Good morning, everyone. I'm Ryan Fiedler, Head of Investor Relations. Welcome to our 2022 Investor Day. Our theme is Services, Technology, and Sustainability. We help our customers build a better, more sustainable world. We're excited to have you here with us today. You can find the slides that go with today's session, along with this morning's news release at investors.caterpillar.com under Events and Presentations. A transcript of this event will be posted later today. Caterpillar has copyright this event, and we prohibit the use of any portion of it without our prior written approval. Now, I'd like to take a moment for a quick safety briefing. For those here today, you can see multiple fire extinguishers throughout the room. There's also an AED in the loss prevention room on this floor and at the front desk upstairs.
In the event of extreme weather, this room is a take-cover location for the hotel. If we need to evacuate the building for any reason, please use the external doors and gather in the Austin Ranch parking lot around the rear of the hotel. In case of emergency, someone on the Caterpillar team will dial 911. During our event today, we'll make forward-looking statements which are subject to risks and uncertainties. We'll also make assumptions that could cause our actual results to be different than the information we're sharing with you today. Please refer to our recent SEC filings and the forward-looking statements reminder for details on factors that, individually or in aggregate, could cause our actual results to vary materially from our forecasts. During today's presentation, we'll also refer to non-GAAP numbers.
For a reconciliation of any non-GAAP numbers to the appropriate U.S. GAAP numbers, please see the appendix of the Investor Day slides. Now, here's the breakdown of today's agenda. As you can see, we have seven speakers from our executive office, a lunch break, and then we'll wrap up with one hour of Q&A. At that point, I'll provide few further Q&A instructions. With that, I'll turn it over to our Chairman and CEO, Jim Umpleby.
Well, thank you, Ryan. I'd like to welcome everyone to our 2022 Investor Day. Thank you for joining us, whether you're participating in the room or virtually. We hope, for those of you attending in person, that you'll take the time to experience a few of our latest Cat Product Offerings and Technology that are on-site today. It's pretty warm out there, but I think you'll still enjoy it. Today's theme is services, technology, and sustainability. We help our customers build a better, more sustainable world. I'll begin by highlighting the key messages that you'll hear from us today. First, we continue to execute our strategy for profitable growth by focusing on three key areas, operational excellence, expanded offerings, and services. We added sustainability as a key focus area, which I'll describe later in my remarks.
Second, we achieved our 2017 and 2019 Investor Day targets for adjusted operating profit margin in each of the last five years, despite a challenging environment that no one could have predicted. Third, we are expecting higher long-term sales growth as the energy transition expands our addressable market. Fourth, we are reaffirming our adjusted operating margin targets while investing in technology. Lastly, we anticipate that ME&T free cash flow will increase with sales growth. Let's get started. I'm pleased to introduce our talented leadership team. My colleagues in Caterpillar's Executive Office are a diverse, experienced, values-based group of executives dedicated to executing our strategy for profitable growth. Some of my colleagues have had long, successful tenures at Caterpillar, and some have deep and valuable experiences from other organizations, which has benefited us greatly as we dealt with the various challenges of the last few years.
Caterpillar is the world's leading manufacturer of construction equipment and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Our products and services are best in class. We operate 150 locations around the world in 25 countries. Last year, we generated $51 billion of sales and revenue, with over 60% generated outside of the United States. During the last year, Caterpillar's dedicated global team has worked to meet strong customer demand while remaining focused on executing our strategy for profitable growth. With 160 dealers in more than 2,700 locations in 193 countries, our dealers have the most extensive sales and service network in our industries. When customers buy our products, they know they'll be supported by the most capable and reliable services network.
With an average tenure of more than 50 years, our dealers are aligned with our customers. It's a clear competitive advantage. Our innovative products and services, backed by our global dealer network, provide exceptional value that helps our customers succeed. We introduced our strategy for profitable growth in 2017 based on three main focus areas, operational excellence, expanded offerings and services. Operational excellence includes safety, quality, lean, and a competitive and flexible cost structure. We're proud that our global team achieved our best year on record for safety for the third year in a row in 2021, but even one injury is one too many. We want everyone to return home safely every day. The same goes for quality. Our enterprise metric, enterprise quality metrics don't mean a thing to a customer who experiences downtime because of a defect.
We are striving for perfection in safety and quality in a continuous, never-ending journey. The same is also true for lean. We are committed to continuing our lean manufacturing journey by synchronizing across our value chains, reducing lead times, optimizing working capital, and increasing availability. The next focus area of our strategy is expanded offerings. It's based on having the right products and solutions for various types of customers at the right value point to ensure an acceptable return for Caterpillar and our dealers, while always ensuring our customers are more successful using Caterpillar products than they would be with the competition. Services includes all the ways we help our customers succeed after they buy a piece of equipment. We've been increasing our investments to enable services growth, including enhancing our digital capabilities, which Bob will describe later today.
Our strategy is supported by data and insight using Caterpillar's Operating and Execution Model or O&E Model, and it's all underpinned by our long-standing code of conduct, our Values in Action, which define what we do in all aspects of our business. Since we launched our strategy in 2017, we've achieved higher adjusted operating profit margins compared to the reference period of 2010 to 2016. We also generated strong ME&T free cash flow, which totaled over $26 billion from 2017 to 2021. This has provided us the flexibility to invest in our business, make disciplined acquisitions and more consistently return capital to shareholders through dividends and share repurchases.
As a reminder, at our 2017 Investor Day in Tucson, Arizona, we outlined a strategy that targeted improving our adjusted operating profit margin by 200-500 basis points more than the reference period. We delivered on that commitment. At our 2019 Investor Day in Clayton, North Carolina, we raised our targets, striving to improve our adjusted operating profit margins by 300-600 basis points higher than years with similar revenue between 2010 and 2016. We also targeted ME&T free cash flow of $4 billion-$8 billion, or $1 billion-$2 billion higher than the reference period. We also communicated our intent to return substantially all ME&T free cash flow to shareholders over time. We achieved our 2019 Investor Day adjusted operating profit margin targets.
This includes 2020, the year in which we experienced a year-over-year sales decline of 22% or $12 billion. I remain proud of our global team's performance during the pandemic. We also generated strong ME&T free cash flow, which totaled more than $14 billion during the last three years. While we did not achieve our ME&T free cash flow target in 2020, this was largely due to our strategic decision to hold more inventory than usual to prepare for a potential increase in demand in 2020. This proved to be a good decision since we were able to increase sales by 22% last year despite supply chain constraints while also increasing profit and free cash flow.
We returned over 100% on average of our ME&T free cash flow to shareholders during the last three years through dividends and share repurchases. We also continue to utilize our O&E model for resource allocation, biasing our resources towards those areas that represent the best opportunities for future profitable growth. You'll hear Andrew discuss that in more detail later today. I'd like to spend a few moments highlighting several of the internal metrics we use to track key service initiatives. We're creating strong momentum for services growth. Today, we have over 1.2 million connected assets, up over 20% from our 2019 Investor Day. We've also invested to improve our go-to-market digital capabilities, generating over 20% more online parts sales in 2021 than the previous year. Our customer value agreements, or CVAs, continue to grow.
More than 50% of all equipment is now sold with a CVA. I'd like to describe this as a win-win-win. It's a win for our customers, allowing them to minimize downtime, improve utilization, and extend the life of their Caterpillar products. We increase services revenues, and our dealers sell aftermarket parts and related services. Bob will speak more about prioritized service events. We're pleased about the growth we're seeing as we utilize data analytics and machine learning to help our customers predict critical service events. In 2021, we saw the best parts availability on record despite global supply chain challenges. We continue to see strong demand for remanufactured products and components, helping to reduce waste and minimize the need for raw materials, energy, and water to produce new equipment.
Lastly, we are working with our dealers through our leadership table process to determine the largest service opportunities at a granular level by region, customer, and product. We use that data to develop opportunity-based targets to help grow services together with our dealers. In 2019, we announced a goal to double ME&T services sales to $28 billion over 10 years, from $14 billion in 2016 to $28 billion in 2026. We increased services sales by $5 billion in 2021, a 36% increase from 2016. We previously noted that the road to $28 billion in 2026 would not grow in a straight line. As I mentioned, we're seeing strong momentum across the board in our service initiatives and investments. Our confidence is increasing that we'll achieve our $28 billion services goal in 2026.
We've made great progress executing our strategy during the last five years. We recently updated our strategy in our 2021 sustainability report. It now includes sustainability as a focus area. For nearly 100 years, our long-standing commitment to sustainability has inspired us to set and achieve meaningful environmental, social, and governance goals. It's also allowed us to build innovative products, technology, and services to support our customers on their sustainability journey. The addition of sustainability as a focus area, together with operational excellence, expanded offerings and services, highlights our work to help customers build a better, more sustainable world. The energy transition expands opportunities for profitable growth in a variety of ways, including accelerating mining commodity demand. Global energy demand is also rising with growth in both renewables and many traditional forms.
The energy transition will require significant global infrastructure investment while expanding service opportunities for Caterpillar. The growing momentum of the energy transition requires more electric vehicles, battery storage, wind and solar power, grid modernization, and stability. These solutions require a significant amount of critical minerals such as copper, lithium, nickel, and cobalt, to name a few. For example, the IEA, the International Energy Agency, has published a stated policy scenario which indicates lithium demand will grow by 13x during the next 20 years. To satisfy this increasing demand, mining companies need to expand their footprints, open new mines, and enhance utilization. We expect miners to increase capital spending, and Caterpillar's technology will allow customers to reduce emissions while improving efficiency, automation, productivity, and equipment utilization. To expand upon one example, the adoption of EVs is accelerating demand for key commodities.
EVs use approximately 6x the minerals of a conventional car, including copper, lithium, nickel, and graphite. In 2020, EVs represented about 5% of the annual industry. IEA stated policy scenario indicates that EVs will increase by 8x between 2020 and 2030. The amount of mined commodities just for EVs alone will be significant. The IEA stated policy scenario indicates that global energy demand will increase by 16% between 2019 and 2040 due to population growth, improved standards of living in developing nations, increase in urbanization, and higher energy needs on a per capita basis. In this scenario, renewables more than double between 2019 and 2040, while natural gas usage increases by 19% and oil increases by 6%. There are many different perspectives on how growing global energy demand will be met in the coming decades.
Caterpillar is well positioned to benefit from the increasing global energy demand regardless of the mix between renewables and traditional sources of energy. Increasing renewable energy demand drives demand for mined commodities and is also expected to increase demand for gas turbine and reciprocating generator sets for grid modernization and stability. Our gas turbines and reciprocating engines can burn a wide variety of fuels, including natural gas, hydrogen, and biofuels. Renewables also require construction-related investments to install wind turbines, solar power, and transmission lines. Increasing demand for oil and gas also provides growth opportunities. Caterpillar's acquisitions and investments in product development during the last few years allows us to help customers reduce their carbon footprint as they produce more oil and gas.
Caterpillar also benefits from the increased interest in liquefied natural gas or LNG since our products and services are used across a wide portion of the natural gas value chain. Our construction machines are also used for the development of onshore oil and gas infrastructure, particularly in North America. We expect growing global energy demand will increase demand for a wide variety of Caterpillar products and services. The IEA stated policy scenario indicates that approximately $5 trillion of incremental global infrastructure spending is required through 2040. This includes construction-related projects to add to grid transmission lines, solar power and wind farms, EV charging stations, and other applications. Our construction industry segment is positioned to benefit from this growth in infrastructure spending. For the reasons I've described, the combination of the energy transition and growing global energy demand is increasing Caterpillar's total addressable market.
This results in opportunities to grow original equipment and services in resource industries, construction industries, and energy and transportation. We believe the energy transition presents opportunities to grow services in adjacent areas such as site power management and distributed power generation solutions. This includes battery life management, charging equipment, and other energy services solutions. As you'll hear from my colleagues, we continue to invest in autonomy, alternative drivetrains, including battery-powered machines and other technologies to meet the future needs of our customers. Many of our existing services opportunities associated with machines remain unchanged regardless of the power source. A few examples include wear components such as hydraulics, ground engaging tools, and digital services. Reman is another significant service opportunity since our products are designed to be rebuilt. We like to say built to be rebuilt.
We expect the adoption of alternative drivetrains in machines will occur at different rates by application and geography. For example, regulations are expected to drive the adoption of battery-powered machines in major urban areas before remote locations with less developed power grids. We continue to invest to meet the needs of our diverse global customer base in a wide variety of applications. We don't anticipate there will be a single solution that helps customers achieve their sustainability objectives, but we are confident the investments we continue to make in technology will meet the needs of those diverse customers. We expect there will be new service opportunities as battery and fuel cell solutions grow over time. Technology is one of the key subjects that we'll discuss today. Over the past 20 years, we've invested over $30 billion in R&D to deliver best-in-class innovation.
