China robotics: Automation nation

Tinavi Medical Technologies, a  Chinese medical robot manufacturer that has yet to register a profit, was well received by Shanghai’s Star Market last July. The company’s stock rose sevenfold on debut, and though a period of stabilization followed, it still trades at a 230% premium to the IPO price. Investors such as GGV Capital and Cowin Capital are sitting on substantial paper gains.

Tinavi’s market capitalization is RMB16 billion ($2.5 billion), up from RMB2 billion when the company was delisted from the National Equities Exchange & Quotations (NEEQ), or New Third Board, in 2019. Its price-to-sales (P/S) ratio has risen from 20 to 120.

Everything that touches the Star Market appears to turn to gold. Some investors credit Tinavi’s reception with stimulating PE interest in medical robotics. Two months after the IPO, Hillhouse Capital led a RMB3.5 billion round for MicroPort MedBot, the surgical robotics unit of device developer MicroPort. It is the largest single round targeting the space.

“Medical robot start-ups can deliver faster exits than industrial robot manufacturers because they fall into the medical devices category. They can list without profits or substantial revenues. There are just the standard milestones around certification and number of clinical trials completed,” says Zhijin Xia, a general partner at Vertex Ventures China.

Still, there are concerns about valuations escalating far beyond realistic levels. One investor observes that the categorizations are confusing, with surgical robots included in the same umbrella group as medical service robots. The latter, which provide disinfection, sterilization or handling services, boast little in the way of technology barriers. Traction depends on strong hospital distribution channels.

Even among surgical robots, levels of sophistication vary markedly. Remote-controlled robots that can perform surgeries in place of humans represent the high end. The development cycle is long, with US market leader Da Vinci Surgical System taking more than 10 years to release its first product. Such timelines may not appear to VC investors.

At the other end of the spectrum, companies selling robotic arms that do no more than assist in operations have relatively low commercial value, the investor adds. Tinavi, which produces orthopedic guidance robots that help doctors identify where to make incisions, is one of them. “A 120 P/S ratio is crazy,” the investor asserts.

Rise of the machines

China’s robot boom extends well beyond the medical realm. As of the end of 2020, there were 200,000 robot-related companies, of which one-third were newly registered in 2020, according to Qichacha, a local data and analytics provider. The number of registrations rose 69% year-on-year. VC investors have followed the trend as it has accelerated into 2021. In January alone, eight start-ups received funding.

They include industrial application specialists Jaka Robotics, Flexiv and Dobot, service robot provider Yunji Technology, and Edge Medical and Surgerii Technology in the surgical space.

“Chinese companies are leading the way in sub-sectors such as warehouse robots and catering delivery robots. In many medium-tech fields – as distinct from hard-tech fields – China has no global competitors,” says Peter Chen, a vice president at 5Y Capital.

Mass-market drone manufacturer DJI is a classic example of the country’s medium-tech dominance. The US is a leader in high-end drones, but it can’t match Chinese prices in the consumer space, where DJI had a 77% market share as of March 2020. The next largest player was on 4%. Chen estimates there are up to 50 companies like DJI in China.

Meanwhile, the country offers a natural home for industrial robots. It sits ahead of Japan and the US as the largest market by installations of industrial robots in 2019, according to the International Federation of Robotics. China is also the fastest-growing geography, with rising factory costs forcing manufacturers to seek solutions in technology.

“With intensifying competition and increasing labor costs, Chinese manufacturers are eager to improve efficiency, and there is strong demand for machines that replace humans. At the same time, China has mature supply chains and advantages in robotic hardware, and it is accelerating the maturity of core software technologies,” says Shaw Wang, founding partner at Unity Ventures. “COVID-19 has also promoted the development of automation.”

In areas like traditional robot arms, Chinese players struggle to match the quality of their German and Japanese peers. The biggest opportunities could be in fields with no established incumbents. Flexiv is a case in point.

