Industrial equipment manufacturing may appear from the outside to be a stable, predictable sector — you make transformers for the electrical grid, let’s say, and you’ve made them for 70 years — but if you look closer, there is a constant churn. Markets rise and fall; industrial companies that don’t evolve go extinct. This creative destruction cycle is not as rapid as in consumer products or apps, that’s true, but equipment manufacturers need to constantly scan the horizon for new markets that will be pillars of future growth.
The sustainability transition is a megatrend that will produce enormous churn over the coming decades — a permanent shift away from processes that are high in greenhouse gas emissions and environmental waste. The prizes in this shift are massive; we can look at it as another gold rush. The winning technologies will displace incumbents and become the foundation of new manufacturing processes. Yet, to disrupt an industry, technology developers need to make high-risk bets; incremental improvement isn’t enough. One example that I like is deep-sea mining. Can equipment manufacturers develop technology that efficiently removes metallic nodules from the ocean floor without damaging that important ecosystem? As global regulation on deep-sea mining evolves, a winner in that market could earn tremendous revenue.
However, and with sincere apologies for the cliché, it wasn’t the individual gold miners who grew into huge businesses in the gold rush — it was the companies selling ancillary equipment. Not all miners struck gold, but every one of them needed a shovel, a pickaxe, blue jeans, etc. What are the equivalent low-risk materials and equipment that industrial companies should develop to enable the sustainability transition? Exploring that question is just as important as investigating high-risk opportunities, and it’s a core focus of our work at Lux Research.
A real challenge in identifying and selecting the right low-risk opportunities in the sustainability transition is that these new markets don’t exist at scale. That’s why expert perspectives on early stage technologies are a key input for decision-makers. We can begin to understand differentiation for certain processes and extrapolate to see the contours of a new market. For example, electrochemical production of iron for low-carbon steelmaking has reached the pilot stage. How will it fit into the mix of decarbonization technologies for the iron and steel industry? At Lux, we’re skeptical that electrochemical approaches will scale up efficiently in the next 10 years, but, by the 2040s, they should expand beyond single-digit market share. Given the scale of the steel industry and some important advantages (e.g., the ability to use low-grade ores), we can say that developing equipment to support this type of innovative, low-carbon manufacturing is actually a prudent bet for the 2030s.