We've also continued to consistently invest in autonomy, alternative fuels, connectivity, digital and electrification, or ACE, over the past several years. Going forward, we'll continue to invest at an even higher rate in these areas as we work with our customers to help them achieve their sustainability objectives. While we anticipate that we'll increase investments in technology in these areas during the next five years, we are reaffirming our target for adjusted operating profit margin percent improvement. You'll hear more about this from Andrew. Caterpillar has been a technology leader for nearly a century. We have significant experience developing innovative technologies through consistent R&D investments, which will help us maintain our leadership during the coming decade. For example, Solar's gas turbine generator sets have had the capability to run hydrogen blends since 1985.
Today, both our gas turbines and reciprocating engine generator sets can operate on 100% hydrogen. We began developing our first autonomous mining truck over 25 years ago, and now they've driven about 100 million miles in production applications. We've also committed that by 2030, 100% of our new products will be more sustainable than the previous generation. In the 2000s, we started investing more heavily in our digital and connected assets with tools such as VisionLink and MineStar to help customers succeed. We developed our first hybrid electric mini excavator about 10 years ago. We've invested to connect over 1.2 million assets globally, provided fully electric solutions to underground mining customers, and have expanded our autonomous fleet, which now includes dozers, drills, water trucks, and compactors.
We've also made strategic acquisitions such as CarbonPoint Solutions, which helps customers with carbon capture technology, and now Tangent, with a solution that monitors patterns from the grid and utilizes our power generation products to maximize returns and provide reliable power. We leverage R&D across our company, allowing us to be more efficient with R&D while maintaining our leadership. I'll conclude by recapping our key messages. First, we continue to execute our strategy for profitable growth. The addition of sustainability highlights our work to achieve Caterpillar and our customers' climate-related objectives. Second, we achieved our 2017 and 2019 Investor Day targets for adjusted operating profit margin in each of the last five years, despite a challenging environment. We also generated over $26 billion of ME&T free cash flow since 2017. Third, we are expecting higher long-term sales growth as the energy transition expands our addressable market.
Regardless of the speed of the energy transition, Caterpillar is well-positioned to benefit. Fourth, we are reaffirming our adjusted operating margin target. Our track record of achieving higher margins gives us the flexibility to increase our technology investments in support of further gains in autonomy, alternative fuels, connectivity, digital, and electrification. Lastly, we anticipate that ME&T free cash flow will increase with sales growth. With that, I'll turn it over to Joe Creed, Group President of Energy and Transportation.
All right. Well, good morning, everyone, and thanks, Jim. I appreciate everybody taking the time to travel in. I know it might have been a bit adventurous, getting here, and thanks for those of you joining online. As Jim mentioned, my name is Joe Creed. I'm Group President for Energy and Transportation. While I know many of you have followed Caterpillar for quite some time, some of you may not be as familiar with the Energy and Transportation segment. I'd like to start today before we get into the heart of the presentation by giving you just a little bit of a background on what we do. Our innovative products, solutions, and services are sold into a variety of industries. You can see those on the slide.
They range from oil and gas to power generation to transportation, which includes rail and Cat Marine for us, and a variety of industrial applications, including powering our Cat machines. E&T has a broad portfolio of products and services as well, including engines, generator sets, industrial gas turbines, and locomotives, along with other related equipment, depending on the industry and the application. These products and services are sold under many powerful brands, as you can see on the slide. Another key component that I want to mention to the Energy and Transportation portfolio is our remanufacturing division, which provides great economical and sustainability benefits to our customers.
Reman products provide like-new quality at up to 60% of the cost. In addition, Reman products use up to 85% less energy, water and material, and can lower greenhouse gas emissions by up to 60% when compared to manufacturing a new component. I'm proud to say our Reman team in 2021 alone prevented 127 million lbs of material from going to the landfill. Not only do we have a broad and diverse set of products and services, we've been doing this for a really long time. We have nearly 100 years of experience, and that leads to a significant field population of equipment. Our Solar industrial turbines have over 3 billion hours in operation, and we've sold over 16,000 gas turbines, including more than 6,000 new or overhauled turbines sold in the last five years.
We have over 25,000 EMD locomotives worldwide, and we've built over 30 million engines with an average of around 350,000 engines per year over the last five years. In that same time frame, we've produced over 200,000 reciprocating generator sets. As I mentioned on the last slide, and Jim mentioned to you as well, our equipment is built to be rebuilt. We reman an average of 12,000 engines per year. This field population is why Caterpillar and our dealers are laser focused on offering industry best service and support to our customers throughout multiple life cycles of our products. Every single engine, turbine, and locomotive that we sell today can generate decades of services growth opportunities for us.
Our products can range anywhere from 20-60 or even more than 60 years in the field, depending on the product and application. Our customers extend the useful life of their assets through routine maintenance and repairs + 2 to 6 and sometimes even more than 6 major rebuilds or overhauls in the product lifecycle to keep their equipment running at peak performance. It's why we're laser focused on growing reman as well. I'm proud to say that the reman team introduced almost 400 new offerings last year for our customers. We also continue making improvements in our service offerings to make it easier for our customers to extend the life of their equipment and easier to do business with us.
Tools that you see on this chart, customer value agreements, connectivity, which allows us to do condition monitoring and prioritize service events, and e-commerce to make ourselves easier to do business with. Bob's gonna cover some of these in more detail later today and give you some examples, but these tools are fundamental to us executing our services growth initiative. As Jim mentioned a few minutes ago, we're also very excited at Caterpillar about the energy transition, and I'm excited about the opportunities it gives specifically to energy and transportation. Jim mentioned a couple of them, and I'd like to take a minute just to expand a bit on those opportunities. The first one is distributed power generation. We're seeing a rapid increase in renewables supporting electric grids around the globe. While renewables are great for the environment, they're not as stable as the power sources they're replacing.
At the same time, electric loads are increasing as more and more items are plugged into the grid. Those items include EVs, homes moving to electric heating and cooling, and an increase in consumer electronics, just to name a few examples. Together, these trends are leading to grid stability challenges like intermittency and peak load capacity constraints. We see articles about it almost every day. In fact, last year, a little over a year ago, right here in Texas, we had an outage. This is where distributed power generation is a great solution and a great growth opportunity for us. Caterpillar is well-positioned to provide reliable power to our customers and help stabilize the grid through our various products and services.
Those include what you see on the slide at the bottom, including our industrial gas turbines under our Solar Turbines brand, our reciprocating generator sets sold under the Cat and MWM brand, Caterpillar microgrids, and energy as a service through our newly acquired Tangent Energy Solutions. A little bit more on Tangent in a minute, but before I get there, it's important to note that our equipment can burn a wide array of fuels, including natural gas, renewable fuels, biodiesel, hydrogen, and hydrogen blends. Energy as a service is an exciting new space for us. Tangent, as I mentioned, recently acquired their proprietary software, monitors patterns from the grid and client facilities. It analyzes opportunities in energy markets, and can even dispatch distributed power assets for our customers to maximize return without disrupting normal business operations.
These solutions help our customers monetize their distributed power assets while reducing the reliability on the grid. That provides capacity, consistency, and lower cost. The other energy transition opportunity Jim mentioned was helping our oil and gas customers lower their carbon footprint. Total demand for energy, as Jim mentioned, is forecasted to increase, and despite the rapid rise in renewables, oil and gas, and especially natural gas, is forecasted to be a key power source for the energy transition. Cat Energy and Transportation serves a wide portion of the natural gas value chain, including drilling and fracking, production, and natural gas compression and transmission. Our high-tech integrated solutions are well-positioned to help our oil and gas customers lower their carbon footprint, which is driving demands for our products right now. Those solutions include some of these that you see on the screen.
We're helping our customers reduce their carbon footprint through all of these. While we've been involved by selling equipment in all these areas of oil and gas for quite some time, what you see on the screen are high-tech solutions that have been introduced within the last 12-18 months. They include a first of its kind hybrid gas drilling system that couples energy storage plus natural gas gen sets, replacing what you would see on here is typically four diesel generators powering that rig. I mentioned our natural gas gen sets are very fuel flexible, and they could run on conditioned field gas, which helps our customers reduce the need for flaring. Our well service offerings include both electric frac and conventional frac solutions. eFrac, our integrated frac trailer utilizes our natural gas G3500 generator sets and our SPM 5,000 horsepower eFrac pump.
You can see we have those on display outside. If you haven't had a chance this morning, I encourage you to go out and take a look at it. They're impressive pieces of equipment. We also offer a completely integrated conventional frac fleet solution that includes our Tier 4 3512 dynamic gas blend engine that can displace up to 85% of diesel with natural gas and even take hydrogen blends, our Cat transmission, and our SPM pumps and flow iron. The acquisition of SPM Oil & Gas gives us the complete solution from trailer to wellhead, which has allowed us to digitally monitor the entire fleet. With that information, we've developed what we call Frac Fleet Optimizer. It's a digital solution that automates and optimizes the entire fleet, which saves fuel and lowers the carbon footprint for our customers.
As we mentioned, many of you that have followed us a long time also know that natural gas compression and transmission is great business for Caterpillar. Our Caterpillar natural gas engines and Solar industrial turbines and compressors move natural gas downstream through the pipelines to point of use and to LNG capability with our engines and turbines, providing step change in greenhouse gas emissions along the pipelines. All these solutions are supported with Customer Value Agreements and are focused on making our customers more successful with our equipment, more efficient in lowering their carbon footprint. By combining our technology, our digital solutions, and most importantly, probably our deep system and products and industries we serve, not one solution is going to be able to be the answer for us. We're working on developing many.
It's important to note that we're not just starting investments in these technologies, as Jim showed earlier. We've been investing for quite some time, and we'll continue to ramp our investments into the future. One of the immediate things we can do to help our customers lower their carbon footprint right now is utilize low carbon intensity fuels, which you see on the left side of this chart, 'cause those can be burned in our existing lineup of products. Our existing engines and turbines are capable of running on a wide array of fuel types, including renewable fuels, biodiesels, hydrogen and hydrogen blends. While we're helping our customers right now lower their carbon footprint in our existing equipment, on the right side of the chart, at the same time, we're developing the new power technologies of the future, focused on battery electric technologies and hydrogen fuel cells.
This also includes developing battery electric powertrains for our Cat machines. In the middle of the charts where the existing new technologies come together, seamlessly integrating the established power sources of today with the battery technologies of tomorrow in hybrid formats. These take the form of electric drive and hybrid powertrains for mobile equipment and microgrids for stationary power that can integrate many kinds of energy, including wind, solar, batteries, gen sets, even the grid, into sophisticated, smart, and efficient power systems. While all these solutions are important and we're working on all of them right now, and you'll see some of those in the presentations later, I'd like to spend a little bit of time with you before I wrap up talking about our battery technology.
We've recently introduced a few battery electric products, and you can see a few examples of those on the screen. Those include on the left, a zero exhaust emissions underground mining loader with the MEC500 charger. In the middle of the screen is the Joule, a battery electric zero emission switcher locomotive. On the right side is a stationary power energy storage solution. The electrified equipment you see on the screen is helping our customers in the field today work towards their ESG-related goals in high power applications. Each of these applications is different. The reason our customers are asking for them, the reasons we focused on bringing them to market first is different. For instance, the high productivity zero emissions loader is critically important and makes sense in deep, difficult to ventilate underground mines.
For the Joule switcher locomotive, in addition to being zero emissions, it provides zero idle and low noise within rail yard applications. Our energy storage solution can be used for grid stability or leverage for transient loads, as mentioned earlier in examples in both power generation and in oil and gas. These demonstrate just a sample of the variety of solutions that we're gonna have to develop and that our customers are going to need in the future. That's why our battery solution needs to be modular and it needs to be scalable. While we may utilize a couple of different battery chemistries, depending on the application and the power needs, we plan to leverage industry scale for battery cells. This is gonna allow us to keep up with new and emerging technologies as they advance in a quickly advancing landscape.
However, what you see in here in the middle of the screen, the modules, packs, and racks depicted, will be Caterpillar designed and scaled up or down to meet the power needs of our machines and our energy and transportation applications. Leveraging our deep system integration experience and know-how, we'll also have a proprietary battery management system to monitor batteries and a fully integrated battery electric powertrain for each electrified machine. This chart further demonstrates the wide range of battery applications that we're gonna have to develop. Strategy on the power side will allow, as I mentioned, for a modular and scalable solution, but at the same time allow us to tailor that solution to the application from very large mining trucks down to BCP, smaller machines to stationary power applications.
Our expertise in distributed power generation with the electric power team and Solar Turbines will also benefit us as we design our lineup of charging solutions and provide valuable services opportunities for us in the future as we help our customers with site power infrastructure needs to support their electrified fleets. Also, our existing reman business that we've talked about and mentioned a few times today is gonna be a benefit for us 'cause that business model of processing core returns and repurposing components will also apply well to batteries. Due to the number of charge and discharge cycles that are gonna occur in large high power applications like mining, batteries are going to need to be replaced. These batteries will be returned, repurposed for use in lower power applications like supporting battery charging infrastructure.
