Caterpillar bets on self-driving machines impervious to pandemics
By Rajesh Kumar Singh
CHICAGO (Reuters) - Question: How can a company like Caterpillar <CAT.N> try to counter declining sales of bulldozers and trucks during a pandemic that has made everyone a potential carrier of disease?
Answer: Maybe cut out human operators?
Caterpillar's autonomous driving technology, which can bolt to existing machinery, is helping the U.S. heavy equipment maker mitigate the severe impact of the coronavirus crisis on sales of its traditional workhorses.
With customers both small and large looking to protect their operations from future disruptions, the demand for machines that do not require human operators on board has increased.
Sales of Caterpillar's autonomous mining technology are up double-digit this year compared to 2019. This is evident from previously unreported internal company data communicated to Reuters.
In contrast, sales of its yellow bulldozers, mining trucks, and other equipment have declined over the past nine months. This trend has also hit the main competitors, including the Japanese Komatsu Ltd <6301.T> and the American player Deere & Co <DE.N>.
Fred Rio, Caterpillar's global product manager for Digital & Technology, told Reuters that remote control technology for construction sites will be available in January that will allow users to operate machines from miles away.
The company is also working with space agencies to use satellite technology to enable an operator operating in the US to remotely communicate with machines on construction sites in Africa or elsewhere in the world.
However, Caterpillar's automation strategy was not developed in the COVID-19 era. The company stepped up its investment in technology, emerging from the longest downturn in its history in 2017, as part of a plan to increase recurring revenue from lucrative sales of services.
But it's early days and that technology remains a niche part of Caterpillar's business. While technology sales revenue is not broken down, it is unlikely that rising demand will soon have a material impact on the group's revenue, which was around $ 54 billion last year.
It's also an expensive endeavor when the company is pumping billions into research and development as a whole. However, it is not clear whether the demand for autonomous and remote technology will continue in a post-pandemic world while, in the longer term, there is a risk that technology-driven productivity improvements could affect sales of new devices.
"It's gotten crazier"
That said, autonomous technology is helping Caterpillar win equipment deals from customers who have not previously purchased many of its machines.
Last year, Rio Tinto <RIO.L> signed the company to supply self-propelled trucks, autonomous blasting machines, loaders and other machinery for the construction of the Koodaideri iron ore mine in Australia, which is expected to be operational next year.
Rio Tinto declined to comment on the equipment business.
The mining industry has already adopted some technologies for self-driving trucks and remote operation of load shedding machines. However, the cessation of operations worldwide following government-mandated lockdowns at the height of COVID-19, as well as the recent outbreaks of infection in coal mines in Poland, have accelerated the use of these technologies.
Anthony Cook, general manager of autonomous transportation systems at Caterpillar's rival Komatsu, said many customers presented their spending plans after the pandemic to get drivers out of mining trucks.
He said the COVID-19 crisis did not match the fate of his autonomous business: "If anything, it has gotten crazier."
CATERPILLAR'S IN THE SPACE
Caterpillar and Komatsu hold the lion's share of the global market for autonomous transportation systems worldwide.
However, according to some analysts, Illinois-based Caterpillar has a competitive advantage because its technology can be retrofitted to competitor equipment, making it better suited to mixed fleets. Komatsu's technology currently only works with its own machines.
Komatsus Cook said that while the retrofit is a short-term solution, the company is developing technology that will allow different brands of devices to work together "safely and efficiently," which will provide long-term benefits.
However, Jim Hawkins, general manager of Caterpillar's extractive industries division, said the retrofit ability has helped increase sales as mining companies can buy the hardware and software to run machines autonomously without the much higher cost of overhauling their entire fleet to pay.
This is a selling point at a time when miners are grappling with business uncertainty caused by the virus.
Caterpillar sells autonomous operating technology separately from its machines. While retrofitting existing fleets has been the biggest growth driver so far, more and more customers are ordering autonomous mining trucks, according to Hawkins.
The company charges mining customers a hardware fee, a software fee, and a recurring license fee. Overall, the technology could cost anywhere from $ 50 to hundreds of millions of dollars, depending on the size of the fleet and contract length, Hawkins said.
All of these uses are part of the company's drive to increase sales of services, which tend to be more resilient and profitable than selling equipment. The goal is to increase service revenue from $ 18 billion in 2019 to $ 28 billion by 2026.
Rob Wertheimer, machinery analyst at Melius Research, said the need for mining companies to replace an aging mining fleet and their growing demand for autonomous upgrades should help Caterpillar as its technology gives it a "differentiated" advantage over competitors.
"Strategically, they are in a better place," he added.
(Reporting by Rajesh Kumar Singh; Editing by Joe White and Pravin Char)
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