The European energy storage market is primarily fueled by its commitment to enhancing energy self-sufficiency and the compelling economics of energy storage systems (ESS). As the destocking process gradually nears its conclusion, we anticipate a return to steady growth in market shipments for 2024. Meanwhile, the U.S. market is poised for sustained long-term expansion, with emerging markets like Australia, South Africa, and Southeast Asia potentially assuming the mantle of future residential battery storage growth drivers.
As market competition intensifies, leading enterprises with advantages such as brand recognition and robust distribution channels are poised to further solidify their market share. Chinese firms are actively venturing into the overseas residential storage market, prompting accelerated industry chain expansion and strategic market positioning across various sectors. Consequently, Chinese enterprises may significantly enhance their global market presence.
We maintain that tailoring strategies to meet diverse market demands will enable enterprises to achieve breakthroughs in their business endeavors.
Demand Side:
Targeting Specific Markets and Catering to Unique Needs
The residential storage market exhibits diverse demands across different regional markets, reflecting its status as a consumer-facing (To C) product. Presently, the residential storage market can be categorized into three segments:
Firstly, there's the exclusive high-end market, exemplified by the United States and Japan. This market segment demands a high level of localization, superior product cost-effectiveness, top-tier after-sales service, and imposes high entry barriers, often associated with brand premiums. In this realm, domestic enterprises, primarily FranklinWH, dominate.
Secondly, we have the high-end market, prevalent in Western Europe, Italy, Australia, and other developed nations. Here, products tend to be more standardized, leaning towards commoditization. Furthermore, brand saturation in distribution channels is nearing its peak, signaling an impending phase of brand attrition. Consequently, future success in this market will likely hinge on product quality, serving as the differentiating factor among competing companies. Leading the charge in this segment are domestic enterprises such as Huawei, Sungrow Power, Goodwell, and Hoymiles.
The final category encompasses the low-end open market, typified by Eastern Europe, Africa, Southeast Asia, Latin America, and similar regions. Here, the emphasis lies on high cost-effectiveness, with a focus on the functional aspects of the product. However, due to the fragmented nature of these markets, information disparities persist across many regions.
In such markets, success hinges on the ability to deliver products with dependable quality and exceptional cost-performance ratios. Domestic players like Deye are poised to capitalize on these opportunities.
North America:
In the North American market, the focus has shifted away from locally manufactured products and engaging in price wars is no longer seen as meaningful. According to Energy Sage statistics, despite a sharp decline in lithium carbonate prices in the first half of 2023, residential energy storage system (ESS) prices have not experienced significant decreases. Presently, the average installation cost for residential ESS in North America stands at $1,352 per kWh, representing a 2% increase from the previous month. For instance, considering Tesla Powerwall3, a 13.5kWh system is priced at $7,300, with additional expenses such as installation, transportation, and taxes totaling approximately $7,600. Notably, the system price accounts for only half of the total installation cost.
Beyond the product itself, customers are placing increasing importance on software functionalities, such as intelligent charging and discharging strategies, as well as localized teams and robust after-sales service.
Changes of the Average Installations Costs of ESS in the U.S. (USD/kWh)
Taking FranklinWh as an exemplar, established in 2019, the company introduced its home energy management system in North America in January 2022. By the first half of 2023, its share of the residential ESS market in North America surged to fourth place, trailing only behind Enphase, Tesla, and SolarEdge. Furthermore, FranklinWh's product is compatible with Tesla's PowerWall, contributing to its success in the market.
This success can be attributed to three key factors. Firstly, FranklinWh has invested significantly in building overseas teams to achieve the localization of Chinese brands. Secondly, the company has adopted a strategy akin to Tesla's, opting to bypass dealers and instead directly partnering with installers, particularly smaller and medium-sized EPC (Engineering, Procurement, and Construction) manufacturers in the U.S. As of March 2023, the number of EPCs collaborating with FranklinWh has surpassed 1,000, with the company offering additional incentives to promote its brand. Lastly, FranklinWh prioritizes product quality, offering a system warranty of 12 years, longer than the market average of 10 years.
Market Share of Residential Storage Companies in the U.S.
South African and Latin American markets:
In the South African and Latin American markets, the emphasis on cost-effective products has become increasingly crucial in the residential storage sector.
South Africa, as the most industrialized nation in Africa, grapples with a pronounced power shortage issue. Since 2008, Eskom, the state-owned power company, has struggled to meet demand due to aging infrastructure and financial constraints. Consequently, the average duration of residential power outages has steadily risen from 852 hours in 2015 to 1,169 hours in 2021, with the trend persisting. In response, the government has taken decisive steps to address the power dilemma by introducing the solar and storage tax relief program. This initiative aims to incentivize installations and catalyze the rapid growth of South Africa's new energy market.
Similarly, Brazil faces analogous challenges. Weak grid infrastructure contributes to frequent blackouts, heightening the urgency for off-grid residential storage solutions. However, given the local economic landscape, there is a heightened demand for cost-effective energy storage products in these regions.
Taking DEYE as an illustration, the company has strategically targeted the Asian, African, and Latin American markets, achieving significant increases of production for its inverter and residential storage products. DEYE’s journey began in 2007 with the inception of its injection molding parts and sheet metal business, swiftly transitioning into the realm of heat exchangers. By swiftly establishing itself as a core supplier of Midea, DEYE demonstrated its prowess in technology iteration and commercialization.
In 2016, DEYE ventured into the inverter market, experiencing rapid revenue expansion. The company's inverters are distinguished by their focus on low-voltage, wide power range, and high reliability features. By using locally made IGBT and self-supply components, DEYE achieved rapid cost reductions quickly. Its cost efficiency products align perfectly with the demand for cost-effective solutions in emerging markets, enabling DEYE to excel amidst staggered competition and achieve rapid increase in revenue.