Our proprietary battery management system and monitoring services will be key to determining the battery residual life, which provides great value to our customers. The breadth and experience we have across energy and transportation is a huge benefit for us as we develop these solutions and will no doubt lead to new and different services growth opportunities as we move into the future. Finally, before I wrap up, we also know the energy transition is a rapidly changing and advancing landscape. We'll collaborate when it makes sense and make investments and acquisitions where we can add to our capabilities and accelerate our development timelines. We've made a number of collaboration announcements in the recent past, a couple of them exciting ones around hydrogen.
You can see on the screen one with Chevron and BNSF to test the feasibility of a line-haul locomotive that runs on hydrogen fuel cells. We've also made one with Microsoft and Ballard to develop fuel cells for data center backup power. We've made a number of equity investments in companies to advance our knowledge and learning and capabilities in certain technologies. Areas like fuel conditioning, hydrogen, batteries and motors are what you see on the slide, and it's not an all-inclusive list. We've also made acquisitions recently to complement our existing portfolio where it makes sense. We've talked about the importance today of CarbonPoint Solutions, SPM Oil & Gas, and Tangent Energy Solutions, and how it's gonna help us support our customers moving into the future. All of these investments are focused on growing services and advancing our capabilities to help our customers through the energy transition.
Whether providing distributed power generation to stabilize the grid, helping our oil and gas customers decarbonize the oil patch, or powering our machines with the technologies and batteries of the future, whatever the challenge, I'm confident our team is not only ready, but we're excited about the opportunities ahead. With that, I want to thank you for your time, and I'll turn it over to Tony Fassino, Group President for Construction Industries. Thank you.
Thank you, Joe. As Joe said, Tony Fassino, Construction Industries, and just wanted to say good morning to everybody and thank you all for coming here in the room and, of course, many of you who are on the phone today. Really appreciate you taking the time to listen a little bit about Construction Industries and look forward to talking for a few minutes here on Construction Industries. First, to kind of orient you just a little bit. Obviously, we serve many different industries. You can kind of see here on the screen everything from general construction, quarry and aggregates, heavy construction, industrial and waste. You got the road construction jobs, of course, down there in the bottom center. Then the agriculture and landscape. Now, this is, of course, not all-inclusive. We serve many different industries.
This gives you a little bit of a feel, and it never hurts to look at a couple good Cat pics here in the morning with machines in the dirt. Always a nice feel to start. Let's talk a little bit about sustained growth opportunity from a construction industry's perspective, really machines and services both. As you can see on the slide, we've taken a few of the key kind of macroeconomic indicators from now until 2040. We'll walk through residential, we'll walk through infrastructure and energy transition. Residential construction first. It's been strong, and we anticipate that strength to continue. You know, according to Oxford Economics, it's estimated the world needs to increase housing development an average of $2.5 trillion per year.
Now, that gets to up in that $45 trillion-$55 trillion or really double the current spend relative to 2040. Really, we've seen over the last several years, this has really already started. You know, our belief is there's a significant gap, things are healthy, and this supports that future growth. Now, let's talk a little bit more about the traditional infrastructure there in the center of the screen. You know, this is the roads, the bridges, you know, the water, the waterways, telecoms, all that, all that great industry that we serve. You know, according to Global Infrastructure Hub, there's a $20 trillion-$25 trillion dollar gap between 2021 and 2040. Now that's for the new and refurbished infrastructure that needs to take place over that time period.
Now, the good news is many of the largest economies in the world have already put programs in place to begin to close this gap. A lot of work remains, and that's good from a construction perspective. Now, as Jim mentioned earlier, we believe there's opportunities to support the infrastructure for the energy transition too. This is everything from the solar to the wind, the grid to support all that additional work that's going on. While significant investment is underway, the IEA estimates at least a 5% increase per year equates to that $5 trillion number that Jim showed earlier. Right? Incremental investment between now and 2040. We believe the fundamentals are strong, and we believe that's good for growth from a CI perspective.
Now, through Cat's history, we've been innovating to increase customer value and grow our business profitability along with the dealers and the customers. Today, I'll focus on those three key areas of innovation that Jim mentioned and Joe detailed. The services, technology, and sustainability. We're, of course, focused and remain committed to the services goal we made in the last Investor Day, and we're well-positioned for this growth. We deliver customer value across the machine lifecycle through an easy-to-buy and an easy-to-own customer experience. Now remember I said, well-positioned, so some notes here. These are important numbers. 1.9 million active construction machines in the field, more than 1 million of those connected, average age about 11 years. That's a great field population. Now, connecting those machines enables a very customer-centric approach for us to tailor our services to that customer for whatever that they might need.
Now, it also provides proactive, predictive condition monitoring. They want to pull the full value out of that asset. Oftentimes, we wrap that CVA around it that Jim mentioned a little bit earlier to help them get that full value. Now, in addition, there's about 150,000 machines that go out into the field every year, and roughly 60% of the CI machines have a CVA when they go out to the field. Now, of course, we're trying to continue to maximize equipment availability for customers driven by our services offerings. You can see across the bar at the bottom, that black bar at the bottom. I'll hit just a couple of those to give you a feel for some of the additional things we're doing. Self-service options, SSOs, we call it. Those self-service options are basically parts kit, all the parts needed to repair.
The instructions are in there, how to do it, because we have a lot of customers who are do-it-yourself. They like to do their own work. They have people who do the work for them on staff. They like to do it themselves. Self-service options make it easy to own. In fact, those SSO kits are easy to buy too. The prioritized service events, the PSEs that were mentioned a couple of times throughout earlier in the presentation. Again, qualified lead process using data from the connected assets and many other sources identifies customer and asset-specific leads, those warm leads that we can pass on to the field. Keep that asset at optimum performance throughout its life cycle. Again, our suite of integrated service offerings ensures we deliver, we will deliver on that 2026 services target.
Now let's talk a little bit about delivering the value throughout the machine life cycle. I mean, CVAs help grow the relationship. That's really what this slide's about, growing that relationship. Early in the life, in that first three years of machine ownership, it's important that we concentrate because that relationship building is so important. Because as you get into that four-year through 10-year and beyond, like Joe alluded to, these machines are in the field a long time. You extend that, and you extend that into the life cycle where more services and repairs are required. Reman, rebuild, recondition as needed. Now, with the CVA in place, we keep that going again throughout the life cycle. CVAs, important metric. If you sell a machine with a CVA, typically results in 30% more parts sales than machines sold without a CVA.
It's pretty clear why the CVAs matter, why they're so important to the customer, the dealer, and Caterpillar. That customer really wants that easy-to-own experience. Hassle-free maintenance, hassle-free repairs. They can concentrate on what they're best at. Now, this next slide is very important. It's a great graphic. It's one I think you will find very memorable. Really, it talks about being built to be rebuilt, and this is really at the heart of the Cat philosophy and legacy for many years. It's a philosophy that we've had in our product development programs in the past, and we've got it today. Now, the partial image you see on the left-hand side of the screen is an 11,300-hour dozer. On the right-hand side, it's after the dealer rebuild has taken place.
Now, this customer chose to rebuild the cab hydraulic system, the drivetrain, including the Cat reman engine in this tractor. They also chose upgrades to current technology that wasn't available back when that machine was sold. They took the latest heavy-duty undercarriage, the latest work area viewing system, and the most current Product Link technology on this machine. They got the like-new machine warranty. Now, did I mention the average cost of this is between 25% and 50% of new? This is after the dealer does the rebuild. They're inspecting, replacing, reconditioning up to 7,000 different parts on the machine. Now, for customers, dealer rebuilds offer a good economic value. You can see that from the numbers on the screen here. Peace of mind, right? Offerings like this extend the life of that product.
They can also get extended protection plans while they own it in this second life, third life, and beyond. They can finance it through Cat Financial. Helps them with their cash flow, helps them manage their business more effectively. Rebuilds are a differentiator. They're a differentiator for customers, they're a differentiator for the dealers, and they're a differentiator for Caterpillar. Now there's another differentiator, and that's the technology side. Technology that helps customers as they face shortages in labor, much more challenging job sites, trying to maintain safety, efficiency, skinnier margins. We help them have a more productive work environment. You can see on the screen here seven key technologies that we have within the construction industry's technology ecosystem. That's how we call it. Including things like Cat Payload, helps operators be more effective at loading the trucks. Don't overload, don't underload. Faster, more efficient. Increases productivity for them.
Across the bottom, you'll see tools like Cat Equipment Management allows the customers to track individual asset performance, helping them make business decisions by asset, increasing uptime and lowering their overall costs. Now, I'd like to dive just a little bit deeper. I'm gonna go into Cat Grade, and I'm gonna go into Cat Command just to give you a little bit more of a feel for exactly what this does for customers. Because customers are grading their site, they're digging, they're laying pavement every single day, and they're doing that with precision and speed. It's not one or the other. Precision and speed, and they've got to worry about that constantly.
Now, when you take the automated machine controls we have on many of our machines with the advanced guidance systems, this helps them get to that grade, get to that spec much faster, much more efficiently, fewer passes. Also using Cat Grade, operators select target depth and slope. Again, the autonomous functions can get them 35% better efficiency on that job site. The job site's safer because it eliminates individuals, people down in the trench and around the machine. Quite a good improvement from a safety perspective. They can get the plan up to 39% faster than without it. It requires 82% less operator input on the machine. Now I can keep talking about this, but it's probably better, you'd probably rather watch a real quick video to give you an example.
When I first got in and started working with it, I was blown away at what was said, and I couldn't believe I think the machine makes me look really good because a lot of it is not my work. It's something I never dreamed would happen. Look at you. That's what this machine is. It's situation-dependent on it, but it's all familiar to this machine. Started by myself. Get it done for today. The second I even dug the basement by itself without an operator. I don't know what a guy with 20 years of experience could do that.
I kept trying to tell you guys, they said, "Michael, we got to get paid, you know, but that's who we want in front of us from now on." I thought to myself, it was a kid, a 19-year-old kid, that's perfectly doing it all by himself.
Number of great quotes in that video. One was, "This machine makes me look good." Actually, that's what they say to me when I'm out at the proving grounds running machine. They said, "That makes you look good." It's a little bit of a play, I think, against me. I think they're kind of jabbing me there. Now let me talk a little bit about the next technology. This is the Cat Command, which I think is also fantastic. You know, using the onboard electronics we have integrated into the machine, it allows operators to remotely control the machines from outside the cab. You can see on the right-hand side of this slide, that's what we call a belly box. It's a remote control system. That line of sight, you can see that machine, watch it operate.
You can be at a safe distance, back away from that machine if there's various job conditions that you want to avoid. Also in the center of the screen, that circle, you can see the Cat Command Station. That's in an office environment, a replica of the cab, and you can operate a machine. Basically, you can be anywhere in the world, and that machine can be somewhere entirely different. In fact, we've got one customer who has the operator stations, and he's saying he's doubling the operator efficiency using the Cat Command Station. You're gonna ask me, "What do you mean by that?" This customer has machines in remote locations strung across a fairly wide geography. Long distances between each machine, each job site. To get his operator there, he basically has to, A, he has to travel there.
He has to get all the PPE on, get ready. They have to get them to the machine, get them on the machine. Fairly difficult conditions where the machine is located. Oftentimes, these jobs only run like an hour a day. A lot of work to get there for an hour. They get off of that, reverse the whole process, off to the next machine, distance, PPE, prep, transport to the machine. Sometimes they'll string this out throughout the entire day. It's not terribly efficient. With Cat Command, with the station, they drive to the office. Get in the Cat Command Station. We've got one here in the back corner of the room, and you can actually run a machine if you want. You can run a machine from the Cat Command Station today. That machine's up in Tucson, Arizona.
This guy gets to the office, flips a switch, runs this machine, finishes the work, flips the switch, runs the next machine in an entirely different location, and can even do it again, and can do it again throughout the day. Incredibly efficient. Now, for this customer, it means maximizing operator time output, increasing safety, ultimately helps them manage again through the operator shortage because you couldn't use one operator to make all those logistics changes throughout a day. That wouldn't be possible. Now, there's nothing like, again, seeing this in a real quick video from a Cat Command perspective.
The Command Station eliminates costly trips, meaning operators work at home. The Command Station also cuts down on the danger of the job site. For today, operators are sitting on a site 4 mi away. Operators can quickly switch from the Cat Command machine, and the machine travels that location without downtime. The command console can control an aspect operation from more than 1,300 ft. With the console, operators can remain in a safe zone in wet and nasty weather, like in sand and dirt areas, because operators are in a position to control the machine from the cabin where there's cool and clear. Cat Command offers more than safety. Remote control commands can also save idle time without ever leaving the cab in comfort. Machines can be turned off, helping you save on fuel. Explore what Cat Command can do for your business today.
Now, really, you can tackle a job from anywhere in the world, any scale, and that technology helps them do that on those job sites. Now, I again encourage you to check out the unit we've got in the back of the room here and outside when you get a chance to go outside because the Cat Command is just a great demo, and you can operate equipment. They'll tell you that makes you look really good, just like they tell me. Now, earlier, we talked about the growth opportunity for energy transition. You know, this large image you see in the center of this slide is a job in Hawaii, where we've got one of the customers using Cat product to prep this site, lay the aggregate, do all the work to prep for this solar field.
