(Chinese Version)

What investment opportunities does the robotic industry have? First, let us take a look at the developments in the Chinese robotic industry in recent years: 

In April, 2015, China South Railway poured in 130 million pounds to acquire the second largest deepwater robot provider SMD.

In April, 2015, foundations such as Xiaomi, Sequoia Capital, Huashan Capital and Shunwei Capital etc. jointly invested 80 million dollars in NineBot balance car and later acquired international heavyweight Segway.

In June, 2015, Alibaba and Foxconn respectively invested Softbank’s robotic company SBRH a total sum of 18 million dollars.

In 2014, the total sales volume of robots in the world reached 225 thousand, among which sales in China took up 56 thousand, a 56% increase compared to last year, twos times larger than the average growth rate globally. The investment scene in the robotic industry is become increasingly hot ever since the beginning of this year. Ordinary consumers might not notice the changes, but industry insiders have long sensed the development. Besides overseas robotics giants, investment organizations are starting to eye on competitive Chinese companies as well, hoping to form their investment layout in advance.

As the first investment organization that enters “the new three board”, New Margin Ventures has recently announced a strategic investment in HIT Robot Group. It’s said that New Margin Ventures had long-term investment plan in service robots and robots for special purposes etc. except for industrial robots, which was the firm’s earliest investment target in the field.

Harbin Institute of Technology is literally the very forerunner in robotics in China, with the first industrial robot and iron-welding robot in China being developed and built here.

At present, Harbin Institute of Technology has achieved great breakthroughs in the field of human-hand-like robotic hands, space robots, and special equipment for extreme situations etc., which technologies were applied on major projects like Shenzhou’s re-entry capsule, Yutu lunar veichle, and Jiaolong manned submersible vehicle. According to Zhenzhong, HIT Robot Group now has over thirty product lines in industrial robot and service robot area. However, no matter how competitive the group is, it still needs publicity and capital to continue to grow. Harbin Institute of Technologies still needs capital to crack open the upstream and downstream of the industry chain and enter this trillion consuming market with more affordable price.

Senior vice president of New Margin Ventures Wang Yuhang analyzed in details the current situation of the Chinese robotic industry and the hidden investment opportunities that lie behind. What follows is the full transcript of Wang’s speech at the investment news conference, edited by TMTpost:

China has already become a major robot market in today’s world, accounting for 12.3% of the global market. The application of robots is not just about efficiency and quality, it’s also a important indicator to measure a country’s manufacturing level. China is the manufacturing hub of the world, but the application of robots is still rare in the country when compared to many developed countries.

In terms of the market share, China is indeed the largest robot market around the globe. But the truth is about 90% of the market share of China is contributed by foreign companies. FANUC, Yaskawa, Kuka Robotics and ABB account for 65% of the market share.

Most robots made by foreign companies are 6-axis or above and high-end polyarticular robots, mainly used for low-end production process like coating and glue-enveloping and materials handling etc. They have also monopolized high-end applications such as welding, assembling, cleaning and processing, which allow them to further penetrate and control automobile, electronics, and metal industry etc. As for Chinese robots, most are 3-axis and4-axis robots and the main product in the country is coordinate robot, which is mainly used in food and plastic industry etc.

Supported by government’s advance planning and overly subsidizing, an investment wave has been formed in the Chinese robotic industry. However, most robotic companies in China are low-end manufacturers whose manufacturing capability is low. The saddest part is that their products are expensive. There’s one time, a domestic robotic company purchased an industrial robot from overseas, which was later redecorated and sent to show at an exhibition in the country. The company got a subsidy of several hundred thousand RMB from that, earning a couple tens of thousand RMB.

Currently, the robotic industry in China faces a few obstacles. First it’s that we rely heavily on importing crucial components since the component sector makes up the upstream robot market, in which field our country still lacks the ability to research, develop, and manufacture. So now we rely heavily on imported components to make robots. Also, the price we get from foreign robotics giants is often higher than average. For instance, the same retarders could be about 20 thousand RMB when the customers are from Japan or Europe, but for Chinese firms the price would go up to 90 thousand RMB. The retarder alone takes up 35% of a robot’s cost.

