Think the US and China dominate robotics? You best think again…

It was hard not to be impressed by the launch of the new ‘flying’ Tesla Roadster last week, the outcome of some serious engineering innovation.

Between flying cars and humanoid robot races, it seems like we’re on the cusp of the future we were promised by The Jetsons cartoon from the ’60s, or the Terminator and Robocop franchises from the ’80s, depending on your vintage.

When it comes to the real future of robotics, most people would probably assume the battle for supremacy is between China and another of Elon Musk’s initiatives, Optimus, making it squarely a US versus China title fight.

This is misguided given that Japan remains the world’s established robotics powerhouse. 

Japan is not about to idly sit by and watching their pre-eminent industry position slip. 

Instead they are enacting clear policies to protect and grow their robotics value chain and are targeting a 30% of global share of AI robots by 2040, aiming to deploy 10m robots across 18 sectors of the economy.

Sticking with the Terminator references, it might surprise many to learn that industrial robotics has a long history in Japan. For film fans with a keen eye, in the original film from 1984, a FANUC (TSE: 6954) machine features in the memorable final scenes.

Today, FANUC is one of the world’s top industrial robotics manufacturers, along with other Japanese companies that have built businesses supplying the specialised components that make these machines work. 

The US and Japan are committed to reindustrialising their economies, yet decades of offshoring manufacturing mean the US has lost critical value chain to enable this. Policy makers are acutely aware there is a lot of ground to catch up, thus we believe it is to Japanese automation equipment suppliers that they must turn.

In this article, I share why we see opportunities in this ecosystem and why companies such as FANUC, Nabtesco (TSE: 6268) and Keyence (TSE: 6861) feature in the Platinum Japan Fund.

The real value is in the industrial application

The excitement around robotics today is understandable. Humanoid robots and demonstrations of increasingly sophisticated machines capture the imagination. There is a fundamental difference, however, between a robot that performs a choreographed demonstration and one that can operate reliably on a factory floor, day after day for years.

Industrial customers are paying for precision, consistency and reliability.

An industrial robot needs to perform the same movement thousands of times a day, repeatedly performing the programmed action with extraordinary accuracy. It may need to do that over months and years in a high-volume, 24/7 manufacturing environment with maximum uptime, sometimes under rigorous operating conditions, not just during a brief product demonstration.

Achieving that level of performance requires more than clever software or an impressive-looking humanoid. 

They are the result of accumulated engineering expertise and innovation over decades, designed to maintain precise calibration at all times.

These are the capabilities are difficult to replicate and is a key reason why Japanese robotics retain such a strong competitive moat. These matter enormously to clients whose production lines and return on investments depend on equipment working as intended. Choosing the right robot supplier can be the difference between success and failure on the factory floor.

This is one reason I believe Japan deserves greater attention in the robotics conversation. The opportunity is not confined to the companies making the finished robots. It extends throughout their industrial supply chain.

FANUC: more than a robot arm

FANUC is one of the best-known names in industrial automation. The company manufactures industrial robots as well as computer numerical control systems and other factory automation products.

Its position reflects the importance of the technologies that sit behind manufacturing productivity. Robots need to move accurately and repeatably, while the wider production system needs to coordinate their movements and control the manufacturing process.

FANUC’s expertise across robotics and factory automation gives it exposure to these interconnected requirements. Its products are used across a range of manufacturing applications, including automotive production and other industrial processes.

The broader opportunity is that manufacturers are continually looking for ways to improve efficiency, address labour constraints and maintain quality. Automation can help meet these needs, although investment decisions remain sensitive to the industrial cycle and manufacturers’ willingness to commit capital.

For us, the attraction is not simply the prospect of more robots being deployed. It is the role that established industrial technology providers can play as manufacturers seek to improve their operations. 

With AI, robots can move beyond their rigid programming, to become truly autonomous, safely visualising and sensing their environment, anticipating and executing autonomously with limited human oversight. This carries the potential to dramatically improve factory productivity while broadening the total addressable market for robots.

The companies behind the machines

The robotics ecosystem also includes businesses that supply highly specialised components. These companies may be less familiar to the public, but their technologies are essential to the performance of the finished machine.

Nabtesco, for example, produces precision reduction gears used in the joints of industrial robots. These components help control movement and transmit force with the accuracy required for demanding industrial applications.

Nabtesco estimates that it holds around 60% of the global market for precision reduction gears used in the joints of medium- and large-sized industrial robots.

This is an example of how a specialised component supplier can occupy an important position within a broader industry. A robot’s performance depends on more than its overall design: the precision and reliability of its individual components are also critical.

Keyence offers another exposure to industrial automation. The company develops and supplies products including sensors, measuring instruments and machine vision systems. These technologies help manufacturers inspect products, measure components and collect information from production lines.

As factories become more automated, the ability to detect, measure and interpret what is happening on a production line becomes increasingly important. Sensors and vision systems can help machines identify objects, check quality and respond to changing conditions.

Developments in artificial intelligence may broaden these applications further, but the investment case for businesses such as Keyence is not dependent on humanoid robots becoming ubiquitous. Their technologies already serve practical manufacturing needs.

Together, companies such as FANUC, Nabtesco and Keyence illustrate the breadth of Japan’s industrial automation expertise. They have different business models and serve different parts of the manufacturing process, but each is exposed to the demand for greater precision, productivity and automation.

Investing beyond the headlines

The long-term development of robotics will depend on a range of factors, including technological progress, labour availability and the economics of automation. The pace of adoption will vary between industries and applications, and companies in the sector will not all benefit equally.

We believe it is important to look beyond the headlines and understand where the value sits within the industry. 

The companies building humanoid robots may attract considerable attention, but the wider automation ecosystem includes established businesses with technologies already being used in factories around the world.

For the Platinum Japan Fund, we seek to identify businesses with durable technical advantages and established positions in parts of the supply chain where precision and reliability matter. FANUC, Nabtesco, and Keyence offer different exposures to that theme.

The robotics opportunity is bigger than a contest between the US and China. Japan’s industrial technology companies have helped make automation possible for decades, and we believe they warrant attention as the world’s manufacturers enter a new industrial revolution.