You'll also see on the bottom here a windmill job, solar jobs from various locations all over the world where you've got the Cat products out there prepping this and getting this ready. Now we know that customers need us to help them on their own goals and help them lower their emissions, their total emissions on their job site. It's important that I start with sort of the past, the present, and the future. I'm gonna go through a few slides to kind of help you understand where we've been, where we are, and where we're headed. I mean, for decades, we've been investing to improve machine efficiency, including diesel electric drives, hydraulic hybrids, tethered electric machines, battery-powered machines.
In this slide, there's just a few examples of investments over the last three decades, the last 30 years, that positions us well for the energy transition. You know, in the mid-1990s, we developed our first tethered all-electric excavator. These were tunneling machines used on various infrastructure projects across Japan. The teams continued building on that knowledge, and they worked further on some tethered all-electric excavators, mid-2000s, industrial processing applications essentially designed for that job and sold. Now most recently, we've been cooperating with Cat dealer Pon on fully electric battery-powered excavator. We launched those in 2021. These excavators are running in the field today. Now in addition, in the dozer family, you'll see some photos on there. You got the D6 XE. This uses electric drive technology that came from the D7 that was developed back in the early 2000s.
Back in the early 2000s, almost 20 years ago, all electric, that electric drive technology. First of its kind, greater agility, cycle times, less fuel consumption, lower CO2 emissions. Again, just a few examples of some electrification work that we've done. A lot of electric technology and knowledge from the team over the past 30 years. Let me dig a little bit more into what we can do today and what we're gonna do in the future. You know, our machines help our customers lower CO2 emissions now, and we're actively working to offer models that eliminate CO2 emissions completely in the future. I mean, the majority of our construction machines can utilize a low carbon intensity fuels like the hydrotreated vegetable oils, the HVO that Joe and Jim had mentioned a little bit earlier.
In fact, bottom left-hand side of this screen, demolition customer in the U.K. invested in the Cat fleet knowing we could run the HVO without machine modification, cited the ease of use of that, in fact, once he got it going. Worked closely with Cat dealer Finning and their fuel provider, moved 100% of their fleet to HVO. They're quoting up to an 85% reduction in CO2. Now, our customers use some pretty advanced systems to help them lower the CO2, including that D6 XE, and I'll go back to that for a second. Focus on the center of the screen here. That's a shot of Goodfellow Brothers, good customer out west. They actually do a lot of work over in Hawaii. On a recent solar job that they're working out there, actually on their Facebook page, they took it upon themselves to put it out there.
After 900 hours of operation, helped them lower CO2 by 35% compared to the other D6s on the same job. Machines we make today, put on the job today, lower their CO2 emissions by 35%. Now moving to the right side of the screen. You know, we know customers are interested in the fully electric options. I mentioned some we've got in the field already, and we're looking across the product lines to see what opportunities there are, performance, durability, what the customer requirements are. You know, our advanced power teams are focused on our wheel loaders and our excavator product line, looking across those, looking at the battery technologies, power inverters, as well as the fuel cells powered by renewable hydrogen. In fact, you'll see many of these products that you'll see on the right-hand side of the screen at some upcoming trade shows.
Now, we continue to invest in a holistic, you know, a diverse set of solutions for our customers because they have such a huge variety of applications, as you saw in my first slide, and you saw Jim show in terms of urban, remote, all kinds of things out there. Now, if they're gonna achieve their goals by geography, by job site, by specific customer need, then we have to be committed and ready to provide the advanced power solutions that allow customers to achieve their goals for lower emissions, energy flexibility, and their business sustainability. Now to close. I mean, for nearly 100 years, we've been up for the challenge. We're well-positioned to deliver services growth while supporting customers during significant infrastructure growth, including the energy transition.
Our desire to help customers be their very best and build a better and more sustainable world dates back to our earliest days. We're ready now, and we'll be ready in the future to deliver that to our customers. Now I'm gonna introduce Denise Johnson, Group President of Resource Industries.
Okay. Thank you, Tony, and good morning, and thank you all for being here today. I'm Denise Johnson, and I am the Group President of Resource Industries, and I'm gonna provide you some insights on the Resource Industries segment today. Resource Industries includes surface and underground mining. It also includes heavy construction, quarry, and aggregates, machines, services, and technology. The Resource Industries products are some of the largest in the Caterpillar machine portfolio, running 24 hours a day, seven days a week, in some of the most remote and rugged locations around the world. Today, I wanna spend some time discussing key Resource Industries market growth drivers that are gaining momentum and how Resource Industries is competitively advantaged to capture that growth. Jim talked about the fact that mining commodity demand is expected to increase dramatically over the next 20 years, largely due to the energy transition.
Minerals required for electrification and other transition-related commodities, as well as those that are needed for basic infrastructure, all positively impact the demand for equipment, services, and technology for mining, heavy construction, quarry, and aggregates. In addition to the increasing commodity demand, there are factors that point to an increasing need for investment. For example, ore grades for commodities like copper are continuing to decline globally. By 2030, there will be a significant reduction in copper ore grades rather, such that 30% more material will need to be moved to achieve the same copper output from surface mines. This drives the need for incremental machines and higher asset utilization. Another factor driving the investment is the age of mining assets.
This chart is a global view of mining mobile equipment as captured by Parker Bay, and you can see the distribution of global mining machines by age, with the average age being 11.7 years old. The Caterpillar asset distribution is shown in yellow, with the average Cat asset age being a bit above the global average at 12.6 years. As machines age past about 10 years, depending upon the hour usage and severity, two possible actions are required. The asset life can continue to be extended up to a point with major rebuilds or a new asset is purchased. Both of these actions require investment. How are we thinking of the investment required by mining companies into the future? Customers have been very disciplined with their CapEx spending during the past few years, and we believe the future landscape favors more substantial investments.
Certainly, with the high commodity demand we currently have and the need for additional commodity capacity to be brought online, as well as the declining ore grades, the aging mining equipment, and the need for investment in technology and infrastructure to meet ESG goals, and with the backdrop of strengthening miner balance sheets. We believe total mining capital expenditures are poised to grow. At Caterpillar, one of the ways that we positioned ourselves as the mining OEM of choice is to focus on driving customer success and customer value. How do we do that? Well, it starts with an understanding of the customer's pain points and how to solve their biggest challenges. ESG, uptime, lowering cost, safety, availability of service parts, all can play a role in customer success. We focus on services by providing components that can be rebuilt.
You've heard that theme quite a bit today, and serviceable so that we can provide customers up to two to three lives or more. Some machines in the RI portfolio consume up to 2.5x the original sales price in service parts. We believe the ability to rebuild and maintain high performance is a competitive advantage for Caterpillar, and it's also one of the reasons that our assets last longer than historical norms. This gives our customers more flexibility as they develop transition strategies to meet their ESG commitments. Connecting assets is more important now than ever before, so it allows really for monitoring of asset health, enhancing productivity and improving safety. There are a wide range of service options available from new to reman to rebuild, and they all provide value to our customers.
You may have seen the recent Wall Street Journal article about our remanufacturing capabilities and the value that it brings to customers. It also brings value to the environment and our services growth efforts. Tony and Joe spoke about our CVAs, and interestingly for RI, over 60% of our machines are now being sold with customer value agreements, which provides assurance and support that critical components or full machines, especially those with high utilization, is valued. In RI, the ultimate CVA is what we call a job site solution CVA, where we can monitor and manage the maintenance of an asset with a fixed cost per hour agreement. You can see there's a wide number of actions that we're taking with RI services to ensure customer success. Another very important and growing service for RI specifically is Caterpillar Autonomy. Caterpillar Autonomy leads the industry.
We have the largest autonomous truck fleet in the world with over 525 machines, with more launching every month. We have 11 autonomy mining customers at 20 sites worldwide. The important thing about autonomy is what it drives, consistency of operations. Our customers have had zero injuries and productivity improvement of up to 30% over staff fleets. In total, mining customers with Cat autonomy have moved over 4 billion tons and accumulated 155 million autonomous kilometers. In fact, an interesting fact is that that would be the same distance as circling the Earth 4,000 times . From an application perspective, we started with autonomy in iron ore, but we've expanded it to the oil sands, to copper, to gold, to coal, and to lithium. Let's dig a little deeper into the Cat autonomy deployment to date.
This graph shows our cumulative adoption of Caterpillar autonomous trucks. You can see the field population is growing rapidly with line of sight for 2023 shown as of April of this year. One thing that's very interesting to note, while we started with field retrofit of existing trucks, we now see a shift into factory-installed autonomy on new machines. Nearly every discussion that we've had with miners about new truck purchases or even their existing assets includes a significant interest in implementing autonomy. We've been very successful at Greenfield sites in particular. In fact, since 2019, Caterpillar has won seven out of eight Greenfield autonomy sites. One of the reasons the adoption of autonomy is increasing is because the economics are changing. This chart, based on Parker Bay data, shows the number of global mine sites based on fleet size.
When we started deploying autonomy in the 2013 time frame, we deployed at the largest mine sites around. Since then, the economics have changed, and they've improved such that the deployments have progressed to smaller and smaller mines, mine sites. In fact, this year and next, we will be deploying to sites with as few as 12 trucks. This provides potential for an application to a much larger customer base, and it actually even extends down into quarry and aggregate sites which don't even show up on this chart. Why is Caterpillar autonomy industry-leading? What differentiates our solution? First and foremost, at autonomy sites, Caterpillar is on-site. We're sitting next to our customers, and we're helping to lead the improvement. Together with our dealers, we have a site services growth focus.
While the autonomy business model does include hardware, software, and an annual license fee, the ultimate business model for autonomy is its complete site focus. As we're getting autonomy put into a customer site, it's the machines, it's the service, and it's the technology. Our advantage over the competition is that we can run our trucks at maximum speed in extreme conditions. We're constantly improving our cycle time to maximize productivity across the site versus on a single machine. We have deep machine integration with our sensors and software, and I think importantly, we're continually updating our software upgrades on-site to improve performance. These things differentiate the Caterpillar autonomy solution. With our new autonomy platform, we can expand the scale across mining and through into construction, leveraging our recent M&A.
While truck autonomy gets all the attention, we have significant autonomous, semi-autonomous, and other technology offerings for Caterpillar products and services beyond trucks. As you can see here, the Cat MineStar suite includes features like Fleet, which improves site productivity. Terrain, which, similar to what Tony showed, allows inexperienced operators to maximize productivity. There's Detect, which includes safety systems that leverage sensors and cameras. Health, which monitors asset health, does proactive maintenance and predictive technology. We have Command and Edge, which are autonomous solutions at the site level, including underground. We have machines beyond trucks that are also fully autonomous. Besides the haul trucks, we have water trucks and drills, and we also have assets like dozers, wheel loaders, and compactors that can be operated remotely from thousands of miles away.
For example, one team member can operate up to five dozers at the same time from a remote location thousands of miles away. We're continuing to build out our capability and invest to scale our solutions even further across mining and into our construction portfolio. Another area beyond autonomy that we are significantly investing in is in the area of sustainability, and we're discussing this topic with miners every day. Let's talk a little bit about mining sustainability because miners are some of the first major customer movers in the area of electrification. I want to start by saying that Caterpillar is uniquely positioned to support mining companies on their sustainability journeys. You may ask, what is unique to Caterpillar?
Well, in addition to the breadth of the portfolio and our experience, our portfolio with new zero emissions machines, services, and technology, Caterpillar is the only OEM who has power generation and power management expertise for this infrastructure. Also, due to the accelerated timeline for solutions based on customer pull, our deep collaboration will be with customers at the mine sites around the world. Very different from a traditional product development process, so we'll be learning with our customers. I already spoke to the Caterpillar autonomous advantage, but we see with electrification, autonomy becoming even more important. In addition to optimizing site productivity and safety, it will also manage the charging of batteries on the machine. It will optimize the energy for the collective assets and interface with the energy for the site infrastructure.
We believe that electrified machines will need to be fully automated to be optimized, and this is also why we believe Cat will have an advantage. Which mining companies are we working with for our development? Many of you may be aware of the announcements that were made by mining companies over the past year. These agreements are primarily focused on the deployment of battery electric, zero emissions trucks with companies like Newmont, NMG, BHP, Rio, and Teck. We are focused initially on introducing four zero emission truck models. Why trucks? Well, 60%-80% of Scope 1 mine site emissions are attributed to diesel powered trucks. They're the most plentiful mining machine on site and as a result, have the most emissions. We're working with these customers to place the trucks, the infrastructure, and the technology on their sites to allow us to validate the extremes.
Long haul roads, deep pit, high altitude, extreme hot and cold conditions, and hit the timelines for beginning introduction before 2030. How do we intend to do this? Our accelerated development will be done at customer mine sites. By later this year, we'll have prototypes running at Tucson Proving Grounds, where we will validate our technical assumptions and complete machine technical feasibility. By early 2024, we're sending what we call early learner units to customer sites, where we'll refine the requirements, we'll do process development and product and technology validation. The pilot phase begins in 2025, where the goal is to validate multiple trucks at the site. We'll be focused on fleet optimization, including autonomy, getting infrastructure learning, and also validating the production intent units. We intend to begin with full production in the 2027 timeframe.