Although China has great comparative advantages, the market price of made-in-China robots is still sky high due to the fact that the products are still far from mature and the production volume is still low. Small manufactures don’t possess the capability to produce robots of good quality, nor the capacity to make mass production, and therefore the price just can’t get down. At present, German company Kuka Robotics’s annual production can reach about twenty thousand while some big firms in China can only product a couple thousand and small companies can only make several hundred, or even less than a hundred robots.

At present competitive robotics companies like Siasun are based upon research institutes, and therefore they have a certain level of research and development capacity.

However, in recent years, key components like retarders are being developed and rolled out in the country, subsequently bringing down the price of imported ones. To put it in perspective, imported retarders’ price has dropped by 30% to 40 %, meaning that retarders that were about 90 thousand RMB before can be bought at 50 thousand to 60 thousand RMB.

Robot development is a systematic project concerning fundamental science, engineering materials, processing technic, and application technology etc. That being said, any shortage in any of these fields will affect the developmental process of the whole robotic industry. China is having great difficulties trying to have crucial technological breakthroughs in robotics and it will take a long time to actually tackle the obstacles. For instance, foreign robotics companies can extend the non-failure operation time to almost a hundred thousand to fifteen hundred thousand hours while some well-known brand in China can only make it to five thousand hours. The technological gap here also exists in precision. Some products could be put into mass production after adjustments, but after a few months or maybe just even a few days, the precision would worsen and the quality of the products becomes unstable.

However, at present the robotic industry in China is undergoing a transforming state where the industry is very likely to evolve into different specific sectors and have major breakthroughs in fusing with other industries.

Now let’s take a look at the industry chain of the robotic industry.

In upstream sectors, precise retarders are used in servo motors and robots’ joints to match rotation rate and transmit torque, which is the most crucial component among all. Nabtesco and SUMITOMO together account for 70% of the global market share in this field. In China, the total number of registered robotics companies has reached over 350(80% are newcomers). Competitive and representative companies include Siasun, Efort, GSK etc. However, 90% of them do system integration amd key components such as servo motors, controllers, and retarders they are using are all imported. Organizations that have the ability to research and develop are mostly sub-research center of some universities and research institute(such as Chinese Academy of Sciences and Beihang University) and they don’t really manufacture products. In this case, it’s very hard for them to reach the level of industrialization.

In midstream sectors, robots are the core of the whole industry chain. But the problem here is that the net profit rate is extremely low. Companies like Yaskawa and Kuka Robotics for example have a really low net profit rate, even less than 10%. Companies that do system integration actually have a rather high net profit rate.

Comparatively speaking, the system integration market, as a downstream sector, has the largest scale, ten times of any other sector on the industry chain. According to estimates made by industry insiders, the market size of the system integration sector is about 236 billion RMB while thee market in China is about 40 billion RMB. China now has a lot of small companies that run the business of system integration, such as Siasun, Efort, Boshi etc.

That why under these circumstances, the robotic industry in China favors to focus on developing some particular components first and then progress as a whole.

Industrial mergers and resource integration are the two main strategies we adopt when investing in robotics.

Most robotics companies in China are actually midstream or downstream companies since we lack related technologies and the capability to develop them and the profit rate is low while doing system integration brings more money. Entrepreneurs in this industry are pretty smart. Even though we are limited by technological factors and we don’t have any giant company in the field, we can still use an existing imported robot and do system integration. Our idea to invest in PadBot is actually based on this kind of thinking. Now we have robots that have most of similar overseas products’ functions with a price that 20% lesser. At present, we are choosing a marketing strategy that aims to expand our business both domestically and internationally simultaneously.

We also go to other counties to find next merger project since this industry is not yet intensive and we can use capital to acquire these companies to form a certain degree of scale effect.

Beside mergers, we also make resource integration. The robotic industry is a high-tech industry that requires a lot of technological innovations, but products like servo motors still need adequate promotion campaigns, proper marketing strategies and other relevant factors. That’s where our capital comes in handy. Investment in other aspects such as media and cultural can also help appeal our products to consumers and give us more advantages in promotion and sales channels. This is very crucial to our cooperation.

In the future we will also cooperate with HitrobotGroup and go overseas to find those small but talented companies that have unique and innovative technologies to offer. We aim to bridge the gap between upstream and downstream sectors on the industry chain.

[The article is published and edited with authorization from the author @Zhang Yuan, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at ECHO), working for TMTpost.