By Rajesh Kumar Singh
CHICAGO (Reuters) – The question. How does a company like Caterpillar (N:N) deal with declining sales of bulldozers and trucks in an epidemic in which everyone is a potential disease vector?
The answer is maybe lay off the human operators?
Caterpillar’s autopilot technology, which can be installed on existing machines, is helping the U.S. heavy equipment manufacturer mitigate the severe impact of the coronavirus crisis on its traditional work machine sales.
Demand for machines that don’t require manual operation has surged as both small and large customers look to protect their operations from future disruptions.
Sales of Caterpillar’s autonomous technology for mining operations have been growing by double-digit percentages this year compared to 2019, according to previously unreported internal company data.
By contrast, sales of its yellow bulldozers, mining trucks and other equipment have been declining over the past nine months, a trend that has also hit its main rivals, including Japan’s Komatsu Ltd. (T:) and U.S. player Deere & Company (N:).
Fred Leo, global product manager for Caterpillar’s construction digital and technology unit, told Reuters that a remote control technology that allows users to operate machines from miles away will be used on construction sites in January.
He said the company was also working with the space agency to use satellite technology to allow operators sitting in the United States to communicate remotely with machines on construction sites in places like Africa or elsewhere in the world.
Caterpillar’s automation strategy wasn’t born in the COVID-19 era, however. The company ramped up its investment in such technology in 2017 as it emerged from the longest downturn in its history, part of a plan to increase recurring revenue from lucrative service sales.
But it’s still too early to tell, and such technology remains a niche part of Caterpillar’s operations. While it doesn’t break out revenue from technology sales, rising demand is unlikely to have a significant impact on the group’s revenue of about $54 billion last year in the near future.
It’s also a costly endeavor, with the company as a whole investing billions of dollars in research and development. However, it’s unclear whether demand for autonomous and remote technology will remain constant in a post-pandemic world, while it’s also possible that technology-driven productivity improvements could drive down sales of new devices in the longer term.
‘IT has gotten crazier’.
Still, autonomous technology has helped Caterpillar win equipment deals from customers who previously didn’t buy much of its machines.
Last year, Rio Tinto (L:) signed up the company to supply automated trucks, autonomous blasting rigs, loaders and other machines 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 deal.
The mining industry already employs some technology for autopilot trucks and remotely operated loader-dumpers. However, the deployment of these technologies has been accelerated by the worldwide suspension of activities following a government-imposed blockade at the peak of COVID-19 and the recent outbreak of infections at the Polish mine.
Anthony Cook, general manager for autonomous transport systems at rival Caterpillar Komatsu, said many customers had brought forward their spending plans in the wake of the outbreak in a bid to free drivers from mining trucks.
He says the COVID-19 crisis has not hit the fortunes of its autonomous business.” If anything, it has gotten crazier.”
CATERPILLAR’S IN SPACE
Caterpillar and Komatsu hold the lion’s share of the global market for autonomous transportation systems.
But according to some analysts, Illinois-based Caterpillar has a competitive advantage because its technology can be retrofitted to competitors’ equipment, making it more suitable for mixed fleets. Komatsu’s technology is currently only available for its own machines.
Komatsu’s Cook said that while the retrofit offers a short-term solution, his company is developing technology that allows different brands of equipment to operate together “safely and efficiently,” which, he added, will have long-term benefits.
But Jim Hawkins, general manager of Caterpillar’s Resource Industries division (Nasdaq: ), said the ability to retrofit could help boost sales because mining companies could buy hardware and software that would allow the machines to run autonomously without the greater cost of overhauling their entire fleets.
It’s a selling point at a time when miners are grappling with business uncertainty caused by viruses.
Caterpillar sells the autonomous-operation technology separately from its machines. While retrofitting existing fleets has been the biggest driver of growth until now, Hawkins says more customers are now ordering autonomous-operated mining trucks.
The company charges mining customers for hardware, software and recurring licensing fees. In all, Hawkins said, the technology could cost anywhere from $50 million to hundreds of millions of dollars, depending on the size of the fleet and the length of the contract.
All of these applications are part of the company’s effort to increase service revenues, which tend to be more resilient and profitable than equipment sales. It aims to increase service sales to $28 billion by 2026, up from $18 billion in 2019.
Rob Wertheimer, a machinery analyst at Melius Research, said the growing need for autonomous upgrades as mining companies replace their aging mining fleets should help Caterpillar, whose technology gives it a “differentiated” advantage over competitors.
“Strategically, they’re in a better position,” he added.