Digital Transformation Will Change Manufacturing As We Know It

Turning the challenges of manufacturing into new opportunities for success with digital transformation.

The global manufacturing world seems to be travelling back in time. Large production plants and long assembly lines, where goods were mass produced in hundreds and thousands, may become a thing of the past. Instead we are witnessing a growing demand for products that are highly-customized to the needs of individual end customers. This is much like the years preceding the First Industrial Revolution when each product was painstakingly crafted by hand.

But this time, something is about to change.

Instead of workers spending hours creating made-to-order products, industry can now quickly produce millions of goods, in smaller and smaller batch sizes, without compromising on quality or productivity. This transformation is possible in a data-driven digital ecosystem powered by connected devices and solutions that maximize the potential from existing infrastructure.

Simply put, the digital transformation of businesses allows to capitalize on the benefits of digital tools such as smart sensors, cloud computing and the Internet to add value to existing manufacturing processes. Digitalizing a production process opens fresh opportunities by gathering meaningful insights that can be analyzed to better understand the condition of each and every individual piece of equipment. Sensors on a machine continuously track its status and can immediately alert operators in the case of an anomaly in normal working parameters. Digitalization enables operators to move from reacting to incidents on the shop floor to proactively maintaining their equipment to avoid unplanned downtime. This gives manufacturers the ability to meet increasingly demanding deadlines even while producing a greater mix of products.

Building a digital ecosystem

In a world of ever-growing complexity and competition, digitalization can offer a quick boost to the productivity of industrial equipment. Something as simple as installing a sensor on heat-sensitive machines, such as a welding robot, can help an operator to track temperature variations to ensure that the optimum temperature is maintained for the most flawless weld from the robot. Gaining increased transparency of processes in a factory not only leads to higher productivity, but also potentially helps to save significant resources due to fewer unplanned outages and can increase the lifecycle and decrease the power consumption of equipment.

Of course, the greatest value of the digital transformation of industries can be achieved when every piece of equipment along the value chain is connected. Be it directly on the shop floor or through the Industrial Internet of Things. Digitally connected assets that understand the information being passed around the shop floor can interact autonomously, lending a whole new dimension of efficiency and autonomy to industries.

The right digital strategy to choose

The statistics around digital transformation are highly encouraging. A 2019 report by market research firm IDC estimated that direct investment in digital transformation would approach a staggering $7.4 trillion between now and 20231. But on the flipside, it is not uncommon to see digital transformation strategies failing to reach their goals as companies struggle to find the right approach and trained employees who can take on the challenge of a complete recast of their business models.

For some six decades now, ABB has been at the forefront of developing and deploying technology for digital manufacturing. Just one example is the introduction of the world`s first digitally controlled robot in the year 1974. Today, ABB as a technology leader is driving the digital transformation of industries. It masters all elements of the Fourth Industrial Revolution that represents the next wave of innovations including IIoT, artificial intelligence and modular manufacturing to support both big and small businesses. For instance, artificial intelligence is at the heart of a solution that ABB has co-created with Microsoft to help a Nordic salmon fishery remotely track its fish population, thereby reducing the need for human intervention and ultimately making the production of over 70,000 tons of salmon a year more sustainable.

Digital transformation in real-time

One of the cornerstones of digital transformations and the factory of the future is the ability to act in real time, which allows companies to quickly respond to issues before they become problems. That is why I believe that progress that ABB has made with its telecommunication partners Ericsson and Swisscom in the field of 5G communications is so exciting.

At the recently concluded World Economic Forum in Davos, Switzerland, ABB’s collaborative YuMi robot carved a message in a sandbox that was replicated at the same time by a second YuMi robot located 1.5 km away. This demonstration of low latency communication over long distances enabled by 5G can help bring future concepts of more flexible and modular manufacturing to reality. 5G networks over a specified area can connect thousands of automated guided vehicles that move around the factory floor bringing essential parts to production hubs within a very short time.

Much like mass production; paper designs and traditional 2D schematics will find fewer users as the industrial world becomes more digital. Taking their place are concepts like digital twins where a fully functional virtual image of a physical asset is created to help operators iron out details such as to test the interaction of a machine with its surroundings. Digital twins allow businesses avoid losing time in perfecting and testing out product prototypes or modifications and potentially reducing production costs.

