Asian Future: Industrial Robots Meet Wright’s Law

What Slowdown?
Although some robot manufacturers like Yaskawa Electric, FANUC, Mitsubishi Electric, and KUKA are moaning about sluggish sales and how they have had to downgrade their earnings forecasts accordingly, there’s really not much to moan about.

Sure, the sales scene is nothing like the boom beginning in the spring of 2017 when everyone was shoveling billions of Chinese yuan into Japan’s banks. However, Asia still buys over 60 percent (i.e. six out of every ten industrial robots manufactured), which is a whopping piece of business, and the outlook through 2025 is for Asia to snap up 75 percent of the global output.

China, the main target of much of the sluggish sales woes, still bought in excess of 138,000 industrial robots. That’s 11,500 per month; more than a year’s worth of sales to France and Spain…combined!

“Foreign robot suppliers increased their sales in China by 72%, up to 103,200 units. This includes robots produced locally by international suppliers in China.”

For 2019 through to 2020, says IDC, industrial robots grew at a CAGR of 25.7 percent; sales $125.4 billion by 2022. “By 2022, the size of the [entire] robotics market – robots, drones, and all related technology and services,” continues IDC, “will total $210 billion. Around half of that will be in manufacturing.” 

None of the big robot manufacturers is throwing in the towel and heading off to Africa or South America to sell their wares anytime soon. They are gnashing their teeth hoping that 2017 could return real fast and deliver up once again all those glorious profits.

However, according to the analysts at ARK Investments, Wright’s Law is showing that those glory days may never return.

ARK Investment, “says that [because of Wright’s Law] industrial robot costs are expected to drop a solid 65 percent between 2015 and 2025. Impressively, the cost per robot will plunge from $31,000 to $11,000 over that decade of time.”

Such a nearly two-thirds drop in the average price of an industrial robot would definitely be a major cause for manufacturer worry.

So what’s Wright’s Law, and why is it so harsh on the future of industrial robot margins?

“While studying production costs during the 1920s, Theodore Wright determined that for every cumulative doubling in the number of airplanes produced, manufacturers realized a consistent cost decline in percentage terms. The cost to produce the 2,000th plane was 15 percent less than that to produce the 1,000th plane, and the cost to produce the 4,000th plane, 15 percent less than that to produce the 2,000th.”

 “In recent years researchers at the Santa Fe Risk Institute concluded that [using Wright’s Law] it can forecast the cost decline associated with any technology [industrial robots included].”

Such price shifts are due to “the workings of Wright’s Law, which states: for every cumulative doubling in number of units produced, costs will decline by a consistent percentage”. In the field of robotics that cost decline, also known as the “learning rate”, has been around 50 percent.”

As analyst Jim Handy explains it: “Wright discovered that progress increases with experience: each percent increase in cumulative production in a given industry results in a fixed percentage improvement in production efficiency.