This journey is going to require learning, it's gonna require a lot of collaboration with our customers, and it's going to entail significant transformation of equipment and site infrastructure. It's gonna be a pretty exciting and complex journey. I wanted to give you a feel for the complexity of the challenge in the future, and I think this pictorial gives you a glimpse of that complexity. Just a few observations if you look at this chart. First and foremost, the energy required to run a mine site in the future is gonna be much greater than what it is today. You, you'll see that there's likely to be many more sources of power generation and storage on the mine site in the future. Renewables combined with storage solutions that could include battery or hydrogen or other. Recip and gas turbine energy generation.
The other observation that you'd make is that power will need to be much more distributed across the site, where in the past it's been quite concentrated. Power is gonna be required for charging mobile fleets, either statically at its charging station or dynamically while moving. It's interesting that the icons that you look in yellow, including the machines that you see here, show the Caterpillar Energy and Transportation and Resource Industries solutions that are gonna work together to help support mine site operation. Again, showing the enterprise advantage that we have to support customers. As you can see, the change is gonna require significant investment, a lot of change management, and a lot of learning. With that, I'd like to wrap it up. Mining, heavy construction, quarry and ag growth drivers are gaining momentum.
It is clear that investment is needed into the future, and it is going to be required. Resource industries, and more broadly, Caterpillar is competitively advantaged to capture that growth with a focus on services as well as technology and sustainability solutions. Thank you for your attention. Ryan, I'll turn it back over to you. Thank you.
Thanks, Denise. Okay, just a quick highlight here for everybody. We do have lunch, which is gonna be scheduled up at the Meritage room for the people that are here in person. To get there, you're just gonna walk up the stairs and it's up by the lobby. We will reconvene for everybody, whether you're in here in person or virtually, back here at 12:30. With that, we'll go ahead and take the break. Thank you.
Ladies and gentlemen, please take your seats. Our program will start in 5 minutes. Ladies and gentlemen, please take your seats. Our program will start shortly.
Welcome back, everyone. I hope you're able to enjoy your break. For the afternoon session, we're gonna have presentations from Bob, Julie, and Andrew. As a reminder, we'll host Q&A at the end of today's session. With that, I'm gonna turn over to Bob, who's our Group President of Services, Distribution, and Digital. Thank you.
Thank you, Ryan. Good afternoon. Welcome back. I hope you enjoyed your lunch. Happy to see all of you again, both here in the room and also online. Building on what Jim and Joe, Tony, and Denise have laid out this morning, I will now focus on how we're using digital, not as a business in itself, but as an enabler for services growth. More specifically, I'll showcase a few examples today on how our digital investments are creating value for our customers, our dealers, and for Caterpillar. Foundational step in all of that is connecting our asset population. We've been doing so with most of our ex-factory shipments since 2015. Then we've also been proactive in connecting high opportunity assets that are already in the field.
Those two levers combined have created a global connected asset population of now more than 1.2 million assets. One of the largest in our industry, double of what we had just five years ago. Through all these connections, we are gathering billions of data points, everything from fuel consumption and uptime, equipment health, and productivity. We're then combining that with a lot of other data, like engineering data, customer interactions, history of service events performed by our dealers. All of that then comes together in our digital ecosystem, where we believe we have the opportunity to excel. Because by using advanced analytics, machine learning, and our proprietary algorithms, we are creating powerful insights that help make our customers even more successful. Today, I'll highlight a few of those examples you see on the right, Condition Monitoring, Prioritized Service Events or PSEs, and E-commerce.
Before I move on, I'd just like to point out also on the left, when you look at the evolution of our connected assets over time, and then you combine that with what Tony explained this morning in terms of our equipment starting to consume more services 4+ years into the product life cycle, you can see how our services growth opportunity is going to accelerate over time, and then also why we're saying our services growth trajectory will not be linear. Okay. First example, Condition Monitoring. Here we're using the data I just laid out before and new predictive analytic models to help our dealers more effectively monitor the health of customer assets and then also identify upcoming service needs. The goal is to be proactive and turn unplanned failures into planned overhauls.
As we do so and reduce the amount of customer downtime, we can then also deliver on the value promise of our CVAs, our customer value agreements. With about 10x the number of analytic failure models we have in production today versus what we had just in 2019, you can see how we're increasingly able to help customers act before their equipment goes down. Now, let's bring this to life. Let's say, for example, a 980 medium wheel loader working in a quarry, loading on highway trucks with aggregates to support a local road construction project. In these projects, uptime is very important, so the customer also enrolled in a CVA with their local Cat dealer to have that peace of mind. Let's say one day, the machine, through connectivity, sends us two low-level alerts, which if considered individually, are not significant.
With our engineering expertise, we know that when they occur simultaneously. They could indicate a potential transmission failure, which occurs when the load on the machine exceeds the torque capacity of the transmission. Because of that, we're now able to alert the dealer who can inform the customer and perform a transmission inspection. By being proactive, customer can avoid an unplanned failure of the transmission, which if it were to occur, could also cause a lot of collateral damage. For example, contaminate the hydraulic system, which would then cause a lot more cost and a lot more downtime. Instead, customer can now plan an overhaul of their transmission, which then also generates about $15,000 in parts and services revenue for the local dealer.
Bottom line, it's a good example of condition monitoring, combining connected assets, our analytics, and our domain expertise to create value for the customer, while at the same time growing services for our dealers. In general, we've also seen that when we can combine such a connected asset with our powerful insights and a CVA, customer value agreement, our dealers see about 30% incremental dealer part sales to users. Next example. The power of digital is also transforming our distribution in how we help our dealers manage their aftermarket sales opportunities in a more precise and timely manner.
I mean, gone are the days that you would sit behind your desk and wait for the customer to call to see when they need service or to thinly spreading your limited aftermarket sales force across all assets, across all customers that are out there, and then hoping to come across some aftermarket sales opportunities. Instead, it is about precisely pointing your sales force at those specific sales opportunities where and when our digital tools predict they will occur. How do we do this? Again, using the data from 1.2 million connected assets, our engineering knowledge, and then more than 20 other data sources. Everything from engineering recommendations on component life, dealer service invoices and work order history, or also reports from Cat Inspect.
All of that then comes together, and our AI is then creating proprietary qualified aftermarket sales leads we call PSEs, prioritized service events. Today, we're already sending more direct sales leads to our dealers globally on an annual basis. There's two main types. First, for larger events, think for example, for an engine rebuild, we can send that precisely timed lead straight as we're connected with the dealer CRM to the dealer sales team responsible for that specific customer, that specific asset. On the other hand, for sales leads that are not determined by the equipment condition, we also have marketing PSEs. For example, when we see through connectivity that preventive maintenance is due, we can send a sales lead for an oil and filter kit. Or we can send a lead for a CVA renewal when we know that the contract is about to expire.
We can also support marketing campaigns targeted at a specific subset of customers, all aimed at creating those interactions between customers and their local Cat dealer. Keep in mind, we only started to experiment with the concepts of PSEs in 2019. In 2021, we already generated $1 billion in dealers parts sales to users from one PSE leads. While not all of these sales may be incremental, in any case, they allow for more proactive planning and a better customer experience. Looking ahead, our goal is to double PSEs to $2 billion in annual dealer parts sales to users from PSEs by year-end 2023. My final example, e-commerce, asking us to become even easier to do business with.
For that reason, we already made significant investments in the past few years in multiple e-commerce systems, both targeted for, at very large customers and then other applications for small retail customers. As a result, our dealers today already do $10 million in dealer parts sales to users through e-commerce per business day. Well over $2 billion a year. However, that's just the start. We have very significant growth ambitions. For example, when talking to small retail customers, they will tell you that one of the reasons they're not buying more. You can see on the left on the charts come in.
We're starting to place these on our machines and engines, making it easy for a customer to scan and then be directed straight to a landing page with information for their specific asset, their specific serial number, giving them the confidence that they're buying exactly the right part. Strategically, what we think really sets us apart from other online retailers is the integration of e-commerce with our full suite of digital applications. Back to that customer scanning a QR code, then going into the new retail mobile app that we're developing. They can do so much more than buying parts. For example, they can register for warranty, they can renew their CVA, they can locate and communicate with the local Cat dealer. If they're worried about their equipment, they can go straight into our Cat Inspect app and do an inspection of their equipment.
A lot of these small retail customers do their work themselves, so they can also review repair instructions in our Service Information System, or SIS, as we call it, and then very easily download all the parts required for that specific repair straight into their e-commerce shopping cart, and then check out using our Cat Card. Why do we believe we're on the right track? We have done a study that showed on average 24% of dealer incremental part sales when they can convert a customer from only buying over the counter to adopting our parts.cat.com e-commerce solution. That study also showed that customers not only buy more frequently, but they're also selecting items they have not previously purchased before. Overall, with these improvements and the many more e-commerce developments that we're investing in.
Our goal is to grow dealer parts sales to users through e-commerce by another 50% from where we are today within the next three years. This integrated digital customer experience we're building is further amplified by the strength of our global dealer Caterpillar network. With 160 dealers, over 2,700 branches, 170,000 employees around the world, all with a laser focus on making our customers even more successful. In addition to the areas I just covered, there's many more that we're investing in. For example, in service, we're upgrading our service information system, now we call it SIS 2.0, with new remote troubleshooting capabilities, again, using connectivity. With the ability to order parts right at the fingertips of a dealer service technician working remotely in the field to optimize their efficiency.
For parts availability, we have a system called PIC, which uses AI and data from our connectivity to predict which parts will be consumed, where, and when in the world, so that we can make inventory recommendations for parts to our dealers at an individual branch level, and thereby maximize parts availability for our customers. As we build our service packages, Cat Financial can help customers manage their cash flow with offers like financing for a rebuild or payment options like the Cat Card. In summary, our digital solutions provide our customers with an integrated experience, making our services easy to buy anywhere, anytime. With all these significant investments we're making in digital, not only are we transforming our distribution, but we are also increasingly confident to deliver on our services growth goal by 2026. With that, thank you.
It's my pleasure to introduce Julie Lagacy, our Chief Sustainability and Strategy Officer. Over to you, Julie.
Great. Thank you, Bob. Hello, and thank you again for joining us today. As you have seen today, we are committed to sustainability. We strive to provide products and services that continually improve the quality of life and the environment by fulfilling society's need for infrastructure, including shelter, clean water, transportation, and reliable energy, all in a sustainable way. Energy transition represents a significant opportunity, and our history of helping to solve complex engineering and technical challenges positions us well to make a positive impact. We demonstrate our commitment to sustainability in a number of ways. First, in how we operate our own company. We continually find ways to reduce our waste, lower our emissions, and cut our water consumption. We also keep extending product life cycles through improved material reuse and remanufacturing. These practices extend the value of the energy and water consumed in a component's original manufacture.
We also demonstrate our commitment in helping our customers achieve their climate-related goals by providing products and services that facilitate fuel flexibility, increase operational efficiency, and reduce emissions. Our opportunities for long-term profitable growth related to sustainability go well beyond our own four walls and the reduced emissions products we will continue to develop. This picture illustrates many of these opportunities. Energy transition will accelerate the need for mined commodities. As one example, copper, cobalt, lithium, and nickel are essential for the batteries that will power the increase in battery electric vehicles. Our mining machines can improve safety, productivity, and efficiency in mine sites through autonomous capabilities, fuel flexibility, and alternative power sources. Our construction products will help build the infrastructure required for energy transition.
This will include the earth-moving work required to develop infrastructure for renewables, like wind turbines and transmission lines, microgrids with solar panels, and automotive charging stations. We also have equipment that will pave roads that connect remote areas and create green space in urban areas. Whether in city centers or in remote areas, our equipment can help improve quality of life. How our customers use the equipment has an impact on sustainability in the build-out of the infrastructure needed for a global energy transition. The energy transition will also bring an increased need for reliable power. As more renewable sources of energy are used to power the grid, there will be more opportunity to enhance the reliability of energy sourced from it. Distributed generation will be critical, and we provide it through our gas turbine and reciprocating engine generator sets.
Our microgrid solutions and controls can help provide power to the grid. These work site installations are particularly valuable in remote locations where renewable energy sources like solar or hydropower are potentially available and electrical grids may deliver inconsistent power. Natural gas will play a key role during the energy transition. Cat reciprocating engines are widely used globally in upstream natural gas production, and Solar Turbines' gas turbines and centrifugal compressors are widely used globally in pipeline gas transmission. Caterpillar products can help our customers reduce their carbon footprint today by burning a wide range of alternative fuels, including hydrogen. We are also developing carbon capture technologies to help our customers reduce their carbon footprint in both reciprocating and turbine engine applications. The need to help our customers reduce their carbon footprint using alternative fuels extends across our customer base, including the fast-growing data center market.
