In the mid-1840s, the U.K. was just starting to recover from an economic slowdown. As industries started to grow again, and the Bank of England cut interest rates, investors moved money out of government bonds and into railway companies. Speculators poured money into what they saw as a disruptive technology that would reduce production costs and bring huge increases in efficiency. But the technology was overvalued and the price of U.K. railway shares spiked to unprecedented levels, creating a speculative bubble.
Then the bubble collapsed and the U.K. experienced one of the most severe financial crashes the world has ever seen.
The British Railway Mania of the 1840s is considered the greatest technology hype in history. Although railroad developments were instrumental to the U.K.’s Industrial Revolution, investors ultimately overvalued the technology because they underestimated the costs associated with it.
Given the growing excitement around 3D printing, also known as additive manufacturing, is it possible that we are in for another “hype-cycle”?
That depends on whether 3D printing will force a transformation in the way products are designed and built.
Many firms with a vested interest in promoting the 3D printing industry have been raving about the transformative potential of this technology (much like railway companies promoted themselves). They argue that 3D printing technology will reform global manufacturing by allowing firms to reduce development time and cut costs.
But investors haven’t rushed into 3D printing the way they did with railway companies. The independent research company Canalysis estimates the sector stood at a mere $2.5 billion globally in 2013. Moreover, although the 3D printing industry is still considered to be in its infancy, it’s not new. A Morgan Stanley paper explained that 3D printing techniques have been around since as early as the mid-1980s.
So why are recent research reports by reputable institutions, like the McKinsey Global Institute, suggesting that this industry could have an impact of up to $550 billion a year by 2025?
They are assuming that 3D printing will become a disruptive technology by making the jump from the design shop to the factory floor in the next decade.
Is 3D printing the next big thing?
3D printing is a generic term for a manufacturing process that makes three-dimensional objects from a digital computer-aided design model.
Currently, additive manufacturing is only complementary to traditional manufacturing because 3D printers are mainly used for prototyping or for the production of highly complex parts. This is why large firms like GE, Siemens and HP are investing in the industry.
But will 3D printers displace traditional manufacturing and impact global economies?
I will explain how 3D printing is already transforming many industries and why so many believe it will transform economies. I will also discuss the potential implications this has for the global economy.
Why is everyone so excited about it?
High-profile corporations are increasingly investing in 3D printing, and this is generating optimism about the future of the technology.
One of the firms leading the movement towards additive manufacturing is GE. Its recent acquisition of 3D printing specialist Morris Technologies is allowing it to use this advanced technology in its aviation product segment. GE is already reaping the benefits of making highly specialized aviation parts in-house and is committed to increasing their use of 3D printing technology.
Siemens is another multinational conglomerate making sizable investments in 3D printing techniques to speed up prototyping and to construct structures too complex to be made using any other convention.
A number of leading motor vehicle companies including BMW, Audi and Ford are also investing. Firms in the automotive industry are already using this technology to cut tooling costs and to reduce design time in vehicle parts prototyping.
Interestingly, 3D printing is also spreading into the medical field. It has proved to be very profitable in fabricating hearing devices and customized dental products. But perhaps its most exciting application is called “bio printing,” which is the creation of functioning human tissue. This is being used by pharmaceutical companies to test products and has huge potential implications for medical R&D.
Even researchers with the U.S. government’s military and defense divisions have invested in 3D printing, using the technology primarily to create prototypes. Although their current uses of the technology are limited, they hope to eventually extend it to battlefield applications such as printing food for soldiers and printing vehicle replacement parts.
Given that 3D printing technology has been gaining ground in multiple sectors including aviation, auto, medicine and military, should you invest in the hype?
Not necessarily. There are many barriers to growth in the 3D printing market.
Most notably, growth is stifled by the costs associated with the technology. According to 3D printing consultants Wohlers Associates, some of the most sophisticated systems can cost up to $1.5 million. Moreover, the materials used by these systems are expensive. To achieve further growth in the 3D printing market, price points need to come down. But it’s not likely that they will since Wohler’s analysis concluded that, for higher-end units costing over $5,000, price degradation in the last decade has been 4% per annum.
Given the high costs and low production capacity of even the best 3D printers, it is most profitable for firms to limit their use to prototyping and to the production of made-to-order and low-volume goods. If the applications of 3D printing remains concentrated in these two small spaces, it will not become a disruptive technology.
The price range for 3D printing systems does vary significantly based on specifications and limitations. There are more affordable systems currently being sold, but they are designed to be a novelty for individual consumers.
Even if this technology becomes commonplace in the home, it will not be a financially significant market.
Additive manufacturing needs to become commonplace on the factory floor to be disruptive.
But companies are not just deterred by the costs of additive manufacturing; they also have misgivings about the quality of the goods it produces. Quality-testing parts produced by 3D printers can be expensive and difficult given the absence of a clear legal framework. This poses problems given that firms can’t assume the risk of producing integral pieces (like jet engine parts) without assurance that they are reliable.
Firms are also reluctant to invest in additive manufacturing because it is hard to train their employees to use them. Currently, there is no standard software used to operate 3D printers. Each model is controlled by a unique complex technological operating system that can be difficult to learn.
Implications for global economies
The large multi-billion dollar enterprises currently investing in this space are already integrating this technology into production processes around the world. There is a general consensus that the 3D printing market will continue to grow, but debates surround the projected pace of growth.
The degree to which this technology could transform economies is contingent on its growth rates markedly accelerating.
Bullish analysts argue that 3D printing will be disruptive because they are predicting technological consolidation and a lowering of costs in the short term. If they are correct, it will transform economies. In this scenario, firms would reduce outsourcing and increase hiring of skilled labor. This would give industrialized countries a large advantage over emerging economies.
Bearish analysts argue that the costs of additive manufacturing won’t drop significantly in the next decade. They believe that large global firms will continue to be the only ones with the budgets needed to reap the benefits of 3D printing. If this is correct, large firms will have a substantial competitive advantage over smaller firms that can’t afford the technology. Over time, this could leave smaller companies more vulnerable to competition.
Conclusion
There are similarities between the U.K.’s railway mania during the 1840s and today’s 3D printing hype. In both instances, the transformative potential of the technology generated a great deal of excitement. Moreover, proponents of 3D printing have underestimated the costs associated with additive manufacturing in the same way investors in the railway hype failed to account for the costs of developing the U.K.’s railway expansion.
Excitement about 3D printing technology has grown because large corporate investments are being misinterpreted as proof that 3D printing has crossed over to mainstream manufacturing. I wouldn’t go that far given that the uses of 3D printing are limited to low-volume complex goods, and it has been implemented in a select number of industries. Investments in 3D printing are not yet as sizable as those of the railway mania, but we may see a similar speculative bubble form in the next decade.
3D printing is complimentary to traditional manufacturing, with potential applications in many fields and economies. But the technology remains concentrated in a few small spaces. The increasing adoption of this technology by large manufacturers has succeeded in creating hype for 3D printing and is likely to help drive prices down. But be wary of those claiming that 3D printing is a mainstream manufacturing technique.
Marianne Brunet is an associate editor with Advisor Perspectives.
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