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Industrial Automation: The Next Evolution in Manufacturing

By  David Cross, CFAJonathan Bauman, CFA
Automated assembly line building vehicles.

Key Takeaways

Automation is transforming almost every industry. Manufacturers are leaning on the latest innovations to help address labor shortages, wage growth and demands for higher productivity.

Industrial automation has emerged as an attractive, robust investment theme that we believe has the potential for dynamic growth.

In our view, companies with the ability to meet the fast-changing needs of automated factories may present intriguing long-term investment opportunities.

Few technologies capture the imagination, like robotics. Many of us grew up watching TV programs and movies like “The Jetsons,” “Lost in Space,” “Star Wars” and “Star Trek: The Next Generation” that featured robot characters in roles ranging from virtuous to villainous. Or you may have participated in a robotics competition in school.

In business, robotics and automation moved beyond science fiction long ago. It has become a key investment theme by helping streamline operations and improve productivity.

Industrial Automation Is the Next Evolution of Manufacturing

Industrial automation dates to the late 18th century, when manufacturers harnessed steam engines and hydraulic power to make factories more efficient. Today, automation technology is transforming almost every industry.

Car manufacturers have used robotic welding for years. Similarly, electronics producers have deployed advanced robots and cobots to collaborate with human workers in handling small, delicate parts with precision.

Health care providers use appointment management software that automates the complexities of the scheduling process. Likewise, warehouse inventory management software automates the movement of inventory with little human support.

Capital spending on these innovative applications has captured investor attention. The International Federation of Robotics estimates annual global robotics sales at $50 billion, including robot systems, software and peripherals. World Robotics forecasts global robot installations to grow by 6% annually from 2022 to 2024. See Figure 1.

Significant factors contributing to market growth include:

  • Increasing automation spurred by the pandemic, labor shortages and wage growth.

  • Innovation and technological advancements along with improving returns on investments.

  • Reshoring manufacturing to the U.S. from countries such as China and India.

Figure 1 | Global Installations of Industrial Robots Are Growing Steadily

This chart shows how many robots were installed in industrial facilities worldwide from 2015 to 2020 and the projected 6% annual growth rate in these installations through 2024 when the International Federation of Robotics expects 518,000 units globally.

Source: “World Robotics 2021Industrial Robots Report,” International Federation of Robotics.

Unimate Started at General Motors in 1961

While R2-D2 from “Star Wars” may have been the first brush with a robot celebrity for many of us, a robot star called Unimate debuted on American nighttime TV years earlier.

In 1954, American inventor George Devol obtained his first patent for a robotic device. Seven years later, Devol and his business partner Joseph Engelberger sold the first Unimate robot to General Motors for use in one of its New Jersey production facilities. The robot’s 4,000-pound arm stacked hot diecast metal pieces for window handles, gearshift knobs, light fixtures and other interior parts.

This first use of an industrial robot attracted national attention. In 1966, Engelberger appeared with Unimate on “The Tonight Show,” where Unimate demonstrated its ability to play golf, pour a beer and direct the popular program’s band. Host Johnny Carson noted that Unimate could “replace someone’s job.”1

Industrial Automation Affects Our Daily Lives

Industrial automation has evolved considerably since Unimate. It’s become pervasive, touching and improving our daily lives.

Cognex, for example, is an innovator in machine vision technology that brings sight to robots. The company’s tag reader system automatically routes luggage at airports, minimizing processing times and enhancing overall system efficiency. Amazon and Apple are other notable customers using Cognex’s vision technology to improve their processes.

Collaborative robots, or cobots, interact with humans to reduce their physical efforts. They are generally less expensive, flexible, and safer than traditional industrial robots. Some advanced cobots are mobile, allowing the machines to move within a set environment.

Universal Robots, for example, produces easy-to-program, industrial-grade robotic arms used to automate manufacturing processes.

Environmental, Social and Governance (ESG) Factors

Environmental, social and governance (ESG) factors are important considerations in industrial automation. On the positive side, automation can improve productivity, conserve energy, reduce carbon emissions, enhance worker safety and deliver sustainable innovation. Moreover, automating aspects of the manufacturing process can potentially reduce risks associated with product quality.

On the other hand, automation has the potential to displace workers with less skilled labor, especially in emerging economies. Reliance on automation could also potentially increase a company’s risk of cybersecurity attacks.

Industrial Automation Is Still in Early Stages

We think the industrial robotics market is nascent and poised for dynamic growth. Competition is intense, particularly from companies in China. Despite significant technological advances, many jobs are still too complex for robots.

Investing in companies benefiting from steady, long-term growth trends, such as industrial automation, involves risk. When evaluating investment opportunities for our portfolios, we consider a company’s current financial position and its potential to grow significantly over time.

David Cross, CFA
David Cross, CFA

Portfolio Manager

Senior Investment Analyst

Jonathan Bauman, CFA.
Jonathan Bauman, CFA

Vice President

Senior Client Portfolio Manager

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Kasia Cieplak-Mayr von Baldegg, “Unimate Robot on Johnny Carson’s Tonight Show (1966), The Atlantic, August 16, 2011; “A Tribute to Joseph Engelberger, the Father of Robotics,” Association for Advancing Automation.”

Many of American Century's investment strategies incorporate the consideration of environmental, social, and/or governance (ESG) factors into their investment processes in addition to traditional financial analysis. However, when doing so, the portfolio managers may not consider ESG factors with respect to every investment decision and, even when such factors are considered, they may conclude that other attributes of an investment outweigh ESG considerations when making decisions for the portfolio. The consideration of ESG factors may limit the investment opportunities available to a portfolio, and the portfolio may perform differently than those that do not incorporate ESG considerations. ESG data used by the portfolio managers often lacks standardization, consistency, and transparency, and for certain companies such data may not be available, complete, or accurate.

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.