A digital transformation of its own kind is happening in industrial services. Advanced monitoring solutions, such as ABB AbilityTM Connected Services, are helping companies monitor their assets in many sites on one system. Connected Services applied to ABB’s robots can help businesses monitor the condition of their fleet, diagnose anomalies, remotely operate them, help plan maintenance schedules by prioritizing the hardest working robots and provide a backup management so as to enable easy and fast recovery from a systems crash or from unwanted changes.

Enhancing efficiency and productivity, reducing unwanted incidents and creating a more reliable manufacturing process using digital transformation ultimately reduces the consumption of resources and helps build a more sustainable manufacturing process. We are at a point in time where we have come to understand that digitalization is not just a passing fad or a privilege of large companies, but a fundamental element of the future of industries.

1 Source: https://www.idc.com/getdoc.jsp?containerId=prUS45617519

Bazmi Husain is the Chief Technology Officer (CTO) of ABB.

Source: Digital Transformation Will Change Manufacturing As We Know It

Rico Dittrich graduated in International Politics and History from Jacobs University, Bremen, before moving to Ireland to make ends meet by testing video games. Rico changed companies and joined Google and went on to troubleshoot large customers’ issues with some of Google’s most technical and advanced digital analytics services. He currently works as Digital Analytics Specialist at Google, collaborating with large German retailers to set them up for the future of online measurement, attribution and automation. He has lived in six countries, across three continents, in the last six years and is fluent in German, English, and Spanish. At TEDxUniPaderborn 2017, Rico spoke on the topic “The difficulty of digital transformation & how to make it happen”. Born and raised in Germany, Rico Dittrich graduated in International Politics and History from Jacobs University, Bremen, before moving to Ireland to make ends meet by testing video games. Rico changed companies and joined Google and went on to troubleshoot large customers’ issues with some of Google’s most technical and advanced digital analytics services. He currently works as Digital Analytics Specialist at Google, collaborating with large German retailers to set them up for the future of online measurements, attributions and automation. He has lived in six countries, across three continents, in the last six years and is fluent in German, English, and Spanish. At TEDxUniPaderborn 2017, Rico will be speaking on the topic “Why Digital Transformation Is So Difficult and How to Make It Happen”. This talk was given at a TEDx event using the TED conference format but independently organized by a local community. Learn more at https://www.ted.com/tedx

Tesla Gets Ready To Report After Upside Surprise On Q2 Vehicle Deliveries

Getty Images
Getty Images

Key Takeaways:

  • Tesla earnings this afternoon follow strong Q2 deliveries
  • Stock on a roll since falling below $200 a share this spring
  • Lower product prices raise questions for some analysts

Considering all the big news Tesla (TSLA) delivered over the last two weeks, its Q2 earnings report this afternoon might seem a bit anticlimactic.

Arguably the biggest (and best) news of the quarter is already digested. The company reported better-than-expected car deliveries for the second quarter. Earlier this month, TSLA said it delivered 95,200 total vehicles in Q2, ahead of Wall Street’s estimate for 91,000. That’s the widest beat in at least three years, according to market forecaster FactSet.

It’s also a huge turn-around from the company’s disappointing 63,000 in Q1, and might reflect some buyers deciding to jump in ahead of the Federal tax credit on TSLA’s cars being halved on July 1, Forbes noted. In Q2, the Model 3 posted deliveries of 77,550, surpassing consensus estimates on Wall Street for 74,100. Combined deliveries for the Model S sedans and Model X SUVs were 17,650, beating estimates of 16,600, according to FactSet data.

The delivery data also might confirm that the March quarter wasn’t quite as bad as people had thought, because thousands of the company’s cars were in transit at the end of March, but those deliveries ended up occurring in Q2. In other words, deliveries over time might be a little smoother than the quarter-to-quarter numbers show.

Shares Took Another Wild Ride in Q2

Smoothness isn’t a word often associated with TSLA, either the company itself or its shares. The Q2 was no different, with TSLA bouncing back quickly from a May sell-off that carried shares of the company down below $200 for the first time since late 2016. Shares recently were back above $250.

Where they go from here depends partly on whether TSLA can meet its delivery goals for the remainder of 2019. As Barron’s noted, TSLA delivered 158,000 cars in the first half—a number it might update when it reports earnings. Its goal for the year is 360,000 to 400,000, meaning it has to do a lot better in the next six months than it did in the first six months of 2019.

