A new era of automation is here, and investors are paying attention

Automation is on the rise as manufacturing returns to the U.S. Here’s why a focus on automation could potentially pay off for today’s investors.

Investors are starting to double down on automation, the latest technological trend to transform a wide range of sectors. Manufacturers lead the way in leveraging robotic process automation (RPA) for tasks ranging from painting to welding. In the hospitality sector, we see restaurants deploying self-service kiosks and robo-cooks. Meanwhile, the retail industry is grappling with the e-commerce boom by employing robots in warehouses and distribution centers.

Recent studies show that 41% of executives planned on maintaining their current automation spend as of September 2022, while 52% intended to increase it over the next year.{https://www.nintex.com/blog/the-economics-of-automation/;Nintex (9/23/2022): The Economics of Automation: Why automation is the key to growth in a challenging economy, and how to invest in the right automation solution} With automation adoption in overdrive today, the market presents increasing potential opportunities for investors.

Automation is forecast to grow rapidly through 2030

In 2019, just 2.7 million robots were deployed globally.{https://ifr.org/ifr-press-releases/news/record-2.7-million-robots-work-in-factories-around-the-globe;International Federation of Robots (9/24/2020): IFR presents World Robotics Report 2020} By 2030, this number is expected to grow to displace some 20 million manufacturing jobs.{https://cdn2.hubspot.net/hubfs/2240363/Report%20-%20How%20Robots%20Change%20the%20World.pdf?utm_medium=email&_hsenc=p2ANqtz--K7kgPhJ7k-o3CX7f029ZmeMO_oDTNrwYYxrrVYFjKjh_0Oa3Wnz-U42mRNLGTqPLPd7TCgmS6n-ype13-3wEh-thBQw&_hsmi=74013545&utm_content=74013545&utm_source=hs_automation&hsCtaTracking=07b1855a-24f4-4b99-bcb8-b0d2a13b715e%7C53b7a48e-9591-4179-8eab-694443190b4f;;Oxford Economics (6/2019): How Robots Change the World: What automation really means for jobs and productivity} In the North American manufacturing sector, the acceleration has been especially pronounced, with total robot installations rising 12% in 2022, largely driven by the trend toward reshoring in manufacturing.{https://ifr.org/ifr-press-releases/news/robot-sales-in-north-american-manufacturing-up-12-percent;International Federation of Robotics (5/23/2023): Robot Sales in North American Manufacturing Up 12 Percent}

A case in point is the North American automotive industry, which saw the number of installed industrial robots shoot up by 30% from 2021 to 2022.Ibid This industry also has the greatest density of robots per employees — in the U.S. in 2021, there were 1,457 robots installed per 10,000 employees.{https://ifr.org/ifr-press-releases/news/one-million-robots-work-in-car-industry-worldwide-new-record;International Federation of Robotics (3/22/2023): One Million Robots Work in Car Industry Worldwide – New Record}

Government policies and technological trends are catalysts for automation

The recent U.S. focus on domestic manufacturing, spurred by the necessity for job creation, secure supply chains, and intellectual property protection, brought 210,000 manufacturing jobs back to the U.S. in 2022.{https://reshorenow.org/content/pdf/2022_Q3_data_report.pdf;Reshoring Initiative (12/20/2022): 2022 Q3 Data Report} Automation has emerged as a critical technological capability these reshoring manufacturers need to succeed.

Legislative measures like the Trump administration's tariffs and the Biden administration's enactment of the CHIPS Act have strengthened both reshoring and automation. The CHIPS Act provides $52.7 billion to boost domestic semiconductor production and research, which is critical given that semiconductors underlie much of today’s advanced automotive capabilities.{https://www.whitehouse.gov/briefing-room/statements-releases/2022/08/09/fact-sheet-chips-and-science-act-will-lower-costs-create-jobs-strengthen-supply-chains-and-counter-china/;The White House: (8/9/2022): FACT SHEET: CHIPS and Science Act Will Lower Costs, Create Jobs, Strengthen Supply Chains, and Counter China} Meanwhile, the Inflation Reduction Act offers additional financial incentives for domestic manufacturing. Largely as a result of these policies, American firms have increased their manufacturing investments to approximately $120 billion, compared with an annual average of $49 billion, paving the way for investments in the latest automotive technology.{https://fred.stlouisfed.org/series/PRMFGCON;U.S. Census Bureau (1/10/2022): Total Private Construction Spending: Manufacturing in the United States}

