Machine Tool Market Trends and Challenges

Executive Overview

Following a period of strong growth in recent years, the machine tool industry now confronts multiple negative impacts.  Besides the massive effects from the COVID-19 pandemic, several external and internal effects are leading to declining demand in the machine tool market.

The transformation of the automotive industry from internal combustion engines to electric drivetrains represents a significant challenge for the machine tool industry. While an internal combustion engine requires many highly precise metal parts, the same is not true for electric drivetrains, which have fewer tooled parts.  Aside from the impact of the pandemic, this is the main reason why orders for metal cutting and forming machineries declined significantly in the past 18 months.

Besides all the economic uncertainty, the industry is in a serious disruption phase.  Never before have machine tool builders experienced such a major change in their industry as the one driven by digitalization and new technologies.  The trend towards greater flexibility in manufacturing drives product innovations like multitasking and additive manufacturing as suitable alternatives to traditional machine tools.

Digital innovations and profound connectivity represent valuable features.  Sensor integration, utilization of artificial intelligence (AI), and the integration of sophisticated simulation features enable advancements in machine performance and overall equipment effectiveness (OEE).  New sensors and new ways of communication, controlling, and monitoring enable new opportunities for smart services and new business models in the machine tool market.  Digitally enhanced services are about to become part of each OEM’s portfolio.  The unique selling proposition (USP) is clearly shifting towards digital added value.  The COVID-19 pandemic may further accelerate this trend.

On the following pages, we summarize the results of our online survey, supplemented by expert interviews with industry insiders.

Current Situation of the Machine Tool Market

Current Challenges for Machine Tool Builders

Capital goods industries are sensitive to general economic downturns.  Since machine tools are mainly used to produce other capital goods, this applies especially for the machine tool industry, making it vulnerable to economic fluctuations.  The recent economic downturn triggered by the pandemic and other negative effects was mentioned as the biggest challenge faced by most machine tool builders.

In 2019, growing economic uncertainty through geopolitical events like the US‑China trade war and Brexit led to a slowdown of the global economy.  Import duties on raw materials, metal components, and machinery affected the machine tool industry and the export of machine tools.  At the same time, the growing number of competitors in the low‑quality segment, mainly from China, challenged the market.

On the customer side, the paradigm shift in the automotive industry towards electric drivetrains has resulted in a structural crisis. The corresponding decline in demand for cars powered by internal combustion engines leads to a drop in demand for many manufacturing technologies in the automotive drivetrain.  Car manufacturers are reluctant to invest in new production assets due to the uncertain future of conventional engines, while the ramp-up of new production lines for e-cars is still in the early stages.  This mainly affects machine tool builders that focus on specialized cutting machine tools for the automotive industry.

However, it is rather unlikely that the declining demand for machine tools can be fully replaced by the new production lines since the production of e‑cars requires fewer high-precision metal parts.  But the diversification of the drivetrain beyond combustion and battery-powered engines will require new production technologies in the next years.

Consequences of the COVID-19 Crisis

The enormous impact of COVID-19 is felt in the machine tool industry as well as in most other industries.  The general economic downturn due to the global pandemic led to a massive drop in demand in the first two quarters of 2020.  Factory shutdowns, interrupted supply chains, a lack of sourcing parts, logistics challenges, and other problems aggravated the situation.

Among the internal consequences, two-thirds of the companies surveyed reported general cost cutting due to the current situation.  Depending on the vertical integration in manufacturing, this resulted in longer periods of short-time work or even layoffs.

More than 50 percent of the companies are about to rethink their strategy regarding the new circumstances of their market environment.  For one-third of the companies, this results in organizational changes and restructuring activities.  While SMEs tend to respond with more radical changes to their operative business, most large companies adjust their existing structure and organization to better align with the new situation.

Long-term consequences for the machine tool industry are difficult to predict, but the changing supply chain requirements and increasing demand for digital services are likely to become permanent.   Since services are still necessary to keep the installed machines productive, OEMs and suppliers expand their service portfolio focused on digitally enhanced service innovations like remote services.  The new circumstances and the social distancing lead to a growing demand for advanced digital services.

On the customer side, permanent changes are more clearly visible. The aerospace industry is suffering from worldwide travel restrictions. Airbus and Boeing announced plans to reduce their production for the next few years. The same applies to the shipbuilding industry, where the demand for cruise ships has dropped to zero. These production cutbacks will also have a negative impact on the machine tool demand in the next couple of years.

Potential of New Technological Trends

Changing Customer Requirements

Mass customization, reduced time-to-consumer, and urban production are a few trends that require enhanced machine flexibility.  Besides core aspects like price, usability, longevity, process speed, and quality,  greater machine flexibility becomes more important as one of the main characteristics of new machinery.

Plant managers and responsible manufacturing managers recognize the increasing importance of digital features to improve the productivity and efficiency of their assets.  Data security, open communication interfaces, and newest information and communication technology (ICT) are essential to integrate digital applications and solutions for a higher degree of automation and serial production.  Today’s shortage of digital know-how  and financial resources and time constraints hinder the implementation of digital enhancements and new services for end users.  Furthermore, consistent tracking and storage of process data becomes important and a mandatory requirement in many customer industries.  

Table of Contents

• Executive Overview
• Current Situation of the Machine Tool Industry
• Potential of New Technological Trends
• New Business Models
• Strategies for Success
• Sample and Methodology

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