Source: CHEAA-run China Appliance magazine

China’s overall home appliance market has been sluggish with weak domestic demand and a shrinkage of market size under the impact of the flare-ups of COVID-19 from Jan to Aug 2022. The electric water heater (storage water heater) sector is no exception. But there are highlight too. On one hand, electric water heaters have been greatly upgraded in both design and performance; on the other hand, the sector has shifted its competition pattern from a price war to a value war.

Market performance

Electric water heater sector posted a 23.4% fall and a 27.26% fall in offline retail sales value and volume respectively, and a 11.41% fall and a 11.8% fall in online retail sales value and volume respectively from Jan to Aug 2022, according to All View Cloud.

The export of electric water heaters from China has been bleak in 2022 after a historic high in 2021. The export volume of electric water heaters stood at 4.89 million units in H1 2022, down 14.8% YoY, and export value 0.25 billion USD, down 6.2% YoY, according to customs data. The export fall is mainly due to the high inventory of overseas retailers, my interviewee from Midea explains.

Some well-recognized mainstream brands achieved a growth in market size amid the overall gloominess. Haier made a double-digit growth in sales of electric water heaters, Midea a slight growth YoY, Vanward a steady rise from Jan to July, while Macro rose to one of the TOP 5 sellers of electric water heaters in 2022, as I learned from these industry players.

The shrinkage of overall market size and the growth of that of mainstream brands accelerated the industry reshuffle, knocking out some small-size players. From Jan to Aug 2022, Haier and Midea kept the leading position at online market with a share of 37.56% and 30.4% respectively, followed by A. O. Smith and Leader with a share of 7.49% and 6.97% respectively, according to All View Cloud. At offline market, A. O. Smith is slightly ahead with a share of 25.92%, followed by Haier, Casarte and Midea with a share of 24.64%, 14.76% and 12.64% respectively, according to All View Cloud. It’s easy to see that Haier, Midea and A. O. Smith hold a dominating position at electric water heater market.

The trend of slim design and healthy showering concept

There are highlights amid the overall gloominess of the market. It’s worth noting that the value performance is slightly better than volume performance both in domestic sales and export due to the rollback of raw material prices and the upgrade of product mix, indicating an increase in profit margin and a rising trend of going mid and high-end. It strengthens industry players’ confidence in product R&D and the driving force it provides to product upgrade.

The overall product design has not changed much in recent years, but industry leaders have always been dedicated in making technical breakthroughs. Smaller size, more warm water supply and health-oriented design are all directions the industry has been looking at.

The large size of electric water heater is unstylish, and hard-to-install. To tackle the problem, many brands roll out small capacity, slim products, which mostly adopt a double-tank design as I learn. The slim models take an increasingly large share of the market with 3kW-5kW slim models accounting for more than 10% of the online market by retail sales value during the June 18 shopping festival of 2022 as I learn from enterprises. The market share that slim models take is even bigger at offline market.

Health-oriented design is also a trend. My interviewee from Midea says, “Apart from cleaning, scale-free, and bacteria-removing technologies, we develop electronic thermostat technology to avoid frequent temperature adjustments and burns, electronic magnesium rod, and self-cleaning technologies, which are all well recognized by the market.” My interviewee from Haier introduces that Haier keeps its focus on bacteriostatic function and clean-water showering. Casarte has upgraded its functions from hazardous substance removing to health care functions such as mineral water showering and scale resistance function developed for mothers and babies.

Plus, the safety issue has also been a long concern of consumers aside from small size and large warm water supply.

The trend of going high-end

Electric water heater industry is going high-end when mainstream brands keep upgrading their product mix through technology amid the rise of raw material prices, logistics cost, and labor cost.

The upgrade of electric water heaters, by its nature, is to meet consumers’ upgraded demands. My interviewee from Haier introduces that Haier develops its original non-metal tank to avoid scale and rust buildup. Midea offers differentiated products to meet the demands of its different consumer groups through its matrix of brands including COLMO, Little Swan and Midea, according to my interviewee from Midea. It is learned that the revenue from Midea’s high-end brands see an obvious rise.

The high-end trend puts an end to the long price war of electric water heater market. From Jan to Aug 2022, the average price of electric water heaters at offline market rose by 108 Yuan while that at online market rose by 4 Yuan, according to All View Cloud.

The industry is at a transition from price war to value war after a long downwardness. The tech-powered product upgrade will be a rising driving force of the industry.

Technical chokepoints

The penetration of water heaters in China is high. As of the end of 2020, the number of water heaters per 100 urban households was 100.7 units, according to National Bureau of Statistics. This, coupled with the rising penetration of water heaters in urban and rural areas, accelerates the industry to enter a new stage where replacement demand becomes the main market driver. Plus, the slowing real estate market deters the new demands of home appliances including water heaters. In this context, the development of existing market becomes a common concern of the industry.

The industry has a common understanding that the technical upgrading directions are health orientation, comfortableness, and small size. The upgrades are aimed to avoid waiting anxiety and offer better showering experience.