Venture capital and big tech companies have made big investments in industrial robots this year, though with diverging focus and styles.
Photo from CFP
By LI Jingya
Despite or because of the pandemic, industrial robots are having a moment in China. Close to 70,000 robotics companies were founded in 2020. The industry has raised over 18 billion yuan (US$2.82 billion) this year.
Not all industrial robots are created equal. Loosely speaking, there are three different types – coordinate robots, such as robotic arms that work alongside humans on assembly lines; mobile robots that navigate warehouses and city streets, and robots designed for very specific tasks. Each type has many subcategories.
Coordinate robots raised over 3 billion yuan in H1, exceeding last year’s total. The smallest funding rounds raised more than 100 million yuan, but not all venture capitalists are impressed.
XING Yaopeng, a senior investment manager of Bertelsmann Asia Investments (BAI), said coordinate robot startups do not scale up easily because each robotic arm needs to be custom-built. BAI has stakes in mobile robots - unmanned vehicles for warehouses and construction sites. Sequoia Capital has made six investments in this sector in a year, and Lenovo Capital bought into two mobile robot companies earlier this year.
About half of the investments this year are follow-ons. LIU Tiancheng, vice president of Phoenix Tree Capital, said the earlier rounds took place about two years ago. WANG Guangxi, a partner at Lenovo, focuses on early-stage companies that synergize with Lenovo’s core business.
On the other hand, tech companies have different priorities. Tencent prioritizes financial returns and is not averse to volatile startups. ByteDance cares more about technology. Meituan, which itself is going through a logistical upgrade, favors companies that have already taken up sizable market shares.
Liu said these companies prefer products with clear paths to wide adoption, especially those they can use themselves. Logistics robots, for example, can significantly improve warehousing.
Valuations have been pumped up by the influx of capital, but the explosive growth of the past two years will not last forever. Similar ups and downs have already played out in sectors like software and medical equipment.
Eventually, the industry will grow at a suitable steady pace. Rationality will be restored, and capital will end up where it is most useful. The industry is already switching from simply making robots to solutions and services, or specializing. Domestic startups find it hard to compete in general-purpose robots so choose niche applications instead.
A few domestic mobile robot makers, all founded after 2014, have already found their feet, lowering costs. Coordinate robots, to the contrary, seem to be hitting a wall despite the investment fervor. They are expensive due to the scaling-up problems, but some new companies see opportunities. Wang said coordinate robots work better in factories with highly specific needs. If the costs can be lowered, there is a path to wide adoption.
As domestic robot makers try to catch up, margins are declining, partly due to reliance on imported parts. A bigger threat to the industry is the almost-inevitable price war as startups borrow wildly to buy market share, but venture capitalists are not an endless source of liquidity. When investors’ money and patience run out, only technology will survive.
