NGS Super secular trends: 3D printing

Each year, our Investments team sets the strategic asset allocation for our portfolio. As part of this exercise, we produce an in-depth research piece on upcoming “secular trends”.

What are secular trends and why do they matter?

Secular trends are evolving trends in the market that take place over a longer time horizon, rather than being seasonal or cyclical. It’s important for us to understand secular trends when we’re reviewing and setting our long-term strategic asset allocation, as they help us identify investment opportunities and risks.

Key trends ahead

Our secular trend analysis this year looked at:

1. carbon neutrality
2. electronic and autonomous vehicles
3. 3D printing
4. the metaverse
5. demographic changes
6. quantum computing
7. geopolitics
8. blockchain, decentralised finance and cryptocurrency
9. the hydrogen economy.

This article focuses on 3D printing.

3D printing

3D printing got a foothold in the imaginations of the general public in the early 2000s, as the technology became more widely available, but its history goes back much further. The concept was first floated in the 1940s, and the first patent application lodged in 1981. In 2016, 24% of 900 companies surveyed by Ernst and Young used 3D printing technologies; by 2019, that figure was 65%, and the global 3D printing market is expected to continue growing at rates above 20% a year over the next decade.

Also known as additive manufacturing, 3D printing consists of applying material onto a substrate to build up an object from a digital 3D design. It has a very broad range of manufacturing applications, and is especially useful for complex and highly customisable products that are produced in smaller amounts.

For industries that are R&D-intensive, such as healthcare, medical devices, aerospace (over 78% of aerospace firms currently use 3D printing)¹ and defence, 3D printing will be a true disruptor, enabling much more rapid prototyping and design testing² as well as optimising manufacturing processes and reducing labour costs. Just to use one example, in 2017, General Electric manufactured a 3D-printed aeroplane engine that uses only 12 parts, compared to 855 parts for a traditionally constructed engine.

The use of 3D printing in healthcare and medical devices is well-advanced — it is used for creating prosthetics and the development of ‘bio-ink’ even makes 3D printing of biological tissue possible.

Another industry in which 3D printing is expected to have an impact is construction. Although still in its early stages, there is potentially great value to be derived from 3D printing applications, and it could represent a significant disruption to a traditionally labour-intensive industry.

One of the most significant implications of 3D printing is its potential impact on global manufacturing supply chains. The COVID-19 pandemic and rising geopolitical risks have highlighted the fragility of these supply chains, prompting manufacturers to look at ways to reduce risk by bringing facets of production back to their own countries. The uptake of 3D printing, allowing vertical integration within companies and thus reliance on global chains, will also have a flow-through effect on the logistics industry.

3D printing has many advantages for businesses, including the potential to reduce:

• labour costs
• waste
• the need to hold large inventories and
• reliance on fragile supply chains.

Many of the earlier limitations of 3D printing are being overcome, as a wider range of printing materials has been developed, and the costs for both materials and the printers themselves are falling and will continue to do so as the uptake increases. Once the digital design is completed, the cost of 3D printing complex objects is similar to the cost of printing simple objects. And 3D printing has the potential to be ‘self-sustaining’ — that is, if a machine can print out components to maintain other machines, upkeep and maintenance costs, as well as machine downtime, could be minimised.

The global 3D printing market is expected to reach US$22.6 billion by 2030 and expand at an annual growth rate of 23.9% between 2022 and 2030.³ The aerospace and defence additive manufacturing industry is expected to grow from $3.73 billion in 2021 to $13 billion in 2028, an annual rate of 19.51%,⁴ with North America and Europe expected to experience the largest growth in these sectors.

Companies that use 3D printing are likely to have a long-term advantage over their competitors, making investment in these companies (including start-ups), especially in the key areas of healthcare, aerospace and medical devices, attractive. Investments in start-ups focused on developing 3D printing solutions including the advanced resins and polymers required also have potential.

Are there risks?

3D printing could pose national security risks as it can be used to print weapons — this means that close observation and regulation will be necessary and this may slow the growth of the technology and its implementation. Digital design is also susceptible to hacking, increasing the risk of theft of proprietary technology designs.⁵

Other limiting factors for rapid adoption of 3D printing technologies are the significant investment costs (in hardware and talent), as well as material costs for the resins and other materials used in the printing, but these costs are coming down.⁶

Interestingly, one of the advantages of 3D printing — a reduction in dependence on global supply chains — is also a risk, as it could potentially reduce global trade between nations.⁷

What does this mean for NGS Super’s portfolio?

The following types of investments/sectors are set to benefit from this secular trend:

• Firms and start-ups that make extensive use of additive manufacturing in the key application areas, such as healthcare, aerospace and medical devices. Firms that make use of additive manufacturing will likely have a long-term advantage over competitors.
• Start-up businesses that that focus on developing 3D printing solutions for production environments may be of value as these companies develop solutions to address the price, speed and software challenges currently facing the industry.
• Chemicals companies that can manufacture advanced resins and polymers as any user of 3D printing will need to purchase these materials. NGS currently has indirect exposure to these investments via the global shares we hold in listed companies, plus some exposure through our allocations to private equity. We recently made a direct investment in Inventia, a company that enables large-scale creation of human tissue — vital for medical research — through its manufacture of 3D bioprinters.