Having witnessed Caterpillar’s industrial‑AI debut at CES, I believe from an investment perspective that Caterpillar carries far less certainty than John Deere.

Capital markets share exactly this view. Following Caterpillar’s keynote presentation at CES, its stock price plunged. By contrast, John Deere held a one‑day Investor Day in Brazil in 2025, after which its share price surged more than 6 %. This represented an extremely robust gain, especially given the cyclical downturn in farm machinery triggered by bumper harvests across U.S. agriculture and falling grain prices, which have kept stock performance weak throughout this cycle trough.

Through solid product‑and‑technology logic, John Deere has laid out how it can firmly defend its high‑end market position against competition from Chinese manufacturers. For Caterpillar, its newly launched AI Assistant and future‑product roadmaps make sense in the long‑term narrative, yet the argument fails to close the loop. It cannot convince investors that Caterpillar will retain its premium customer base within construction equipment.

Caterpillar tells a compelling story: “We have an AI assistant, we have an invisible‑layer data stack, and we own the future.” To investors, however, narratives without closed‑loop logic amount to empty rhetoric; non‑monetizable technologies are merely fireworks shows.

Below is a brief analysis of Caterpillar’s business‑model transformation and why its AI Assistant has disappointed investors. Multiple corporate strategy and marketing contacts across the industry have asked for my take. I was initially reluctant to comment, as I prefer not to dwell on Caterpillar’s shortcomings. Nevertheless, mainstream and social‑media coverage I have read lately strikes me as superficial and lacking rigorous analysis, which prompted me to write this piece.

A side note: this is not the media’s fault. For decades, third‑party construction‑industry media have derived nearly all their revenue from equipment manufacturers. Much of what gets published functions as promotional copy and corporate mouthpiece content, with little editorial independence. Consequently, independent critical thinking and in‑depth coverage are scarce. Readers can hardly complain: manufacturers are willing to pay, yet industry audiences have never developed a habit of paying for content. If you are unwilling to pay, you consume advertising — and advertising can be informative in its own right.

Now turning to Cat AI Assistant. This covers Part 1; further sections will follow when time permits.

Caterpillar operates three core reporting segments: GCI (General Construction Industries), Resourcing (mining equipment), and E&T (Energy & Transportation). To draw a simple analogy, Caterpillar’s portfolio resembles a combination of XCMG Group and Weichai Power.

Caterpillar’s share‑price rally over the past year has been driven largely by its E&T division, the equivalent of Weichai Power’s business segment. Booming North‑American investment in data‑center build‑outs and grid infrastructure has fueled extraordinary demand for Caterpillar’s gas turbines, backup power units and generator sets. Caterpillar is executing capital‑expenditure plans to expand engine production capacity by 2.5 times, which has lifted share prices for some A‑share component suppliers.

Mining‑equipment operations also remain healthy. End‑user activity is robust, and mine operators prioritize uptime. They strongly favor Caterpillar products despite premium pricing, as mine owners have substantial spending capacity.

Caterpillar’s value proposition rests on Total Cost of Ownership (TCO). Units carry high purchase prices, expensive spare parts and costly service, yet deliver proven durability, long service life, low failure rates and broad dealer‑service networks. Data‑center operators and mine operators buy into this logic: downtime costs are catastrophic. Even with higher acquisition costs, Caterpillar’s reliability makes it the preferred choice.

The trouble lies within GCI, the General Construction Industries segment. This covers excavators, wheel loaders, bulldozers and other machines deployed in real‑estate development, municipal works and urbanization projects, excluding ultra‑large mining‑spec machines.

Why is Caterpillar’s TCO‑based business‑model struggling within GCI?

Within GCI, Caterpillar can no longer guarantee superior TCO versus competitors. Chinese OEMs offer aggressively‑priced alternatives across global markets. Faced with such price advantages, arguments around extended service life, high endurance and low failure rates lose traction. Chinese‑manufactured equipment delivers compelling value.