For example, Caterpillar engines provide power today to a data center that is running on hydrotreated vegetable oil or HVO. Transportation is also a critical element to developing the supply chains necessary for energy transition, and we are developing solutions to help our customers move materials safely and efficiently, like battery electric locomotives and the development of hydrogen transportation options, as well as providing power to the marine industry. Everything you see here is maintained and supported through our service offerings, providing a competitive advantage to our customers. From our aftermarket parts offerings to our expansive remanufacturing options and our world-class global dealer network, we are increasing customer value. Now more than ever, our customers rely on us to provide a diverse portfolio of products, services, and technology that lower greenhouse gas emissions, improve efficiency and productivity, and deliver energy flexibility.
We provide real differentiation to our customers by integrating the energy source developed in our energy and transportation segment into the vehicles in resource and construction industries, providing an advantage that no other competitor can match. Our commitment to sustainable innovation remains strong as we continue to execute our strategy for long-term profitable growth and helping our customers build a better, more sustainable world. Now I'll turn it over to our Chief Financial Officer, Andrew Bonfield.
Thank you, Julie, and good afternoon, everyone. I'll cover three topics before handing back to Ryan for the Q&A session. I'll start by recapping our performance versus our 2019 Investor Day financial targets. Then I'll provide some color around our financial targets. Before finally, I'll discuss our capital allocation framework and approach to generating profitable growth and how we believe it correlates to driving stronger total shareholder returns. As Jim mentioned, despite the challenges of the global pandemic, we have delivered strong adjusted operating profit margins and ME&T free cash flow since 2019. Our margin performance was within our target range each year. We delivered strong ME&T free cash flow, and although 2020 was a bit lower than our target, I'll explain why in a moment. We have also returned substantially all of our ME&T free cash flow to shareholders, just as we said we would.
We have maintained a strong balance sheet, and we have been disciplined in our M&A spending, focusing on strategic acquisitions in services, technology, and sustainability. Let's look at the highlights in a bit more detail, beginning with margins. As the chart shows, even during a challenging operating environment, we delivered on our adjusted operating profit margin targets. For example, in 2021, we dealt with rapidly increasing manufacturing costs due to inflationary impacts of higher material costs, which was further exacerbated by freighter manufacturing inefficiencies due to supply chain challenges. Despite this, and the impact of reinstating short-term incentive compensation, which was a 250 basis point headwind year- over- year, we achieved our margin target with an adjusted operating profit margin of 13.7%. We also achieved our targets in 2020 despite sales declining by 22% amidst pandemic-related shutdowns.
We look at this recent history as a stress test that demonstrates the resilience of our financial model. Moving on to ME&T free cash flow. Quite simply, we generated a lot of cash, over $14 billion over the past three years, despite the challenging operating environment that I just described. This, of course, is after continued investment of $8 billion in R&D and CapEx. As Jim mentioned, in 2020 we were slightly below our target range for free cash flow. However, the challenges of the pandemic were unprecedented, and we also made the conscious decision to hold higher inventories as we prepared for the potential recovery of our end markets in 2021.
This was the right thing to do, and we were able to maintain better availability for most of our products than we would otherwise have been able to do so, especially in light of the significant supply chain challenges that manifested themselves in 2021. Looking ahead, the growth opportunities that have been discussed today, coupled with our strategic focus on maintaining a competitive and flexible cost structure and robust working capital management, should support our ability to generate stronger ME&T free cash flows over time, which we will be able to return to shareholders via dividends and share repurchases. Next, let's turn to our financial targets. As you know, we continue to execute our strategy to deliver profitable growth.
Underlying this objective, we target higher adjusted operating profit margins and ME&T free cash flow versus our historic performance for the reference period of 2010-2016, which was before we implemented our new strategy in 2017. We are pleased to reaffirm those targets today. Let me start with margins. The adjusted operating profit margins on the box on the right-hand side of the slide reflect the upper and lower end of the sales range in the reference period of 2010-2016. The $39 billion sales level in 2016 was low in the period, with an adjusted operating profit margin of about 7%.
The 10%-13% on the chart reflects our expectation of margins being 300-600 basis points higher at similar levels of sales and revenue. Similarly, the $66 billion sales level in 2012 was the high-end period with an adjusted operating profit margin of about 15%. We now target adjusted operating margins of 18%-21% at this level of sales and revenues. As we further away from the 2010 to 2016 timeframe, we've decided to provide the attached chart to show exactly where margins should be to reflect the 300-600 basis points improvement at the different levels of sales and revenues. The targets remain unchanged.
10%-13% adjusted operating profit margins at $39 billion of sales and revenue, and 18%-21% at $66 billion of sales and revenue. However, we have simplified the chart to provide a guide on how to plot our margin targets versus the 2010-2016 reference period. You will see that the margins achieved in the reference period are all clearly below the low end of the target range. This chart will enable investors to more easily measure our performance against those targeted ranges at different levels of sales and revenue. As you can see, since 2017, our adjusted operating profit margins have been firmly within the shaded target range every year. You may ask, "Why are we not increasing our margin targets versus reaffirming them?" I'd like to make a few observations.
First, I would like to point out that our margin targets are progressive. That means for every $1 billion in incremental revenues, we need to deliver on average 30 percentage points of that through to the adjusted operating profit to remain in the target range. At the top end of the range, that percentage is closer to 40%. Second, our measure of profitable growth is growing absolute OPAC dollars. OPAC is an internal metric that is defined as adjusted operating profit minus internally calculated capital charge, and measures how productively and efficiently Caterpillar is utilizing assets to generate shareholder value. I will talk a little bit more about that later.
We believe that the organic growth opportunities ahead of us in services and the energy transition will deliver better returns to shareholders by delivering higher absolute OPAC dollar growth rather than by focusing on further incremental margin improvement. Our adjusted operating profit margin targets will continue to give us the flexibility to invest more in services, technology, and sustainability while enhancing our growth prospects. Finally, our drive to increase services should support margin consistency over time, as service revenues are typically less volatile than those of original equipment. Turning to free cash flow. We continue to target ME&T free cash flow of between $4 billion and $8 billion annually.
Again, our ranges give us the flexibility to make any capital investments that are needed, although we do not anticipate capital expenditures rising materially from the CapEx level of around $1.5 billion that we anticipate in 2022. We also expect to continue to return substantially all ME&T free cash flow to shareholders over time through dividends and share repurchases. During the next three years, we anticipate increasing the dividend annually by at least a high single-digit %. Even at the low end of our target ME&T free cash range, we expect the dividend payout ratio should only account for about 60%-70% of our ME&T free cash flow. This leaves plenty of room for us to consistently repurchase shares with our new $15 billion authorization, which we announced today. Finally, we continue to maintain a strong balance sheet with ample liquidity.
We have mid-A credit ratings across the major rating agencies following an upgrade from Moody's just over a year ago. Overall, it's been a very successful three years in terms of financial performance and operational improvement, and we are in a strong financial position for the future. Now, let me discuss our strategic capital allocation framework in a bit more detail. Organic growth is the key priority as we target disciplined investments that complement or enhance our capabilities and support growth, particularly in the areas of services, technology, and sustainability. On inorganic growth, we've recently targeted technologies and capabilities in areas such as carbon capture, autonomy, robotics, and services. Of course, shareholder return is a priority. We are proud of our status as an S&P 500 dividend aristocrat.
We have an impressive dividend CAGR of about 15% over the past 28 years, which is the same period over which we've consistently increased the dividend. After paying our dividend, we plan to continue to utilize excess ME&T free cash flow for more consistent share repurchases. How do we align this framework to our strategy? Our operating and execution model promotes a disciplined investment framework in support of our strategy to enhance future profitable growth. As you know, profitable growth is optimized when you hit the sweet spot of improving volume, i.e., sales and revenue, and at the same time it's improving the yield, i.e., margins. Over-indexing on either tends to limit the long-term growth aspirations of any company. As I said earlier, OPAC is the internal measure we use to measure profitable growth and is used to make resource allocation decisions.
Why do we think OPAC is an important measure? Simply, the reason is that OPAC measures the return, which is a proxy for margins, and the investment, which is a proxy for cash flow across the business. Ultimately, this enables us to generate higher cash returns and is the reason for the better financial performance that has been delivered since the strategy was implemented in 2017. How does this help in implementing our strategy? First, we continue to evaluate the existing portfolio to assess whether the product's achieving a return above the cost of capital. If they don't, we consider many options, which may include restructuring to improve their performance or divestment from the business. Second, by using this model, all our investments, capital, R&D, M&A, or other cash investments, are measured through a consistent lens.
This enables us to prioritize and allocate resources to the highest opportunities for profitable growth. Let me give you a couple of examples. We have invested significant resources behind our digital capabilities over the past several years. As Bob has shown, we believe that digital is a key enabler of our services strategy. The improvements we see in our future services revenues can be tied back to the investments we have made over the past few years. Similarly, our consistent investment in R&D, over $30 billion in the past 20 years, has made possible many of the technology enhancements that my colleagues have been able to discuss with you today. How does our strategy promote shareholder returns? Our Operating & Execution Model is rooted in a disciplined approach to investment that promotes higher margins and free cash flow.
As I mentioned a moment ago, OPAC measures both the performance of our capital structure and the returns we achieve. This approach benefits shareholders as higher OPAC is more favorably correlated to improved cash returns over time as compared to strictly profit-driven measures. In addition, it enables us to deliver more consistency in cash flow as we avoid over-investing in periods of growth and the subsequent restructuring in periods of contraction. As I've mentioned to many of you previously, the consistency of the cash flows generated by the business is significantly underappreciated. Since we introduced our new strategy in 2017, we more than doubled our absolute OPAC dollars versus the previous five-year period. We believe that this has had led to highest total shareholder returns, which is reflected in the corresponding outperformance versus relevant indices. The results are no accident.
In the future, higher long-term growth, combined with consistent delivery on our adjusted operating profit margin and ME&T free cash flow targets, should promote incremental profitable growth and support attractive shareholder returns. Now I'll turn over to Ryan for the Q&A session.
Thanks, Andrew. Okay, as our presenters get situated, let me explain the Q&A session for today. Virtual attendees will have submitted questions throughout the day and will also field questions from the audience as well. Please make sure to introduce yourself prior to asking your question. As a reminder, we ask that we limit to one question at a time. We'll go ahead and get situated here, and then we'll start things off with a question we've received online. Give us just a moment. Thank you. Great.
Okay. Well, I really appreciate everyone that you know here today. We're gonna go ahead and kick off the Q&A session. Jim, you didn't talk about the word aspirational today. Will you hit your $28 billion by 2026?
You know, when we set our target that a few years ago, one of the things we really wanted to do was to energize our organization and to really let them know what was possible. We're very pleased with the progress we've been making in our service initiatives. As I said during my remarks earlier today, we are increasingly confident in our ability to hit that target in 2026.
Great. We'll go ahead and open up a question for the room. Yes, please.
Great. I have the mic, so I'll kick it off. Stephen Volkmann with Jefferies. Thanks for doing all this, guys. My question is about some of the restructuring that you've been doing. I guess it's kind of an OPAC question because I assume you've been sort of focusing your efforts where there are highest returns and maybe de-emphasizing some other things. You haven't told us too much about what you're de-emphasizing, so I wanted to give you that opportunity. More importantly, I think we have something like $700 million we've done over the past few years in restructuring. I would assume there's a return on that investment. Shouldn't that be a higher margin scenario, or are you reinvesting those sort of proceeds, as it were, into further growth?
Well, let me just give you a few examples. We've had a number of announcements about some things that we've done in various aspects of our mining business for us to, in fact, withdraw from those areas. We sold some of those off. Maybe some of those. Also we made a decision around our large MaK reciprocating engine business as well. We continue to service those products, but we're exiting the manufacturer of new products. There's been a number of things that we've done over the years to make our sales more lean. Really, as Andrew described, it comes down to us biasing our resources towards those areas that represent the best opportunity for future profitable growth. To answer the second part of your question, it's a combination.
One of the things that we're always doing is looking to invest in our business, and the fact that we have exited some businesses has given us the ability to invest more in those areas that represent future profitable growth. Sometimes those returns don't happen immediately. Sometimes those are long-term investments because we do take a long-term perspective. We don't always. You know, when we have an underperforming part of the business, we don't always exit it. Oftentimes, by putting a flashlight on it, really being focused on it, we're able to improve the performance of the business. Part of the O&E model really comes down to peeling the layers of the onion, if you will, and understanding by product, by application, by market, where we're in our view, creating shareholder value. Is it a positive OPAC business or not?
Oftentimes, by shining a light on that business, we're able to restructure it, take out costs, change the strategy, and improve the profitability. We have a number of examples there where we've turned businesses around or products around. Again, that's all part of the process.
Hi, I'm David Raso at Evercore ISI. A question about the margin target. The margin target is basically benchmarked off of prior revenue levels. I'm just curious, how should we think of them, David?
Yeah. I mean, obviously, our focus is on profitable growth, David. If we are to grow, obviously that means that at some stage we may exceed the ranges. We use the historic period because that's the reference period. That doesn't mean we bookend either side of that. Obviously, at some stage, our aim is to grow enough that we would actually exceed those ranges. As we say, that actually quite a significant proportion of that would have to flow through to the bottom line if we were to continue to expand beyond that. At the moment, because we aren't there yet, I think we obviously, you know, aim will be to get back there first. That would be a priority.