It might be interesting to listen to the company’s earnings call to see if executives provide investors a road map of how they plan to get to that point, especially considering the falling government tax incentives for electric car buyers.

Vehicle production was another Q2 highlight, rising to a record 87,048, TSLA said. That included 72,531 of its Model 3 and 14,517 of its Model S/X. Customer vehicles in transit at the end of the quarter were more than 7,400.

Even as it tries to grow production, TSLA has been under pressure to cut costs. The company has made workforce cuts this year, and this month it announced a revamping of its vehicle lineup. The company cut back the total number of vehicles available, making its lower-end Model 3 more affordable while raising prices on its higher-end Models S and X.

It did this, it said in a statement, “To make purchasing our vehicles even easier.” The pricing adjustment, it added, is “in order to continue to improve affordability for customers.”

Tesla said it’s reducing the price of the Model 3 by $1,000 to $38,990. The company will no longer sell the standard range versions of the Model S and Model X, raising the minimum amount people have to pay for those cars. The base version of the Model S is rising to $79,990 from $75,000, while the price of the Model X is increasing to $84,990 from $81,000.

However, lower prices for the Model 3 could mean lower margins for TSLA, which might lead to pressure on profitability. Speaking of which, analysts don’t expect a profitable Q2 despite the big deliveries. This would be the second “red” quarter in a row for the company, a troubling sign after it posted consecutive profitable quarters in the second half of 2018. The decision to lower prices also has some analysts questioning whether demand is there for TSLA’s vehicles.

In a sign that TSLA continues to work on expense control, it said it made “significant progress” in Q2 “streamlining our global logistics and delivery operations at higher volumes, enabling cost efficiencies and improvements to our working capital position.”

Cash Check

The company’s cash position is usually something analysts monitor at earnings time, and this quarter is no different. Tesla’s wallet looked lighter at the end of Q1 due to a bond payment, expansion costs, and a high number of vehicles in transit, analysts said. One question is whether that improved in Q2, and whether management can meet its forecast for positive free cash flow in the quarter. That might help soothe chronic worries about how quickly TSLA goes through cash.

Among investors, TSLA shares continue to see a lot of love from the Millennial generation. The company’s stock has been a long-time favorite of younger investors, according to the Investor Movement Index, or the IMX, a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of retail investors.

For TSLA, the “magic” price point in early June seemed to be $200 a share. When the stock fell below that, retail investors appeared to become buyers and come back into the stock in a heavier way.

It’s pretty impressive how TSLA continues to attract younger people to its stock. People are buying what they know, but, like anything, it’s also important to do the research before buying.  Caveat emptor applies to any stock, not just TSLA.

thinkorswim chart

200 CLUB: Shares of TSLA appeared to get a lot of buying interest earlier this year when they fell briefly below $200 a share. Data source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

thinkorswim

Tesla Earnings and Options Activity

For Q2, TSLA is expected to report adjusted earnings of negative-$0.42 per share, up from negative-$3.06 the prior-year quarter, on revenue of $6.42 billion, according to third-party consensus analyst estimates. That revenue would represent a 60.4% rise from a year ago.

Options traders have priced in an 5.5% stock move in either direction around the coming earnings release, according to the Market Maker Move™ indicator on the thinkorswim® platform. Implied volatility was at the 21st percentile as of this morning.

Weekly options activity has been higher in the 240- and 245-strike puts and the 275- and 285- strike calls.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

TD Ameritrade® commentary for educational purposes only. Member SIPC.

I am Chief Market Strategist for TD Ameritrade and began my career as a Chicago Board Options Exchange market maker, trading primarily in the S&P 100 and S&P 500 pits. I’ve also worked for ING Bank, Blue Capital and was Managing Director of Option Trading for Van Der Moolen, USA. In 2006, I joined the thinkorswim Group, which was eventually acquired by TD Ameritrade. I am a 30-year trading veteran and a regular CNBC guest, as well as a member of the Board of Directors at NYSE ARCA and a member of the Arbitration Committee at the CBOE. My licenses include the 3, 4, 7, 24 and 66.

Source: Tesla Gets Ready To Report After Upside Surprise On Q2 Vehicle Deliveries