The Rise of the Robots: For real this time?
The promise of robots improving our lives across the board has existed for many years. The skeptics of broader robot proliferation will raise the challenge of ‘why now?’ I believe there are three key drivers that are accelerating robotics adoption: 1) Evolving demographics, 2) Supply chain disruptions & manufacturing onshoring, 3) Volume-Cost-Performance virtuous cycle:
1. Labor shortages caused by evolving demographics & immigration restrictions
“Labor shortage” has emerged as an omnipresent pain point across sectors during the COVID pandemic, spurring a spike in demand for automation. Although the pandemic was an unprecedented outlier event, two major macro shifts point towards further long term labor disruption in the years to come: Aging populations and protectionist immigration policies.
Birth rates in many developing countries are plummeting leading to both a shrinking and aging population. According to a study published in Nature in 2021, “In 2020, 9% of the global population was above 65 years old, accounting for 728 million people. This population is projected to increase more than twofold, reaching 1.55 billion in 2050 and accounting to 16% of the global population.” Most notably, major manufacturing and agricultural nations such as China, Vietnam, and Mexico will experience significant increases in median ages. Specifically, the percentage of China’s population over the age of 60, is expected to hit 35% by 2050, up from 10% in 2000. Considering most Chinese workers retire by 60, that is a massive portion of the population removed from the workforce.
Adding to the workforce stress created by aging populations, increasingly protectionist immigration policies, driven by increasing political polarization, will create an even further gap in the labor markets. The U.S. relies heavily on immigrant workers, many of them unauthorized. As seen in the charts below, net international migration in the U.S. has fallen drastically in the last 5 years, with a particularly large impact on certain sectors — 17% of workers in agriculture and 13% in construction are unauthorized workers. This issue is not acute to the U.S. When Australia shut its borders due to the pandemic, Australian farmers experienced immense labor shortages. As a result, Lyro Robotics focused their cutting edge robotics technology to automate picking and packing of harvested crops, allowing Australian growers to sell produce that otherwise would have gone to waste.
Labor disruptions caused by the COVID-19 pandemic and stringent immigration policies have opened the door for robotics companies to alleviate immediate labor shortages using robotic automation. In the long run, robotic automation will become increasingly important as the effect of rapidly aging populations will heavily impact the labor make up of sectors like agriculture, construction, and manufacturing.
2. Supply chain resilience & manufacturing onshoring
Following a decades-long exodus of manufacturing from developed western nations, geopolitical tensions in the last decade, combined with supply chain disruptions caused by a global pandemic, have created a rallying cry for manufacturing onshoring. The success of onshoring will hinge on the abilities of manufacturing and logistics companies to 1) build large blue collar workforces and 2) maintain cost competitiveness.
Elon Musk has demonstrated that manufacturing in the U.S. is not only feasible, but highly competitive from an economic standpoint. Following in the footsteps of both Tesla and SpaceX, a critical component of the onshoring movement will be a far broader implementation of robotic automation and other cutting edge technologies such as robotics driven additive manufacturing, AI driven supply chain optimization, and sustainable processes.
3. Volume-Cost-Performance virtuous cycle
A key challenge of a new hardware technology is navigating the initial hurdle of low initial volume, resulting in high unit costs, resulting in low adoption, resulting in reduced incentives to invest in advancing the technology. The robotics industry has momentum to break past this barrier, aided in part by the autonomous vehicle arms race, which, along with other AI applications, has increased investment and innovation in key technologies such as GPUs, high precision sensors (e.g., LIDAR), and computer vision SW/HW. ARK Investments forecasts that by 2025, the unit cost of an industrial robot will have fallen by 66% from 2015 levels. While BCG’s forecast is more conservative at a 10 year drop of 25%, the drastic drop of key components such as LIDAR (IDTechEx chart below) will allow robotics companies to deploy high performance robots at decreasing costs.
The sensors we use that enable us to calibrate on the fly to construction sites are now 10x cheaper than they were 10–15 years ago and are far better. Even with those savings our sensor costs are still a good fraction of the BOM. The cost curves for these machines wouldn’t have worked without the advances there. Similarly, the UR10 was fundamental to making this possible due to its lightweight, force sensing safety modes, and cost. The list in this category goes on with computing, open source software (ROS, SLAM, Ai libraries, etc.) etc.
- Kevin Albert, Founder & CEO of Canvas
So, why now? Developed nations are looking to increase domestic production, but the available labor pool is decreasing due to immigration restrictions and an aging population. Meanwhile, the cost of building robots is falling rapidly. Demand for robotics-as-a-service will increase while the cost to deploy them will fall.
We have seen robotics startups benefit from these three drivers, and as each shift compounds over time, we believe that the robotics sector will attract more and more entrepreneurial endeavors in tackling a broader array of real world problems.
As mentioned in my previous post, this is an emerging sector and my perspectives are malleable and are iteratively formed by brilliant entrepreneurs and investors. I welcome thoughts & feedback @ sc@d20cap.com!