The China and US-based company was founded in 2016 by a team out of Stanford University. It claims to automate surface polishing – required in the automotive and electronics industries – to a level previously only achieved manually. “Polishing needs people to sense how much force to apply and at what angle,” says a source close to the company, adding that Flexiv uses artificial intelligence (AI) technology to mimic human behavior.

Factory to warehouse

Emulating hand-eye coordination and applying solutions to industrial scenarios is a popular theme. Jiaji Zhou, founder of XYZ Robotics, told a panel organized by 5Y that maybe fewer than one in a thousand robotics have proper vision and motion planning features. However, he thinks the number of operators in the segment can grow 25% over the next three years.

5Y took part in a $20 million Series A extension for XYZ, which builds robots for use in warehouses, last August. It is the only company to finish in the top three in Amazon’s robot picking challenge for three consecutive years. The competition requires robots to identify and retrieve objects positioned at random, relying on cameras and sensors.

“XYZ Robotics doesn’t make arms. It empowers robotic arms with its 3D vision and AI algorithms. They make traditional industrial arms easier to use and more flexible,” says Chen.

Robot use cases range from sorting fruit to operating in dangerous environments. The latter offers more scope for value-add and technical differentiation. This led Vertex to invest in Wanxun, a manufacturer of robots for inspecting high-voltage transmission lines. Machines must meet specific safety requirements.

If China’s manufacturing scale creates opportunities for factory automation, then its growing consumer market is boon for logistics robots used by e-commerce companies. US-based Kiva Systems, which was acquired by Amazon in 2012 for $775 million, is the global benchmark. As of June 2019, Amazon had more than 200,000 robots working across its warehouses.

The Chinese equivalent is arguably Geek+, which closed its Series C at $200 million last June. Vertex participated via its regional growth fund alongside the likes of GGV Capital, Warburg Pincus, Redview Capital, and V Fund. Serving nearly 300 companies in 20 counties with over 10,000 robots deployed, Geek+ claims to be the world’s largest autonomous mobile robot (AMR) supplier.

However, the company’s ambitions do not stop there. It wants to ramp up its robot-as-a-service business, building relationships with technology and logistics partners to create digital supply chains. In this sense, the future of warehouse robots goes beyond manufacturing.

“The biggest opportunity is to completely change warehousing operating systems. The robot supplier controls the warehouse in terms of in-shipments and out-shipments of goods, as well as in sorting and packing. Once fully unmanned, it essentially becomes a cloud service like AWS with good business scalability,” says Chen.

Stunted services?

Once goods leave the warehouse, service robots can handle delivery. China’s demand in this area is captured in the joke that if Meituan – an online-to-offline local services provider and the country’s lead food delivery platform – continues to grow at its current pace, the entire population will be employed as couriers.

Last year, SoftBank Ventures Asia backed restaurant delivery robot manufacturer Keenon Robotics, while Qiming led a more recent round for Yunji, a producer of robots used in hotels. Sequoia Capital China-backed Pudu Robotics is another leading player in the space.

“Keenon and Pudu both achieved shipments of 10,000 units last year. As far as I know, their biggest overseas competitor only ships hundreds of units,” says an investor familiar with both companies. “Across the entire manufacturing supply chain, China completely crushes its competitors in terms of scale.”

The problem comes in translating scale into value – and, by extension, justifying public and private market valuations. Beyond areas where there is clear technological complexity, the debate about whether robots can deliver significant cost savings remains a live one. Hotels, for example, aren’t necessarily reducing headcount after introducing service robots because human input is still required to solve part of the problem.

As a result, Xia of Vertex prefers to consider investments in robotics as part of wider solutions. The big push for China over the next two decades will be improving manufacturing efficiency. Robots will play a role in this transformation, but not an isolated one.

“Within manufacturing, we focus on areas that are most likely to be subverted by new technologies or equipment,” Xia explains. “This subversion could come in the form of robots, software, or other means. Rather than just study robots, we look at what can be done to meet the needs of customers.”

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Greater China
• Technology
• Early-stage
• Expansion
• IPO
• China
• TMT
• Vertex Ventures
• 5Y capital
• Unity Ventures