‘Industry 4.0’ — a term first coined in 2011 at German trade fair Hannover Messe and later popularised in 2016 at the World Economic Forum — describes the step change from manual industrial machinery to the all-singing, all-beeping factories of the future. Indeed, between pandemics, disruption to shipping traffic, and the geopolitical instability of the past few years, it seems like the perfect time for factories to transition closer to home — and towards smarter, automated, and less contagious ways of working. Fully connected factories can drive efficiency, sustainability, faster time to market, and true mass customisation, and yet the supposed ‘big bang’ has still to materialise.
At Dawn, we believe we’re still in the foothills of the Industry 4.0 opportunity. Today there is a renaissance in home-grown manufacturing in both the US and Europe, with $196bn invested in the US and at least 500 mid-large factories built in Europe in recent years.¹ ² Despite widespread fears that automation would replace all jobs, we are in fact seeing a widening shortage of frontline workers. The existing workforce is starting to retire and manufacturing is struggling to attract younger workers. Recent research from MakeUK found that just two-fifths of UK parents would encourage their child to pursue a career in manufacturing, while 44% of children said they believed the job would be repetitive or boring.³ This worker shortage compounded with soaring energy prices, increasing supply chain complexity, and the emergence of net new technologies like EVs and renewable energy production — that have amassed $96bn in VC investment over the past two years — point to a changing of the tides and we believe the time is now for Industry 4.0.⁴
The step-change is easiest to see in the next generation factories of industrial leaders like Tesla, BMW, and Henkel. These companies are already embracing truly digital production, leveraging swathes of new technology that would once have featured in a sci-fi film, including Industrial IoT, VR/AR, additive manufacturing, autonomous robots, and digital twins. The opportunity these technologies represent is enormous, with additive manufacturing alone set to become a $31bn market by 2026.⁵ Here, Europe boasts some of the most innovative and cutting edge players in the world, providing fertile ground for new companies to spring up.
But we’re also excited — if anything, potentially more excited — about the opportunity in existing factories. Many factories around the world have been operating without pause for decades, and they are ripe for transformation. To put it into perspective, 500 recently built factories in Europe represent only 0.6% of the total number of mid-large factories.⁶ We estimate that at least 73,000 mid-size manufacturing businesses in Europe have yet to fully embrace the potential of Industry 4.0, which translates into up to $3 trillion a year for digital transformation investment.⁷ ⁸
However, the process of transforming a factory is hard, requiring a huge investment and a great deal of time. The investment per factory upgrade requires anything from $20mn to $2bn and generally takes at least a year, according to a 2022 survey by LDL.⁹ ¹⁰ ¹¹ As a result, the pace of transformation has been slow to date. A recent PwC report found that 62% of factories had deployed analytics across just one production line, if at all, while just 6% of German factories have achieved full connectivity.¹² ¹³
The good news is that many businesses have emerged in the past few years to tackle this challenge head on, taking into account the complex nature and needs of their customers. In recent months, we’ve spoken to a wide range of manufacturing executives, founders, and researchers about some of the technologies that we are most excited about. As you can see from the market map below, many innovative businesses are emerging to address inefficiencies across the manufacturing process, and are paving the way for the digital transformation of the factory. As European investors, we’re delighted to see this breadth and depth of innovation across the continent — unsurprising given the unique combination of technical expertise, research universities, and a deep manufacturing history across the full spectrum of industry, from small, to Mittelstand, to large.
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Dawn is excited about what’s to come, and would be delighted to hear from founders building in this space. If you want to dive deeper into the industry 4.0 opportunity with us, we will soon be releasing Part II of this series, where we will dig into some of the pain points and processes offering the greatest potential today. These include solutions enabling frontline workers with digital technologies, those maximising uptime through predictive maintenance, enhancing productivity and flexibility with operational planning tools, and harnessing the power of the Industrial Internet of Things. Later, we will share lessons learned from experts in the field on what it takes to build and scale successfully in Industry 4.0.
¹Census Bureau, Monthly Subnational Construction Spending (12 months to Dec ‘23)
²Eurostat
³Make UK 2023, Manufacturing: Perceptions vs Reality
⁴Pitchbook, VC Investment in Climate Tech, Q1 2024
⁵Precedence Research
⁶Eurostat
⁷Eurostat. Defined as 50+ employees, excludes UK, as of 2022
⁸Statista Industry 4.0: In-depth market analysis, 2023. PwC Survey: Global Annual Investments
⁹IDC, Worldwide Digital Transformation Spending Guide 2022
¹⁰General Motors press release, 2020
¹¹L2L, The State of Digital Transformation in Manufacturing: 2022 Survey
¹²PwC, Digital Factories 2020: Shaping the Future of Manufacturing
¹³WEF, Data Excellence: Transforming Manufacturing and Supply Systems, 2021