Yes, go ahead.
Hi, good morning. Good afternoon. Sorry, Jamie took my credit, so sorry. Another, you know, questions on margins. You know, one, if I look at where you're focusing, whether it's services, energy transition, technology, you know, those are all sort of less cyclical, higher margin businesses I would think. Why isn't there a greater opportunity while you're not changing your the margin the band of the margins, why can't we at least lift the margin target up or narrow the range, I guess, is what I would say. Then just follow up, again, where you're investing, can you talk about the opportunity this cycle to price more for value versus just inflation? Thank you.
Sure. Well, as Andrew mentioned, you know, we're looking to optimize the balance between growth and margins. It is a judgment call, and it is a balance. One of the things we have demonstrated the ability to do is to produce higher margins compared to that reference period we had between 2012 and 2016. We are investing in the business to take advantage of the opportunities that we see moving forward. Again, at this point in time, we think it's an appropriate thing to do to say that we are reaffirming our margin targets. We're investing in our business. Despite the fact that we're reinvesting, we'll still meet those targets. We believe there's an opportunity to grow the top line, which will grow absolute free cash flow, which should result in higher total shareholder returns.
Again, it's a balance. One could have that argument, but we think at this point in time, that's the best way to look at it. Yes.
Yes. Good afternoon, Jerre. Rob Wertheimer, Goldman Sachs. Thank you for having us. I'm wondering if you could talk about your opportunity on the energy transition side as it relates to infrastructure to power your machines, electric chargers, the hydrogen fuel cells, and hydrogen charging infrastructure. How are you thinking about whether you're gonna have a proprietary Cat on Cat content? And how do you think about the increase in your TAM, if that is indeed how you're thinking about the market and the product structure moving forward?
Joe, you wanna take that question?
Yeah, I can start on that one. Thanks for the question. I mean, our intent, and you saw it with the R1700, we have the MEC500 charger, right? Our deep expertise in power generation and electric power and integrating equipment, we plan to have made-to-match charging solutions for our machines. Now, there'll probably be some level of industry standard, but we think that having a made-to-match solution will present a good opportunity for us moving forward into the electrified fleets. I don't know if either of you want to. It'll just kinda depend on the application and type of equipment, but that's definitely an advantage for us, in my view.
Yeah. I think the deep integration that we can provide with that solution, in addition to the stationary charging, it's the charge while moving option, which allows some additional flexibility for whether it's construction or mining companies that have some fixed infrastructure to be able to leverage. You know, as we look at what we're gonna do specifically, it's going to be to try to provide a solution that actually deeply optimizes our machines in a way that leverages and helps the site then optimize their energy.
If you think about the addition of autonomy as well, along with what Denise just mentioned, again, that systems integration, just to repeat that, is so important. We believe that we have an industry-leading autonomous solution. Our ability to integrate autonomy along with alternative drivetrains as we help our customers achieve their sustainability objectives, we think is a very exciting opportunity. Yes, in the front right here.
Thanks. Thanks, guys. Adam Seiden from Barclays. I was just hoping you guys could expand a little bit on the CVAs, customer value agreements, and just, talking a little bit about the renewal rates that you're seeing in CVAs and your ability to push people through the different tiers of the CVA agreements that you have out there and how that varies by segment.
Bob, you wanna take that one?
Sure, I'll be happy to. It's certainly an area of focus. Together with what Jim explained, the targeted growth plans we developed with our dealers to grow their services, renewing CVAs clearly is a key area of focus we have in there across all of the three segments, just because we know as, for example, Tony laid out this morning. I mean, service opportunity really starts to grow once you get through 4+ years into the product life cycle. Renewing CVAs clearly is an area that we are intently discussing with our dealers. I don't know whether any of you would like to add something.
The length of many of our CVAs can last three to five years as well. When you think about we're still in early days of CVAs, so some are annual, but others extend, you know, five years or more. You know, we're still watching that come to fruition.
Yeah. Probably maybe one other key points would be, there's two key shortages really worldwide, is the operators and technicians to do work. That technician shortage, and obviously technicians at the dealer, at the customer level is oftentimes not as, say, high skilled as a technician we got at the dealer level, but just people who can do technical work on machinery. That shortage is driving folks to CVAs just to keep their machines up and running and so that they can do the work. That's one of the key things too.
Maybe one final add on that, there are multiple kinds of CVAs, right? There are equipment CVAs for renewables, renewals that we wanna continue to get as the equipment gets older. If you think about the energy transition, some of the solutions we talked about, for instance, oil and gas, the more deeply integrated and complex a solution is.
Usually those come with CVAs and are sold with CVAs just because, we talked about this at lunch a little bit, right? They're highly technical, and the fact that they're so integrated requires sort of our knowledge on site to really help the customer. When we say CVAs, it's a broad term, and there are a lot of different ways for us to go after that.
Thank you. Matt Elkott from Cowen. This may be for Tony. I had the pleasure, like many others here, of operating the equipment in the command center. My question is, since the operator can operate only one machine at a time, if a situation arises where two machines need to be operating at the same time, what happens then? A follow-up question, maybe more, you know, larger picture, any applications outside of the closed environment type that we saw in the video, maybe more urban applications that are open environments.
Yeah, sure. Two machines at the same time. Right now, that Cat Command doesn't do that. To do that, you'd have to have, obviously, one machine being controlled by an individual and one not. Cat Command doesn't enable that. You would need the full autonomy of that machine to continue on its function. Now, that said, that's where we move from a, say, semi-autonomous, where you've got automated functions and features within a machine that helps the operator, as opposed to a machine that, say, does auto dig or auto trench or something like that. That's the kind of thing that we've got in development, and we've got working on a variety of machines also.
You have to have that division, which gets more into what Denise would have talked about, where you've got, you know, fully autonomous dozers, slot dozing and things like that, highly repetitive, and they can run on their own. That would be the differential there, Matt.
A lot of times with that slot dozing application, you know, they're running down a straight line, and so that operator really can operate five dozers at the same time, watching each one do its action. And if it needs to take control of any one of them during that time, they're able to jump in and do that. It's autonomous, but then you still have some operator oversight on those five assets.
Yeah. Maybe the best example of that to give you a feel for, like on a compacting site where you've got, say, a large spread where you have to compact that soil, the compactor is oftentimes one of the more very repetitive machines on the job site, and it can be difficult for an operator to keep that focus, to keep that compaction and be as efficient as possible. The fully autonomous compaction system we have has that machine running while the operator is using Command for the dozer or is on the dozer prepping that site for the compactor to come over. That's where we do have two running at the same time in sort of that relationship that I just explained a little bit earlier.
A question over here.
Yeah.
Thanks. Jairam Nathan with Daiwa. Given the energy transition and the sales growth, would you need to invest in either capacity or capability in terms of regional sales, or even product?
Yeah. In terms of physical capacity, we do feel good about where we are in terms of physical manufacturing capacity at this time. I think as everyone knows, there's been a supply chain challenge that's really had to do with our suppliers. In terms of as we look forward, we don't anticipate a material investment will be required in capital to achieve higher volumes. We've in the recent past, talked about a 70% term, and we think we're about, you know, using about 70% in total of our manufacturing capacity. Now, that's a rough number because as you can imagine, there's different products by different facility. In general, while we're always looking and tweaking around the edges of our capacity, we have plenty of internal manufacturing capacity in the short-term, short to medium term.
I think you're also referring to other capabilities as well other than just manufacturing. Yes, we do invest in those. That's part of what one of the reasons, as we said, one of the reasons when we look at margins, we've got to think about how we have that flexibility to invest. Not all investments are R&D investments either. There are a lot of investments we put through. A lot of our digital investments goes through the SG&A line, for example. That is an area where we're continuing to invest as well. Continue to focus and make sure we do have the right capabilities on the ground. Ultimately, at the end of the day, things like the systems integration we're talking about will require a lot more of a capability.
We've got the capability, but we'll have to expand it and invest behind that to be able to grow those as well.
Great. Steven Fisher with UBS. Just to follow up on the CVAs. You talked about the greater than 60% penetration rate that you have today. Can you talk about what is embedded in the $28 billion revenue assumption? Is it materially higher than that 68%? And then I guess so what's the key backlog and weighted, because some of these programs are gonna take a little longer. I guess those questions. Thanks.
Let me start with the last part of your question first. We knew that we had to make investments in our digital capabilities and other things that we're doing, so we knew it would not be, again, a linear straight line up. What we are seeing is good results from the investments we made early on, and that, again, gives us confidence. Take that one.
Yeah. If we look at renewal rates for CVAs, I mean, as I mentioned before, we try and work with the dealers to drive them as high as we can, that both point of sale and the renewal rates.
The key part, though, is not only the CVA in itself. You have many different types of CVAs, but the key part in all of this is to making sure we build that ongoing relationship with the customer throughout the product lifecycle, so that when, for example, rebuilds occur, that we already have that intense relationship with the customer and that we're top of mind, that we then also have the digital tools that can help predict the customers when is the best time to do that overhaul, again, so that we are a trusted partner for the customer. So the CVA, while it's very important.
To build that relationship, and it also generates some revenue. Again, different types of CVAs. It is not the only driver for services growth. It's just as much the relationship we build and because of that, the other activities or service events that we can capture with those customers throughout the product life cycle.
Hi. Thank you. Michael Feniger, Bank of America Merrill Lynch. I appreciate all the slides and the presentations you guys went through. You guys did hit your margin targets and reaffirmed the margin range. When we talk about your last peak revenue, that $65 billion in 2012, I mean, your R&D, you were spending about $2.5 billion. Now it looks like you're spending about $1.5 billion of R&D. I recognize that may not be apples to apples looking at those two periods, but why wouldn't we get back to that prior peak R&D number if you have all these upcoming energy initiatives that need to be made? How should we think about that ramp-up in R&D relative to that last peak period in 2012?
Yeah. 2012, I think there were a couple of factors which need to be taken into account. One, I think there was a lot of work being done on Tier 4. And so that was a peak spend on that, which was a one-time program, which obviously did impact R&D, in particular. Second is, just as in other areas, we continue to look at opportunities to improve our R&D efficiency. If you think about where engineering capability is around today, it's not necessarily always in high-cost countries. Some of it's actually in low-cost countries. You can actually get a lot more bang for your buck by actually building our engineering capability in places like India, which we have done.
There are a lot more engineers being trained and graduating every year in a country like India than there are in the U.S. and Europe combined. I think that's one of the other factors which comes into account. The whole point about it is what we said is we will spend what we need to spend based on what we see as the opportunity. We have a discipline around that in that obviously using the OPAC measure, we still need to get a return on R&D investment, and that's gonna be the big part of it. We will probably increase our spend on R&D. We've intimated that today.
Where it gets, what level it goes to will depend on what we think is right and appropriate to make sure we actually are able to deliver that higher long-term profitable growth, which is what we're targeting.
Thank you. Just to follow up, you mentioned a lot in the presentation about rebuilds. I mean, you guys build a quality product and allows the customer to maybe even do three to four rebuilds. I imagine you like that parts and that service revenue stream. I'm just curious, maybe Denise, just from your customer perspective, are we seeing more rebuilds because customers are holding back buying that new OE, you know, looking at, you know, developments of, you know, autonomy, of, you know, zero emissions, you know, lower carbon footprint?
Are some of these factors maybe having your customer base in mining or energy and transportation saying, "Hey, why don't we hold back on buying the new locomotive, you know, that new turbine because we're trying to manage right now zero emission targets in the next few years?" Thank you.
No, it's an excellent question. I would say absolutely, the ability to rebuild, especially Caterpillar assets, allows miners and construction providers the optionality to rebuild versus buy new. There are a lot of decisions that are coming to fruition, certainly the timing of, you know, as you indicated, some ESG initiatives. But in addition to that, you know, it does depend on how long the mine site's gonna be in existence, you know, what they see as their new asset strategy moving forward. There's a lot of factors as well as all the uncertainty in the economy which plays into their decision-making. I will say that as you rebuild assets, you generally do some every year over time. You also can feather in your investment over a number of years versus a one time, "I'm gonna replace the fleet" perspective.
I think all of that goes into the decision-making, and it certainly, we believe, is a competitive advantage for us over others.
Yeah. I would agree. On the power side, you're gonna see a lot of repowers as well as new equipment purchasing. I think as you go through the energy transition as well, it's gonna depend on which customers adopt first. That's why we're really focused on bringing these new reman, you know, opportunities to the industry and to our customers. A lot of customers may choose to not adopt right away or rebuild their machines or their engines more and more. I think that's one of the things we'll see depending on which type of customer we have. It's important to us. It's great business. It's great services business. We wanna support our customer either way they go. But you'll see us continue to bring more and more options for rebuilds.
