Caterpillar Inc. should be worried: China’s machines are coming for the pole position of a company considered an economic bellwether.
As a deflated real-estate sector and Covid-Zero strategy destroy demand, the country’s biggest construction-machinery makers — unfazed by the uncertainty — are looking for greener pastures. They are exporting heaps of excavators and diggers, encroaching on their top global competitors’ market share. Their overseas revenue has risen sharply this year — as much as 54% for some — and at a faster pace than previously.
Despite worries about an imminent global economic downturn, demand for this heavy equipment has persisted. Commentary from Caterpillar and its peers suggests pockets of strong activity are building as order backlogs have built up. Higher commodity prices and infrastructure spending have helped boost mining and construction in parts of the world. Trouble is, supply — or production — has been running short because many parts and components still aren’t available.
To plug the gap, Chinese companies like Sany Heavy Industry Co. have pushed their machines to Europe, Latin America, the US and Southeast Asia, where they are needed. In a recent half-year report, the construction machinery giant noted that it had made “outstanding progress” overseas with double-digit growth, and its international revenue accounted for over a quarter of the total. Cranes made by Zoomlion Heavy Industry Science and Technology Co. were used to build Lusail Stadium, the largest in Qatar and a venue for the FIFA World Cup. The firm has grown its market share in Asia in recent quarters, too. Others are setting up production in Mexico to circumvent tariffs and invest in research and development outside China to raise their global stature. In doing so, they are beginning to pose a real threat to Caterpillar’s — and other machinery giants’ — market dominance.
There isn’t much Caterpillar can do for now. Parts shortages have been a persistent issue over the past two years. Even though it’s been able to raise prices to offset increasing costs, the firm said in an earnings call in early November that its topline would’ve been higher were it not for supply-chain constraints. It’s working with suppliers to mitigate the impact of shortfalls that have caused manufacturing inefficiencies.
Earlier this year, Caterpillar kept factories running even as components weren’t available to churn out as much as possible. Stock at dealerships is also low. That means if the storied American company’s excavators and machines are harder to come by, customers will turn to other options that are potentially cheaper and as competitive especially while demand lasts.
There are other reasons for the shift. Sany, one of the world’s largest machinery manufacturers, and its peers are now producing electric-construction vehicles such as mining-transport equipment, port machinery and front loaders. While not in big numbers yet, this helps their customers like miners in South America — usually under fire for their dirty operations — say they are working to cut emissions. It’s better than what other heavy-equipment producers have done so far. Caterpillar has invested more for “profitable growth” — another way of saying making more high-tech and expensive equipment without hurting profits too much. But it’ll be tough to keep up.
This is a reversal of fortune for companies like Caterpillar that, in the past, relied on Beijing’s largesse, which would inevitably push up spending on infrastructure and construction, and thus, their sales in the country. Two years ago, Caterpillar talked about strength in China and that it would stay for a while. In recent quarters, the American company hasn’t mentioned China much. Its domestic competitors there, historically with tiny markets overseas, are now making headway and becoming rivals to contend with. A similar trend has taken hold in the auto industry, causing a stir among policymakers in Europe.
Of course, there is the possibility that the Chinese economy takes a sharp turn down, as the bears would have you believe. Still, the nation’s homegrown firms have shown that they can be resilient — scoping out global demand, expanding in new markets and making up-to-date products. That’s not what every large construction company can boast about today.
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