Caterpillar bets on self-driving machines impervious to pandemics
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[October 12, 2020]
By Rajesh Kumar Singh
CHICAGO (Reuters) - Question: How can a company like Caterpillar <CAT.N>
try to counter a slump in sales of bulldozers and trucks during a
pandemic that has made every human a potential disease vector?
Answer: Cut out human operators, perhaps?
Caterpillar's autonomous driving technology, which can be bolted on to
existing machines, is helping the U.S. heavy equipment maker mitigate
the heavy impact of the coronavirus crisis on sales of its traditional
workhorses.
With both small and large customers looking to protect their operations
from future disruptions, demand has surged for machines that don't
require human operators on board.
Sales of Caterpillar's autonomous technology for mining operations have
been growing at a double-digit percentage clip this year compared with
2019, according to previously unreported internal company data shared
with Reuters.
By contrast, sales of its yellow bulldozers, mining trucks and other
equipment have been falling for the past nine months, a trend that's
also hit its main rivals including Japan's Komatsu Ltd <6301.T> and
American player Deere & Co <DE.N>.
Fred Rio, worldwide product manager at Caterpillar's construction
digital & technology division, told Reuters that a remote-control
technology, which allows users to operate machines from several miles
away, would be available for construction sites in January.
The company is also working with space agencies to use satellite
technology to allow an operator sitting in the United States to remotely
communicate with machines on job sites in, say, Africa or elsewhere in
the world, he said.
Caterpillar's automation strategy was not born during the COVID-19 era,
though. The company stepped up investments in such technologies as it
emerged in 2017 from the longest downturn in its history, as part of a
plan to increase recurring revenue from lucrative sales of services.
But it's early days, and such tech remains a niche part of Caterpillar's
operations. Though it does not break out the revenue from technology
sales, the rising demand is unlikely to make a major impact anytime soon
on the group's revenue, which stood at about $54 billion last year.
It is also a costly endeavor with the company pumping billions into R&D
as a whole. Yet it is not clear if demand for autonomous and remote tech
will hold up in a post-pandemic world while, in the longer term, there
is the risk that a technology-driven improvement in productivity could
drive down sales of new equipment.
'IT HAS GOT CRAZIER'
Nonetheless, autonomous technology is helping Caterpillar win equipment
deals from customers that were previously not buying a lot of its
machines.
Last year, Rio Tinto <RIO.L> signed up the company to supply
self-driving trucks, autonomous blast drills, 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 has already adopted some technologies for
self-driving trucks and remote operation of load-haul-dump machines.
However the suspension in activities worldwide following
government-mandated lockdowns at the peak of COVID-19, as well as recent
outbreaks of infections at coal mines in Poland, have accelerated the
deployment of those technologies.
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Cat Command equipment is demonstrated at Tinaja Hills Demonstration
& Learning Center in Green Valley, Arizona, U.S., in an undated
handout photograph. Caterpillar/Handout via REUTERS
Anthony Cook, general manager for autonomous haulage systems at Caterpillar's
rival Komatsu, said a lot of customers had brought forward their spending plans
following the pandemic in a bid to take drivers out of mining trucks.
He said the COVID-19 crisis had not hit the fortunes of his autonomous business:
"If anything, it has got crazier."
CATERPILLAR'S IN SPACE
Caterpillar and Komatsu hold the lion's share of the global autonomous haulage
system market worldwide.
But Illinois-based Caterpillar has a competitive advantage, according to some
analysts, as its technology can be retrofitted onto competitors' equipment,
making it a better fit for mixed fleets. Komatsu's technology currently only
works with its own machines.
Komatsu's Cook said that while retrofitting offered a short-term solution, his
company was developing technology to allow different brands of equipment to
operate together "safely and efficiently", which he added would offer long-term
benefits.
But Jim Hawkins, general manager at Caterpillar's resource industries division,
said the ability to retrofit had helped drive up sales, because mining companies
can buy the hardware and software to make machines operate autonomously without
paying the much larger cost of overhauling their whole fleet.
That is a selling point at a time when miners are grappling with the
virus-induced business uncertainty.
Caterpillar sells autonomous operation technology separately from its machines.
While retrofitting existing fleets has been the biggest driver for growth until
now, Hawkins says an increasing number of customers are now ordering
autonomous-ready mining trucks.
The company charges mining customers a hardware fee, a software fee and
recurring licensing fee. In all, the technology could cost from $50 million to
hundreds of millions of dollars, depending upon the size of the fleet and the
duration of the contract, Hawkins said.
All these applications are part of the company's endeavor to increases services
revenue, which tends to be more resilient and profitable than equipment sales.
It aims to increase services sales to $28 billion by 2026 from $18 billion in
2019.
Rob Wertheimer, machinery analyst at Melius Research, said the need for mining
companies to replace an aging mining fleet and their growing demand for
autonomous upgrades should help Caterpillar, with its tech giving it a
"differential" advantage over rivals.
"Strategically, they are in a better place," he added.
(Reporting by Rajesh Kumar Singh; Editing by Joe White and Pravin Char)
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