3-D printing—or additive manufacturing—is making gains in some unusual places, aided by artificial intelligence and the explosion of low-cost computing power to help the technology compete with traditional production methods such as casting or forging.
This isn’t a call to invest in consumer-focused 3-D printing stocks, which rocketed higher in 2014 and fell back to earth in subsequent years. Most of the gains are being made are on the enterprise—or business side—of the 3-D printing market. And the big developments are happening inside big companies like Volkswagen (VOW.Germany) and Airbus (AIR.France).
“In effect you make a giant welded part,” Sigma Labs (ticker: SGLB) CEO John Rice tells Barron’s. He’s referring to 3-D metal printing that joins metal powder with a laser. Material is heated precisely by powerful, focused light to build complex shapes microscopic layer by layer. The laser darts around rapidly, giving it the effect of a miniature light show.
It’s impressive and expensive. That’s one reason 3-D metal technology penetration has been slower than the most bullish investors hoped for years ago. It’s still far easier to cast metal parts in a traditional foundry. That’s limited 3-D metal printing gains to the aerospace industry where low volumes along with high costs and complexity are considered standard operating procedure.
General Electric (ticker: GE), for instance, wants to generate $1 billion in sales from 3-D printed parts in its aerospace division by 2020. That goal was set in 2017. But GE is making progress. Today, the company’s new, huge GE9X jet engine combines more than 300 engine parts into seven 3-D printed parts. The GE9X is the engine powering the new Boeing (BA) 777X jet. The plane had its maiden flight in January is due to be delivered in 2021.
“One of the most important problems is qualifying the production of parts,” Claus Emmelmann, head of Germany’s Fraunhofer Institute tells Barron’s. His institute is dedicated to expanding the use of metal-based additive manufacturing in industry. He says the development process for designing and qualifying satisfactory parts is expensive and time consuming. “We are bashing our way to calibrating and qualifying parts through repeated failures.”
That’s where Rice’s Sigma comes in. The small New Mexico-based company sells products to improve quality and validate parts. They are the quality control of the 3-D printing world.
“You can overheat or under melt parts,” says Rice, explaining all the other things that can go wrong while a laser melts metal powder. Variability is the enemy of production. Manufacturers want consistent parts fast. “3-D printers have personality,” adds Rice.
His company uses software and artificial intelligence to scan and adjust welding characteristics in real time. “Sigma truncates the part [validation] process significantly,” says Emmelmann.
The more advanced, computer-aided quality control techniques help reduce development lead times and drive down costs. The machines themselves are getting more productive too. The first versions were single lasers, welding one part at a time. Now machines can be bought with four lasers.
3-D metal printing, as a result of the improvements, is making headway into more industries. Artificial hips and knees can be printed. Health care is another industry characterized by low volume, highly technical products. “It’s worth noting that demand for our 3D printed cementless knees continues to climb, exiting the year at over 36% of our U.S. knee procedures,” said Stryker (SYK) vice president Katherine Owen on the company’s earnings conference call.
But 3-D metal printing is starting to make inroads into the automotive business. That’s a market will far higher part volumes. Boeing and Airbus make less than 2,000 commercial jets each year. The global auto industry cranks out about 100 million cars.
Volkswagen has 3-D printed brake calipers for its Bugatti hypercars. That’s not a great example of wide spread automotive penetration. Those vehicles cost millions each. But other manufacturers, including Ford Motor (F) and BMW (BMW.Germany), are investing in 3-D printed parts.
So how big can the market for 3-D metal printed parts get? That’s the million, or billion, dollar question.
“We have a market $1 or $2 billion in parts today,” says Emmelmann. That accounts for less than 1% of his definition for the overall market of metal parts. But Emmelmann believes the market will grow about 35% a year for a long time. 3-D metal printing can be a $50 billion business by the end of the decade.
For investors it’s hard to find a direct investment. Sigma is very small. Germany company SLM Solutions (AM3D.Germany) makes machines. After a big run, the stock recently sold off when a large holder sold a block of shares.
For now, most of the 3-D metal printing benefits accrue to the industries adopting 3-D printing. Aerospace costs fall and quality improves. Aerospace aftermarket businesses, at the margin, become more profitable. 3-D printing makes it easier to stock low volume, jet engine parts.
But the space still bears watching. Markets growing at 35% a year are hard to find.