Over a year ago we discussed the "next Industrial Revolution" and where it might appear from. 3D printers were envisioned among Goldman's top disruptive themes earlier this year and as UBS notes, 3D printing – or additive manufacturing – has been catching investors’ imaginations in recent months. Some commentators have suggested the technology has the potential to literally transform the world economy and dismantle global supply chains; while UBS points out that, others have suggested the technology is hyped and has little promise beyond a few niche product areas in manufacturing. The truth, Andrew Cates believes, probably lies somewhere in between but he is nevertheless more sympathetic to those who champion the technology’s disruptive – even revolutionary - qualities.
Via UBS' Andrew Cates,
For those readers who are not yet aficionados on this technology we start with a brief explanation. Additive manufacturing (AM) techniques (a.k.a. 3D printing) create 3D objects directly from a computer model by depositing material where required and by building products up layer by layer using a range of different materials (e.g. polymers, ceramics, glass and even metals).
This stands in contrast to conventional subtractive manufacturing techniques which involve taking blocks of material, cutting them down into the right shape, and assembling them into more complex products. The technology is admittedly still in its infancy and it suffers from a range of limitations at present. However, we think the optimists who argue that this technology will be revolutionary have a strong case. As one author has quipped:
“This is not the third (industrial revolution), nor the second, but rather the first real revolution in how we make things since a pre-historic man picked up two rocks and started banging them against one another, trying to shape them into something useful” (Dr Alexander Elder)
The technology has not yet generated a major impact on the world economy. A recent report from UBS analysts, for example, noted that the AM market (USD 2.2 billion) amounted to just 0.02% of the global manufacturing sector. Still, as the analysts equally noted, the technology is starting to spread more broadly both at a sector-specific and at a country-specific level. A recent report from Wohlers Associates, for example, reveals that AM is now used in a number of different economic sectors with consumer products/electronics the leading industrial area. The motor vehicle and aerospace sectors are also keen users while the medical/dental profession has additionally established itself as a strong sector for AM over the last few years (see chart 1 below).
The technology is - at present - particularly advantageous in low-to-moderate volume markets (e.g. aerospace) that regularly operate without economies of scale.
At a country-specific level the data from that same report from Wohlers reveals that the US is the lead user by a large margin. Japan, Germany and China have the second, third and fourth largest installed bases, respectively, of systems worldwide (see chart 2 below).
There are a number of reasons why the technology has not yet had a bigger impact. Challenges include production speed, materials availability, precision and control. Issues concerning legal responsibility are also problematic. Still, as we explore below, incentives to overcome these challenges clearly exist because of the potential advantages that the technology affords. And matters at present may already be moving more rapidly than many of the pessimists might contend. The use of nanotechnology, for instance, could mean that plastics in 3D printing soon rival the strength of metals in more conventional manufacturing.
Meanwhile the printing of human kidneys, of houses, of hamburgers (and other food products) and even – in the distant future - of an aeroplane are being actively researched and in some of those cases (e.g. houses and hamburgers) even printed.
The reasons why the technology has so much potential are as follows:
It lowers energy intensity by saving energy, by eliminating production steps, by enabling the reuse of by-products by producing lighter products and by cutting the need for transportation. It is in these respects obviously environmentally-friendly as well.
AM techniques yield less waste. The US Department of Energy estimates that by building objects layer by layer instead of traditional machining processes that cut away material AM processes could reduce material needs and costs by up to 90%.
It heightens incentives to innovate by eliminating traditional design restrictions. It makes it possible, for example, to create items previously considered too intricate and accelerates final product design. The ability to improve performance and functionality – literally customizing products to meet individual customer needs – should open new markets and improve profitability.
It yields greater flexibility in the production process by enabling rapid response to markets and new production options outside of the manufacturing factory. Spare parts can be produced on demand, for example, reducing the need for inventory and complex supply chains.
In short the technology enriches the capital base and enhances the scope for an economy to achieve faster capital- and total factor productivity growth. Its disruptive qualities emerge from the ongoing fall in its relative costs and the increasingly broad reach of its potential. Arguably of most significance from the vantage point of potential global economic benefits the technology lowers the barriers to entry in manufacturing and allows almost anyone to become an entrepreneur.
As we have explored in more detailed research in recent weeks there are a large number of technologies that are rising to the surface of the world economy at present which offer a great deal of promise. AM in isolation would arguably not be so potent were it not for these other innovations that are acting alongside it. The marriage of nanotechnology and AM techniques is perhaps the bestillustration of this. But the increasingly connected world economy via the increasing use of mobile and cloud technology and the ease with which digital designs can now be transported around the planet are notably also helping to foster the take-up and deployment of AM techniques.
We have tentatively estimated that the efficient deployment of new technologies in the information and communications sector, in manufacturing (including AM) and in energy could lift the potential growth rate of the world economy by as much as 0.5 percentage points in the coming years. The winners from this potential transformation, however, are more likely to be those economies, sectors, companies and consumers that are active users of these new technologies and not necessarily its active producers.