Prior to writing this article, I researched approximate selling prices for 6‑ton excavators. From content I viewed on WeChat Channels, SANY retails at roughly USD 13000+, Zoomlion around USD 12000+. These figures serve only as rough reference points.

What do 6‑ton excavators sell for in the United States? What price tag does Caterpillar place on its 6‑ton model?

Average market price stands at USD 65 000.

That is the market average. Caterpillar’s price point sits well above this benchmark. Indeed, Caterpillar charges USD 80 000‑85 000.

For equivalent tonnage, Chinese‑market pricing for SANY and Zoomlion compact excavators stays below USD 20 000. Critics may argue these are economy‑spec units. Even upgrading to fully‑loaded premium configurations brings the total only to USD 30 000.

Consider operating‑hour profiles: these compact excavators log fewer than 60 operating hours per month in the U.S., and under 80 hours monthly in China. What tangible product‑quality advantages justify Caterpillar’s several‑fold price premium? Caterpillar machines may enjoy modest quality advantages, yet the margin is limited.

As I noted in my earlier post Post‑BICES Show Observations, resale‑value retention for certain SANY used‑excavator models in China even exceeds equivalent Caterpillar units. Resale‑market performance reflects both product quality and installed‑base volume. SANY benefits from a larger population of units in service; even so, quality gaps have narrowed substantially.

Caterpillar’s TCO framework therefore breaks down within GCI markets. Arguments touting long service intervals, rugged durability and operator comfort become secondary in the face of massive CapEx differentials.

Caterpillar has consequently lost substantial market share in China, and similar dynamics are unfolding across emerging markets. Where does Caterpillar generate GCI‑segment profits? Primarily within mature markets: Europe, North America, Japan and Australia.

How does it sustain profitability in these established markets?

Through unrivaled, industry‑leading dealer networks and powerful brand equity that shape customer perceptions. As I wrote in my prior piece Globalization Journeys of Construction‑Equipment Brands: Finding Market Bottle‑Openers (Part II), Caterpillar’s Australian dealers repeatedly frame Chinese‑built machinery as “stripped‑down inferior variants”: prone to breakdown, difficult to repair and poor in quality.

Two sell‑side analysts at foreign investment funds, among my readership, conducted field research in the U.S. and documented identical messaging: dealers tell customers that Chinese‑manufactured construction equipment is shoddy.

This narrative is misleading.

While I regard Caterpillar as an outstanding enterprise — arguably outperforming SANY and XCMG in many dimensions — SANY and XCMG deliver credible product quality combined with attractive pricing. This is factual reality.

That is one dynamic. A second factor relies on varied trade barriers and emissions standards that keep Chinese‑built equipment out of domestic markets, artificially constraining supply, supporting price points and enabling repeated price hikes.

I pass no judgment on these policy choices. Sovereign nations retain every right to set trade‑partnership preferences. Under the “America First” and reshoring political consensus, U.S. policymakers naturally extend protection to domestic manufacturing champions such as Caterpillar.

From an investor assessing business sustainability, however, profits built on misleading narratives and administrative protection represent low‑quality earnings.

Over the long run, customers become discerning. There is no guarantee that misleading marketing narratives can persist indefinitely.

Politics itself is unstable. No one can assume any given administration will remain in power permanently.

Caterpillar itself must address these headwinds by reshaping GCI performance via commercial, product and business‑model adjustments. Cat AI Assistant represents its latest attempt. Across global GCI operations, Caterpillar is pushing through a major strategic shift: moving beyond selling hardware and services toward monetizing data. Under its OBS framework, it leverages its world‑class density of service networks to drive revenue generation.

In theory, this business logic holds promise and could lock in premium customers. Cat AI Assistant forms one component of this strategy. Even so, the product concept has not closed the commercial loop and remains at an early‑stage maturity level.

Do not judge business‑model viability from PowerPoint slides alone. Look at partner profitability. I obtained financial statements for SDI, one of Caterpillar’s largest global dealer groups.

