Mother of Industry - Machine Tools

Machine tools are mainly used for the processing of metal or other materials, and are the machines that produce machines, known as the mother of machines. Machine tools are the foundation of a country's equipment manufacturing, but also an important cornerstone of modern industrial development, high-end machine tools are strategic resources.

Machine tool industry development status

China's machine tools used to be one of the highest levels in the world in the 1960s and 1970s. However, after the reform and opening up, with the impact of foreign enterprises, high-end machine tools, especially CNC machine tools, have been monopolized by foreign companies. At present, looking at the world, in the high-end field, Germany and Japan are in the leading level; In the middle area, Japan, South Korea and Taiwan are the main areas; The low-end field is the area where Chinese mainland enterprises compete fiercely.

Therefore, in the field of machine tools in China, the middle and high-end market is an oligopoly and highly dependent on imports. Since 2015, China has vigorously developed high-end CNC machine tools, and the development of domestic high-end CNC machine tools has accelerated. According to Gardner's research report on machine tools, in 2020, the output value of China's machine tool industry is 19.36 billion US dollars, and the consumption of China's machine tool industry is 21.31 billion US dollars, but the revenue of the machine tool business of the major domestic machine tool enterprises has not exceeded 5 billion, and there is broad room for improvement.

Data source: China Machine Tool Industry Association, China Asset Management Foundation

The investment value of machine tool industry

National policy support is strong, and domestic substitution is ushered in a good opportunity

From the policy point of view, the machine tool industry has received strong policy support in recent years, The State Council, the National Development and Reform Commission, the Ministry of Industry and Information Technology and other departments have issued relevant support and normative policies, especially for the development of CNC machine tools and other sophisticated areas of guidance. The policy content mainly involves the manufacturing industry transformation and upgrading guide, CNC machine tool equipment specifications, CNC machine tool localization rate, CNC machine tool industry cluster and so on. Since 2018, the United States has imposed a global trade embargo on China's high-end manufacturing equipment, especially high-end CNC machine tools, providing an opportunity for domestic replacement of China's high-end machine tools.

The numerical control rate has gradually increased, and high-end numerical control machine tools have become the development trend

After years of development, the CNC rate of machine tools in China has been continuously improved. In 2021, the CNC rate of China's metal processing machine tools reached a record high of 36.21%, an increase of 11.2%, and China is transforming from a manufacturing power to a manufacturing power. However, compared with more than 70% of machine tool numerical control rate in developed countries such as Europe and the United States, China's numerical control rate improvement space is still very large.

"Manufacturing power" drives the growth of machine tool demand

Although there is still a certain gap between China's machine tools and foreign countries, machine tool production is closely related to the country's basic industry and basic manufacturing industry. We produce low value-added products and naturally do not need high-end machine tools. But when our basic industry and manufacturing reach a certain level of technology, we naturally need better machine tools. Now China's intelligent vehicles, aerospace, national defense and 3C products and 5G fields are expanding, innovation and development in these areas have driven the demand for high-end machine tools.

In particular, aerospace equipment manufacturing and processing demand for high-end CNC machine tools is high, generally need large, high-speed, precision, multi-axis and efficient CNC machine tools, combined with the characteristics of aerospace equipment processing, the future aerospace industry for high-end machine tool equipment demand will continue to increase. The entire Chinese manufacturing industry will therefore usher in an opportunity period for high-end machine tools to break through the bottleneck.

The update cycle is coming, and the industry prosperity has been further supported

The update cycle of general CNC equipment is about 7-10 years, 2011-2014 is the last peak of China's machine tool industry sales, so the machine tool industry will usher in centralized replacement demand from 2021.

Taking metal cutting machine tools as an example, the main reasons for replacement are: 1. The original machine tool equipment, especially CNC machine tools, after years of high-intensity use, the processing accuracy and stability of the equipment have decreased significantly, and it needs to be replaced in time. 2. After multiple rounds of upgrade iterations, the traditional machine tool equipment cannot adapt to the processing needs of current materials and processes in terms of efficiency or accuracy, so it is necessary to use more advanced cutting machine tools to upgrade and replace. The arrival of renewal demand provides strong support for the continuation of the high prosperity of the industry.

Industrial machine tools are the national importance, but also an important field of domestic substitution. Looking to the future, domestic substitution is the key to China's move towards a "manufacturing power", and the industrial machine industry is also expected to open a long-term growth cycle in this environment, and currently has a good investment value.