denser, more efficient warehousing and expedited order fulfilment. Amazon, for instance now only requires one minute of employee time per order it ships. Amazon and Dematic have bought logistics robot companies over the last few years. Extending the concept further is Ocado, the online supermarket that runs giant automated warehouses that can each support A$2 billion in sales. Ocado’s most advanced and large warehouse operation contains a 3-dimensional grid around which 1000 robots, all controlled by a sophisticated algorithm, select and place items into customers’ shopping baskets. As warehouses become more automated, the idea of a ‘dark warehouse’, where there is no need for lighting because the only
workers are robots, comes to mind.
Medical robotics is another key application seeing tremendous growth.
Intuitive Surgical is a US company that pioneered medical robotics in 1995 for minimally invasive surgery. Its main product, the “da Vinci” Surgical System, has been utilised in a variety of surgeries including urology and gynaecology for over three million patients already. The product has been amazingly successful in improving patient outcomes and its market share in its core applications is up to 90%. Although the industry is still quite nascent, new players are joining the medical robotics market such as the joint venture Verb Surgical, a collaboration between Google and Johnson & Johnson. In the consumer market, robotics is becoming more and more common. IRobot’s Roomba robotic vacuum cleaner was once seen as a gimmick for the “tech-obsessed”, but you can now find one in 11 million US households. The robotic vacuum market is growing by 18% p.a., while traditional vacuums
are growing at just 5%. Vacuum is far from the only household task amenable to automation: robotic lawnmowers are already available and development on further applications is well underway.
We’re seeing robots move from industrial applications to consumer applications in our homes. We’re seeing strong trend growth at a global level for both these end markets. We’re seeing greater sophistication and application of technologies. And we’re seeing sharp declines in the cost of making robots, leading to rising affordability and a prospective virtuous cycle of increasing demand. In short, they’re cheaper, faster, safer, smarter, more applicable and nimble day by day. This is attractive to us as fundamental investors. Adding to the secular growth story, there is a wide range of companies in which we can invest, some clearly of better quality and value than others. And that’s the investment challenge, to be in the right company in the right area at the right time, to benefit from the robotics
thematic as it plays its part in the global transition towards a “new world” of more environmentally sustainable and resource efficient activities in the decades to come.
Nanuk’s investment expertise is focused on industries related to the secular theme of environmental sustainability: a large and increasingly attractive investment universe often overlooked by traditional fund managers. The Fund invests globally in companies involved in clean energy, energy efficiency, agriculture, water, waste management, recycling, pollution control and advanced manufacturing and materials. All of these industries are undergoing significant changes as the world tries to reconcile economic growth with longer term sustainability and are a potentially rich and ongoing source of investment returns.