The Rising Influence of Rising Affluence

[DewDiligence]

Re: DE’s moat /razor blades

The #2 player in ag-equipent is Japan’s KUBTO, which is a distant second (https://www.statista.com/statistics/461428/revenue-of-major-farm-machinery-manufacturers-worldwide/ ). In fact, DE’s market-share dominance in large agricultural equipment for industrial farming—the kind of equipment we’re talking about in this thread—is even more pronounced than the above chart indicates. In North America (the world’s largest ag-equipment market), KUBTO is mainly a player in construction equipment and has a low market share in ag.

As for the smaller players…

• CNH (a private company) recently announced a collaboration with MSFT and ACN (https://newsroom.accenture.com/news/cnh-industrial-accenture-and-microsoft-collaborate-to-develop-connected-industrial-vehicles.htm ) that (IMO) shows CNH doesn’t have the brainpower to do this kind of development in-house. I’m skeptical of the three-way collaboration.

• AGCO has some precision-farming IP acquired from Monsanto in 2017 as an antitrust concession to enable Monsanto to be acquired by Bayer (#msg-133315728). However, AGCO has only a tiny market share in large ag (its specialty is small and midsized tractors in Brazil) and it has a history of poor execution.

All told, DE would seem to have an amply wide moat in precision agriculture by virtue of its proprietary IP and its dominant market share in large ag.

You also asked about, “penetration.” As I mentioned earlier in this thread, essentially all of DE’s large-ag machines are already equipped for FSD. Nevertheless, the proportion of each large-ag sales dollar attributable to software is steadily increasing, boosting DE’s margins and moving DE closer to the razor-blade business model you speak of.

Still, one has to careful not to overdo the analogy. The “razors” still matter a lot, as evidenced by the additional $500M DE will be spending in the current fiscal year on steel input.