Industrial Automation Part 1

Market definition and outlook

Good Morning,

We’ve been working on the industrial automation coverage here for some time, and it’s finally seeing the light of day. The structure of the report will be 3-fold. Today’s piece will focus on the description of the space, the companies involved and the drivers there in. Tomorrow we’ll dive in to the valuations in the space, and on Friday we’ll do a showcase of one of China’s leading players in the automation space - Estun, not nearly as well known as it should be.

Much of this report is behind a paywall, and we encourage you to join us there for full access. This will apply to all our automation and semiconductor content through the end of February. These topics are complex to cover, and we believe this approach ensures our premium subscribers receive the best value for their support. However, any macro posts in the meantime will remain generally available for the most part.

Similarly if you feel like you may benefit from some Panda Portfolio style insights, we do offer an individual portfolio reviews for your China/Asia exposure. Clearly this won’t be free (or included) as it takes time to prepare for a review in order to do it well, so for the people interested, get in touch and we can try to work something out.

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OK, here we go, Industrial Automation!

Industrial Automation: The Backbone of Modern Manufacturing

What is Industrial Automation?

Industrial automation refers to the use of control systems such as computers, robotics, and information technologies to handle various industrial processes and machinery. It replaces human intervention with automated systems to increase efficiency, precision, safety, and reduce operational costs. This encompasses everything from simple programmable logic controllers (PLCs) to complex, fully integrated smart factories.

The growth trajectory of the industrial automation market reflects its transformative impact. Between 2014 and 2019, the China industrial automation market experienced steady growth, with annual increases averaging between 15-20%. However, the onset of the COVID-19 pandemic in 2020 caused a -4.2% decline, highlighting the sector's vulnerability to global disruptions. A strong post-COVID recovery followed in 2021, with an impressive +41.2% growth, driven by renewed industrial demand and accelerated digital transformation initiatives. From 2022 to 2024, the market faced a gradual slowdown, with slight declines observed in recent years. Despite this, Q4 2024 shows signs of stabilization, particularly in the project market, which is returning to positive growth.

The industrial automation ecosystem is structured around several interconnected layers that enable seamless manufacturing and process operations. The 2024 Total Addressable Market (TAM) for industrial automation in China is valued at RMB 664 billion (US$91 billion), reflecting the vast scale and critical role of this sector. The automation value chain is primarily divided into two key segments:

Factory/Discrete Automation: Focused on automating production lines in industries like automotive, electronics, and machinery. It optimises repetitive tasks for higher efficiency and precision.

Process Automation: Applied in industries such as chemicals, oil & gas, and pharmaceuticals, where continuous processes require real-time monitoring and control of variables like temperature, pressure, and flow.