Spending on warehouse automation likely to increase

China 360 spoke to the senior executives of three major warehouse robot companies for insights into current market dynamics, cost-savings and efficiency improvements on the warehouse floor. The market size for warehouse robots in China achieved a 51% CAGR over the past four years. We expect growth momentum to remain strong and market size to reach Rmb13bn in 2021E. We think COVID-19, innovation-led efficiency and flexibility, and rising labour costs are likely to be major drivers. Machinery/industrial companies, logistics/express delivery firms, tech companies and start-ups are the major participants in this fragmented market. Industry consolidation is likely to occur in the future.

Cost savings from warehouse automation justify the initial investment

We believe that the cost savings from warehouse automation justify the initial investment in a warehouse robot system. Our proprietary interactive model shows that, with a typical Bill of Materials (BOM) and initial layout cost, payback period is less than two years for an Automated Guide Vehicle (AGV ) system (assuming an AGV can replace around one worker on average). Payback period for an Autonomous Mobile Robot (AMR) system could be a bit longer due to higher unit robot cost, but is still less than four years. But flexible deployment and potential BOM cost-cut by switching to domestic suppliers could mean further proliferation of AMR in China. Our conversations with industry players support our findings. Our sensitivity analysis shows that efficiency (measured by the number of workers a robot can replace) is the most important parameter in determining the return on a robot investment.

Multiple verticals set to benefit

Companies in the retail, tech/e-commerce, logistics, manufacturing, and transportation sectors are seeing cost-savings and efficiency improvements by deploying warehouse robots. For companies that adopt warehouse robots, while we might not expect top-line improvement, we do expect profit margins to widen as labour costs can be saved. AMR is better suited than AGV for flexible and complicated tasks in manufacturing operations. To address the concern of high initial layout cost, we see the emergence of a new business model: Robots-as-a-Service (RaaS).

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