The rise in automation is also being fueled by the technological landscape. Today’s advanced semiconductors make robots smarter and more capable, while 5G connectivity links industrial machines and factories. Advancements in software, component, and vision systems are making automation more efficient, precise, safe, and useful. Meanwhile, U.S. manufacturers’ machinery is older than ever before—averaging 11 years versus the typical 8 years—which suggests factories are overdue to adopt new technologies.{https://apps.bea.gov/iTable/?reqid=10&step=3&isuri=1&1003=18;US Bureau of Economic Analysis: (9/30/2022): Current-Cost average age at year end of private equipment by industry}

The multi-pronged benefits of automation for companies

More than 80% of CEOs see inflation as today’s most likely business disruptor.{https://www2.deloitte.com/content/dam/Deloitte/us/Documents/about-deloitte/us-ceo-survey-overview-summer-2022.pdf;Deloitte (Summer 2022): Summer 2022 Fortune/Deloitte CEO Survey} While some companies are laying off workers or raising prices, others are doubling down on investments in automation during this inflationary period, allowing them to optimize resources and increase supply, bypassing the cycle of hiring and wage hikes.

Given the challenges of the past few years, businesses need every advantage. Some 95% of professionals list automation as a key component of their transformation strategies, and 94%

claim it’s helping address supply chain issues.{https://www.prnewswire.com/news-releases/third-annual-global-rpa-industry-report-indicates-that-intelligent-automation-will-lead-companies-out-of-global-crises-301581486.html;Cision (7/6/2022): Third Annual Global RPA Industry Report Indicates that Intelligent Automation Will Lead Companies Out of Global Crises} The global RPA software market is only expected to grow, gaining another 17.5% in 2023 alone.{https://www.prnewswire.com/news-releases/third-annual-global-rpa-industry-report-indicates-that-intelligent-automation-will-lead-companies-out-of-global-crises-301581486.html;Gartner (8/1/2022): Gartner Says Worldwide RPA Software Spending to Reach $2.9 Billion in 2022}

By turning to automation, companies may see the following benefits:

• Increased precision and productivity: In manufacturing and assembly, automation can both scale up and speed up processes without sacrificing safety or quality.
• Reduced costs: Automation allows companies to maximize their resources and reduce employee time spent on processes. Automation tools don’t require sick leave, PTO, or even sleep.
• Improved employee experiences: Automation relieves employees of dull, repetitive tasks, and can create a safer working environment. About half of the respondents in a 2021 Nintext study said they would move to a new organization if the new role had fewer manual processes.{https://www.nintex.com/blog/the-economics-of-automation/;Nintex (9/23/2022): The Economics of Automation: Why automation is the key to growth in a challenging economy, and how to invest in the right automation solution}
• Enhanced business continuity: Automation can give companies the foundation they need to remain fully operational, even in uncertain times, as it can decrease employee workload and turnover, boost productivity, and raise customer satisfaction, all while cutting costs.

While automation has high upfront costs, it offers companies the potential for an incredible return on investment. Estimates show RPA investments generally have a payback period under 12 months and can yield a 262% return in just 36 months.{https://blog.rpathautomation.com/invest-in-automation-during-inflation;R-Path Automation (8/29/2022): The Wisdom of Investing in Automation During Inflation}

How automation relates to today’s labor landscape

The tight labor market is propelling automation, especially in sectors like manufacturing and warehousing, where labor shortages pose significant challenges. As younger demographics are increasingly reluctant to take up these roles, businesses are resorting to automation to bridge the gap.

While automation can lead to job displacement, it's also likely to lead to job growth by boosting productivity, reducing the cost of goods and services, and encouraging customers to spend

more. Some estimates suggest that less than 10% of jobs can be completely automated.{https://ifr.org/img/office/IFR_The_Impact_of_Robots_on_Employment.pdf;International Federation of Robotics (4/1/2017): The Impact of Robots on Productivity, Employment and Jobs} The more likely scenario is that workers will work closely with "cobots," or collaborative robots, changing the nature of their roles rather than replacing them entirely. Automation can also lead to upskilling, transforming unskilled workers into advanced machinists, welders, and skilled technicians.

Automation at a crossroads

For investors, the way forward is promising. Through 2025, we expect the global robotics market to grow by 10% to 15% annually as everyone from the food and beverage industry to the automotive market adopts robotic technology in some form.{https://www.axa-im-usa.com/investment-strategies/equities/thematic-equities/automation#anchor-e5479f42-5a22-4968-bc33-dc080a34accb;AXA IM: Automation}With rising wages and intensifying labor shortages, the payback period for automation adoption will shrink, making it an increasingly attractive solution.

For American companies, automation brings the potential of increased productivity, improved reliability, and higher profits with less reliance on human labor. With government policies supporting domestic manufacturing, and technological advancements driving what’s possible with automation, this area presents a potential opportunity for today’s investor.

Companies shown are for illustrative purposes only.