Heat pumps are set for high growth as Tesla enters market Heat pumps are set for high growth as Tesla enters market Heat pumps are set for high growth as Tesla enters market

Heat pumps are set for high growth as Tesla enters market

Peter Garnry

Chief Investment Strategist

Summary:  Tesla is mostly associated with leading the adoption of electric vehicles and selling solar modules and energy storage solutions, but now the company has set its eyes on the heat pump market following a series of internally developed improvements to its own heat pump used in its EVs. Heat pumps do not sound very interesting but the market is growing very fast with the war in Ukraine accelerating adoption and demand as Europe aims to cut its dependence on natural gas from Russia. Heat pumps are also the biggest low hanging fruit in terms of reducing fossil fuel consumption globally.


Tesla sees heat pumps as critical to reduce fossil fuels

Tesla’s recently held Investor Day which did not really muster the excitement of investors or sell-side analysts as the presentation lacked details across many issues as next generation car platform, time schedules, and future price points. Many industry observers have pointed out that analysts and investors overlooked Tesla’s comments about heat pumps. Already back in January the EV maker featured its heat pumps, used initially in its Model Y and later the other models, as a device that is important for EV efficiency and range during cold weather conditions. According to Tesla in this featured video they made some interesting innovations on the heat pump increasing its efficiency while reducing manufacturing complexity.

In Tesla’s Investor Day presentation the company lays out a path to eliminate fossil fuels and a big part of that reduction is achievable with heat pumps which have the largest reduction potential relative to Capex needed. Tesla estimates that it will invest $300bn in manufacturing Capex for heat pumps to reach on its ambitions. Tesla wants to expand on its expertise in heat pumps for its EVs to heat pumps for heating buildings. The global heat pump market is going to be a fast growing market over the next decade, but whether Tesla will be a major player in this new market remains to be seen. In the meantime, Tesla’s share price will be linked to falling lithium carbonate prices in China which is key to Tesla’s aggressive price reduction strategy.

Tesla share price | Source: Saxo

A small device with a large potential

Already before the war in Ukraine in November 2021 we wrote about how our electrification of transportation and heating through air-to-water heat pumps would be key drivers of demand for copper. When Russia invaded Ukraine in February 2022 energy markets went into a tailspin and Europe was looking into an energy crisis forcing people to find alternatives for heating as gas prices initially soared. Air-to-water heat pumps were completely sold out in the matter of weeks as demand exploded and we highlighted a couple days after the invasion how the war in Ukraine would change everything in Europe’s energy infrastructure including the usage of heat pumps.

A heat pump is essentially a reverse air conditioner and they come in two types of air-to-air and air-to-water. The former is often used in summer houses, cars, storage rooms etc. while the latter is used for heating radiators, underfloor heating pipes, and hot water in central heating systems. According to IEA, there was 190mn heat pumps in operation in 2021 and this number is expected to expand to 600mn in 2030 (covering 20% of the world’s heating needs) translating into 13.6% annualised growth, but with the war in Ukraine this growth rate could likely increase as heat pumps will help Europe reduce its dependence on natural gas. Heat pumps have become 50% more energy efficient since 2010 and are more energy efficient than natural gas boilers with double the efficiency in Europe. The lifetime cost of heat pumps is also cheaper than oil and gas heating in most countries so the unit economics for heat pumps point to rapid adoption and growth ahead.

The largest markets for heat pumps are France, Italy, Germany, US, Japan, and China, with the highest growth rates observed in Europe overall. Governments around the world have implemented policies that provide different types of grants and incentives to switch to heat pumps. Pure exposure to the heat pump market is difficult for investors as the major manufacturers of heat pumps often make many other different industrial components and machines. The below highlights some of the publicly listed companies involved in manufacturing heat pumps. We have no good information on how much of revenue comes from heat pumps, but judging from the number of words in annual reports it seems that a company such as Swedish-based Nibe Industrier is getting a significant share of its revenue from heat pumps and are very dedicated to the future of heat pumps. GEA Group is more involved in larger scale industrial heat pumps. Other companies such as Samsung is only getting a limited share of its revenue from heat pumps.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.