Yeah. That optionality is important from Construction Industries too, because what you'll see customers, and Joe alluded to this a little bit, they kinda bring that machine in, they kinda talk to their team there at the dealership and look at a job site, like Denise said, how long it's gonna be there? How long are they gonna keep that a piece in there? Are they gonna trade, are they gonna sell it? What are they gonna do? Maybe I'll just do a reman engine. Well, on this one, let's kinda go ahead and do the axles, the transmission, the engine. Don't refresh anything else. On this one, do the whole thing. We're gonna keep that. They can always, they can go from just kinda engine refresh, powertrain refresh, powertrain hydraulic refresh. Next thing, you go into the total machine rebuild.
That diversity allows them to make very detailed decisions by job, by economic situation for their work.
Muffin, you talked about customers holding back. One of the things we are seeing, certainly our mining customers and our oil and gas customers are displaying capital discipline. Having said that, we are seeing increased booking activity in-
Our mining products, we're seeing increased activity around reciprocating engines in oil and gas, the Cat oil and gas, and also for Solar Turbines as well. Again, while that capital discipline is being displayed, we're not seeing quite the ramp-up that we may have seen in the past. I view that as a very positive thing for both our customers and for Caterpillar, and it's particularly important in a supply chain constrained environment. Again, having more of a gradual increase, I think is good for the customers and it's good for us as well. We are seeing increased activity in those areas that I mentioned.
Any questions from the room for someone that has not asked? Okay. Right here.
Thanks. Tim Thein from Citi. A question for Denise, and it's on the slide here that talks about the energy transition and some of these, the different minerals that may become part of a bigger part of the mix. I'm curious how that impacts Cat from both a product as well as, you know, ultimately where your dealers are located in terms of nickel and lithium and some of these alternative areas to the extent that grows and potentially there's some offset in more traditional minerals like coal. How does Cat shake out in all that in terms of, again, both the competitive dynamics in those machines that will play to that as well as where the dealers are located?
Yeah. I mean, the nice thing about the Caterpillar dealer model is that we do have, you know, dealers around the world in every continent. The ability to be able to leverage as miners are looking to look for those commodities and mine them. The lithium mine that I spoke of is being opened up in the U.S. I think there's only one lithium mine up until now. You're seeing that expanding in the western part of the U.S. We're seeing quite a bit of growth in some of those minerals in places like Africa as well as South America, and we have a good dealer support network to allow that to happen and allow us to grow.
Okay, we're gonna turn it over to a couple of questions that we received online. First question will come from Rob Wertheimer from Melius Research. Do you foresee revenue models around assisted operating and autonomy changing? As you can show how much value you can add, can you begin to capture it? Perhaps per hour mining contracts are an example.
Denise, would you like to take that one next?
Yeah. You know, I explained the business model that we have today, but we are certainly looking at that business model and are open to opportunities to look at it differently. I think what you're referring to here is there a way we can share in the upside of the improvement if we're able to improve, you know, the overall operation. Certainly, that would be, you know, an ideal setting to be able to capture some of that as well. But as we're looking at it, you know, the way we're thinking of autonomy really being successful is really also gaining that whole site and being able to optimize that. You know, today there's a number of mines that have a lot of different nameplate OEMs at the site.
When we're looking at it, especially as we look towards the energy transition and having the E&T solution as well, it's being able to really optimize that site with Caterpillar equipment through and through.
Yeah. I think, Denise, probably if we want new models like per hour mining contracts, that's also a service we can offer together with our dealers through job site solutions, correct? Which is more, think of it as almost a CVA, but then taking to the next level where we don't just take care of the equipment, but also support customers with the operation, with their equipment.
Excellent point. We do have, and I explained it a little bit in my presentation, a job site solution model, which could be a lot of different kinds of contracts, but it could be a cost per hour contract. It could be, you know, looking at it, primarily, taking care of the maintenance of the equipment and having the dealer involved with that as well. We have a number of models that can really take advantage of that for the future. We're, you know, we try to go in and talk to a customer and say, "What is it that you're trying to solve?
How is it that we can approach it from a, you know, perspective that is a win-win for us both? We don't have a prescribed necessary way to do it. It's really trying to work with that customer to solve their problem in a way that makes sense, and then come back with that deal.
Another question we have from that came in today: How do you expect customers to achieve lower emissions given all the opportunities you discussed today?
Well, as I mentioned in my remarks, you know, we've committed that 100% of our products, you know, in 2030 that we introduce to be more sustainable. We've talked about a variety of examples today. Denise talked about what we're doing with our large mining customers in terms of working with them to help reduce their emissions. Joe gave some examples as well as to how we're helping our oil and gas customers reduce their carbon footprint as they produce oil and gas. There's things happening in construction industries as well. There's a whole variety of things going on, and that's a big part of our R&D investments to help our customers achieve their sustainability objectives.
Okay. We had a question from Mircea Dobre. Services accounted for 39% of revenue in both 2016 and 2021. Do you expect services to grow faster than overall sales in the future? If so, why? Given that the last five years service grew in line with overall revenue.
If we look at a combination of OE and services, I mean, the percentage of growth, the growth rate there will depend on what's happening in the market. Market dynamics will really determine that mix. As an example, is the market very hot for new equipment sales? That will have one outcome. If it's slowing down a bit, that could have a different outcome with a higher percentage of services. It's really difficult to predict. It really is based on market dynamics that impacts the mix.
From Tami Zakaria. We haven't heard much about M&A today. We want or you want to return 100% of free cash flow to shareholders over time. Do you think you could accelerate some of these growth ambitions through M&A instead?
Yeah, one of the things we talked about is our capital structure. We maintain a strong balance sheet, which gives us the flexibility to make acquisitions when they make sense. We've made a number of them over the last few years, and they're for just the items that are mentioned here in the question in terms of helping us advance technology as an example, and we made the acquisition of Marble Robot, relatively small acquisition, but it helped us accelerate our autonomous solution on the job site. You know, we made the acquisition of SPM from Weir that allowed us to have, as Joe mentioned, a more complete solution, for our oil and gas customers, and that was a great acquisition at a very good time in oil and gas.
We are making acquisitions like, you know, maybe CarbonPoint we talked about today. There's been a number of others. Again, that strong balance sheet that we're maintaining does give us the optionality to make acquisitions when they make sense, and we are focused in areas of sustainability and service, as our primary objectives for M&A.
Another question is, will the energy transition cause the addressable service market to shrink or increase for Cat, and why?
Yeah. As we look at it from a net basis, and we think about all the different things that we can do from our customers, we believe that in addition to higher volume, we believe that the services opportunity in total for Caterpillar should grow, not shrink.
Jim, your strategy has been successful during your CEO tenure. What are some of the key areas that you're focused on and what still needs work?
Well, we're never satisfied. One of the things we always want to do is to move faster, to do more. I mean, we've laid out for you today the things that we're working on in terms of sustainability, in terms of new products. Again, there's always more to do. I talked about the fact that lean safety and quality is a continuous, never-ending journey. We always need to get better. Again, we always wanna do more. We're never satisfied with our own performance. We always wanna find a way to become more efficient. We always wanna introduce products more quickly and find better ways to help our customers as we grow services and help them meet their sustainability objectives.
Okay, we have time for maybe a couple more questions.
Thank you. Jerry Revich, Goldman Sachs. Really interesting stats on the Customer Value Agreements in terms of incremental sales that you folks are able to achieve. I'm wondering if you could just quantify what that looks like on connected machines as they're entering their 6th year, 7 th year life, Tony, that you've mentioned in your slides on the connected machine population side. How much higher revenue are you getting now that machines of that vintage are connected versus the prior? Is it possible to flesh that out to see, you know, how much of the services growth that you've outlined can come from just the aging connected machine fleet?
Yeah, we do best when both the machine has a CVA and is connected. Certainly, if we only have a CVA, and it's pretty rare that we have a CVA without connection, in some cases, we'll have a connection without a CVA, it's all positive. You know, we don't break out the exact quantification of that. Again, we certainly have demonstrated to ourselves that our strategy of having more CVAs and connectivity is a positive thing for us. I mean, Bob described the example of instead of a dealer kind of casting a very wide net to try to sell more parts and services, to be able to be targeted, to use AI, to know when there's an opportunity to approach that customer, even if there isn't a CVA, greatly helps our ability to increase services.
Bob, I don't know if you want to expand upon that.
Yeah, you heard us say before, I mean, first it comes with a qualifier. We have many different types of CVAs and customer environments. We've done a number of studies and our dealers as well, which make us say that in general, when we have that connected asset, as Jim said, which allows us to give customers those insight combined with the CVAs who have that close relationship with the customer, our dealers see about 30% in incremental parts sales to users, which is an average across multiple ages of equipment throughout the life cycle.
Hey, Adam Seiden from Barclays again. Maybe for Tony. So we didn't hear a lot about rental this time. So curious, maybe you could talk a little bit about the adoption of some of your dealers embracing more rental over time. Then ultimately, when you think about today's market, where does current utilization sit? Ultimately, can you feed more equipment into that rental channel?
Sure. From a rental overall, and from a fleet perspective, you know, we pretty much we're right, kinda right in there in the top largest fleet in the world if you put all the dealer fleet all in one shot. We have a massive earthmoving fleet that's out there for the customers. That fleet is obviously highly utilized right now in terms of customer demand on that. That does not necessarily translate into, say, dramatic rental demand versus retail over time, though. You kinda gotta take that in a window of time right now in terms of equipment availability to go into the fleets. Again, the fleets are highly utilized. You see that kind of across the industries if you look at the numbers. Now in terms of machine going to retail versus rental, and we're able to feed that.
You know, we sell machines to the dealers. The dealer takes that into inventory, and the dealer's making that decision, retail or rental, as they're trying to think through that. They're trying to look at the deals. They make the decision if it goes to that retail deal, customer needs it, timing, or whether the rental fleet has a demand for that, and they're kinda making that decision as it goes. They, of course, like any good rental fleet, watches their time and financial utilization numbers. They're trying to balance that, so they don't get too out of whack on either of those, and they'll feed that rental fleet as they can. Would we like to supply all demand across all of those? We would like to.
We're not able to meet all of that demand right now, but we're working to meet all that demand across both of those.
This will be the final question today.
Thanks. Steven Fisher, UBS again. Just to follow up on the rental question, how does the penetration of rental affect your services adoption? Because it seems like a lot of what we talk about on services is really toward the end customer, but presumably a lot of the services in rental would be to the dealer. How does that adoption of rental affect services development?
Yeah. If you think of a machine that's in a dealer's rental fleet versus a machine that's on a customer's job site that they're owning. Of course, that dealer rental fleet is maintaining that piece of equipment. Those machines are typically in that 36- to 60-month time frame, so really early in the life of the machine generally, then they roll out of that. Early on, it's more maintenance on those products very early in their life. The dealers, of course, are maintaining those with the Cat parts and the oils and fluids if they need to maintain that equipment. That's generally how it works early in that life.
Now, as that product rolls out, typically a dealer is rolling that out, oftentimes in the certified used program that goes out to a customer, and that's when the real opportunity comes to put the CVA on that machine, sell it to that customer, and transfer it out that way. Again, when it gets more into that life of the four, five, seven, 10-year time when they roll that out and get that into customers' hands.
If I may, Tony, you could also see, I mean, if a machine goes to rental, our dealer owns it, which means that we should be getting all of the services that are performed on that. We also often say that we look at service as a continuum. It can be as simple as a do-it-yourself, just maintenance kits for preventive maintenance. It can go to a full service contract. It can be a total maintenance and repair CVA, or you could actually see then rental as the next step, because then we don't just take the risk of maintaining the equipment away from the customer, but also the risk of ownership.
You can even, beyond rental, go a step further, what Denise said before about job site solutions, where we don't just take care of the equipment or the ownership, but we also help customers with their operations. It's it really fits into a continuum of service offerings that we can offer to our customers depending on to what extent they're interested in collaborating with us.
Great. With that concludes our Q&A for today. Jim, we'll turn it over to you.
Well, firstly, I wanna thank everyone for taking the time to travel to see us today. I know there were some weather issues on the East Coast which prevented some people from being here personally, but we appreciate you taking the time to participate online. You know, we've shared with you today why we're excited about our future. With the energy transition and growing global energy demand represents just an outstanding opportunity in our view for future profitable growth. Our total addressable market, we believe, is increasing. You know, we're very focused on helping our customers meet their sustainability goals, allowing them to contribute to a reduced carbon future. You know, we're on track to hit our services target. We're increasing confidence to hit that services target we set out for $28 billion in 2026.
We've also reaffirmed our financial targets and we recognize we need to invest in technology. Again, we believe we can invest in technology and still meet those financial targets. Top line will grow because of the total addressable market increase, which will drive increased free cash flow, which should result in higher shareholder returns. I'm never been more excited about Caterpillar's future than I am today in my 42 years. We hope you feel some of our enthusiasm. Thank you again for joining us.
Thanks, Jim. We just have a couple of housekeeping items here to address. First off, thank you everyone for joining us today. A replay will be available online. We'll also post a transcript on our investor relations website. You can click on investors.caterpillar.com and then click on financials to view those materials. We hope you enjoyed our 2022 Investor Day, and we hope you have a great rest of the day. Thank you.
Travel safe. Thank you.