SDI generates meaningful profits only from its Australian dealership operations. Combined results for all other geographies are roughly break‑even.

Caterpillar‑dealer operations in China posted revenue of 2.506 billion Malaysian ringgit, with EBIT (Earnings Before Interest and Tax) of 65 million ringgit. EBIT‑to‑revenue ratio equals 2.59 %. After deducting income tax and interest expenses (SDI’s overall cost of capital runs 4‑6 %), net‑income margins land at approximately minus 2 %.

Dealers deploy heavy capital‑asset investment for Caterpillar distribution, yet end‑up with negative net returns. This characterizes the current predicament for Caterpillar’s China‑market dealers.

SDI’s Southeast‑Asian and South‑Pacific‑island dealerships are also unprofitable. Profitability depends entirely on Australia’s high‑boom mining sector. Without Australian earnings, one doubts whether SDI would sustain its China‑market operations. No business operator commits large capital to persistent losses.

If SDI faces these pressures, LSH (Lei Shing Hong Machinery) is unlikely to fare much better. These two represent the best‑managed, best‑capitalized Caterpillar dealers operating within China’s construction‑equipment sector. What higher‑caliber dealer partners could Caterpillar realistically secure?

Caterpillar still retains some of the most capable talent in China’s construction‑equipment industry. While compensation levels now match or trail leading domestic OEMs, the firm maintains a respectful, relatively open‑and‑equal corporate culture that continues to attract top‑tier graduates and high‑caliber professionals.

Caterpillar dealers also employ outstanding personnel. Lawrence Poh of Lei Shing Hong Machinery and former Managing Director C.Y. Shiu of Sin Chang Machinery rank among Asia’s top‑tier heavy‑equipment executives. These individuals boast strong educational backgrounds, high personal standards, ambition and relentless work ethics. None of this offsets reality: Caterpillar’s China‑region business materially underperforms its global benchmarks, and local dealers grapple with shrinking revenues, collapsing margins and large‑scale headcount reductions.

Within unprotected markets, Caterpillar’s original GCI‑segment business‑model does not work. Even excellent staff and sound management systems cannot reverse that dynamic. If China fails to deliver profits, prospects for Malaysia and South‑Pacific island markets are similarly bleak.

That explains why Duan Yongping frequently observes that the most important lesson he learned from Warren Buffett concerns business models. (Duan’s understanding of “business model” aligns with Buffett’s framework.)

Business‑model quality is nearly decisive for commercial success.

This is also why I sometimes advise contacts to avoid joining agricultural‑equipment divisions within construction‑equipment firms. Why do construction‑equipment companies stumble in farm‑machinery markets? From a business‑model perspective, construction‑equipment players struggle to succeed in agriculture; they excel chiefly at moving from one loss‑making phase to the next. Staff assigned to structurally‑loss‑prone internal divisions often lose status within corporate hierarchies.

I have previously argued that construction‑equipment firms should study Caterpillar rather than Huawei. Huawei’s playbook fits telecommunications hardware, not heavy‑equipment markets.

Against this backdrop, Caterpillar’s push to remodel its GCI‑segment business model is necessary and correct. The company is carrying out widespread organizational‑restructuring and workforce‑optimization worldwide, the inevitable growing pains of transformation. Caterpillar dealers must adapt accordingly.

Caterpillar has recognized its threats and launched Cat AI Assistant to pivot from equipment sales toward data‑driven revenue streams. The strategic direction is sound, yet execution momentum is insufficient and the business logic remains incomplete.

All business models ultimately boil down to arithmetic. Innovations that cannot add up financially amount to corporate self‑delusion. Faced with 400 % price differentials, brand sentiment carries little weight, TCO logic breaks down, and even AI offers limited power. John Deere sells improved harvest outcomes; Caterpillar’s data‑monetization model has yet to close its commercial loop. That defines the gap in investment certainty between the two firms.