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Friday, July 2, 2021

2021 Tankless Water Heater Report: Electrifying the Market

PHCP PROS - Linda P. Noir

As the country looks toward a change in status-quo, the tankless water heater industry keeps pace, moving forward to meet demand.

Few industries weathered the storm of the pandemic as well as the tankless water heater industry. Even as supply chains across the country — and around the world — struggle to meet demand and adjust to shifts in manufacturing, the tankless water heater industry has stepped up to the plate and kept things flowing in the right direction. 

According to several market research reports, the tankless water heater market size will see incremental growth and is expected to grow through 2024. Driving this growth are increasing consumer concerns regarding the efficient use of energy and the continuous innovation on the part of manufacturers. Even through the pandemic, companies introduced technologically advanced tankless water heaters designed for both residential and commercial use — meeting demand wherever it was. 

We spoke to several tankless water heater manufacturers — A. O. Smith, AERCO, Bosch Thermotechnology, Bradford White, Eemax, Intellihot, Navien, Noritz, Rheem, Rinnai, Stiebel Eltron and Vesta.DS — to get their views on trends in the industry and where they see it going in the future.

Here’s a recap of their responses. 

Consumer Demand Shifts the Energy in Tankless Market 

Although, by design, a tankless water heater is much more efficient and cheaper to operate than a traditional water heater, there is still a push to produce even more efficient products in the marketplace. The ever-changing industry revolves predominantly around increases in efficiency and green solutions; the debate these days has to do with gas or electric and condensing or noncondensing.

“The most recent regulation affecting the tankless industry in North America has been the increase in minimum efficiency requirements in Canada,” says Dan Moffroid, director of product management at Bosch Thermotechnology. “The regulation effectively banned the sale and installation of noncondensing models. 

He adds that the “more significant shift” is in areas transitioning to electrification, especially in California. 

“Some cities are working to ban natural gas hookups in new construction, and some states are trying to achieve greenhouse gas reduction plans by adopting building codes that will reduce the use of appliances using fossil fuel,” Moffroid notes. “This transition is in the early stages and is likely decades in the making, but it is something we are watching carefully as it would have a significant impact on the tankless water heating market.”  

Electric tankless water heaters are currently one of the most popular water heaters among consumers. They are much easier to install, which generally equates to less expensive installation costs. They are much smaller in size than gas tankless units and don’t require ventilation, which usually lessens the installation limitations.  

“The global electric tankless water heater market is flourishing … and is expected to expand at a [compound annual growth rate] of 6.19 percent during the forecast period of 2016-2023,” reports MarketWatch (https://on.mktw.net/3vfexeR). The same report details how North America is expected to expand at a CAGR of 9.93 percent over the same forecast period and is anticipated to garner $213.2 million by 2023. 

“The presence of a large number of electric tankless water heater players in North America such as A. O. Smith, Stiebel Eltron, and others is positively increasing the manufacturing of electric tankless water heaters,” the report notes.

Julius Goodman, head of marketing at Stiebel Eltron, adds: “It will be interesting to see what effect the lessening of efficiency standards on the gas side that the previous administration did will have on manufacturers and consumers, especially as the war against global warming intensifies. There is already a move toward clean electric energy over fossil fuels.  

“Our hope, at the very least, is that gas tankless manufacturers will continue to innovate efficiency for the good of the planet and resist the temptation to capitalize on sales with cheaper, lower-efficiency models. And that consumers will come down on the side of the planet as well.” 

What we know for sure is that consumers are driving the demand and that manufacturers — of all types — are adapting to the changes. In most cases, they are exceeding what’s required. 

Resiliency in the Waters: Changes Brought by Uncertain Year 

COVID-19 presented many obstacles for manufacturers: supply chain shortages, initiating new workforce safety protocols, or unforeseen challenges with the extended partner pipeline of all those that make the industry run — including contractors, wholesalers and specifying engineers. 

The tankless water heater industry learned to adapt quickly while maintaining standards of excellence across the board. We asked manufacturers how the COVID-19 pandemic affected business — both positively and negatively — and what steps they took to address the challenges and opportunities that resulted. 

All the responding manufacturers made the health and safety of their employees and customers a No. 1 priority, adhering to local and national protocols such as wearing masks, social distancing and frequent handwashing.

“COVID-19 required many industries and businesses to adjust,” says Jeff Ogan, A. O. Smith tankless business development director. “At A.O. Smith, we are very fortunate to have a strong distribution network with key players across the country, allowing our teams to keep the manufacturing and supply chain moving throughout the pandemic. Like other companies, we had to pivot to accommodate unforeseen circumstances, but overall, we did not see much downtime in productivity. 

He adds that by “anticipating” and “diligently responding” to customer needs, the manufacturer played a role in “keeping businesses open and operating safely and customers supplied with clean, hot water.” 

“We were fortunate to experience minimal impact due to COVID-19,” notes Mark Croce, product manager at AERCO. “In fact, we increased inventory to address potential shortages and implemented aggressive safety guidelines within our facility. Because of our safeguards, we’ve had no outbreaks within our facility. It has allowed us to maintain better-than-industry-standard lead times that improved our market position on numerous projects. We also prioritized equipment slated for health-care facilities in our production schedule to do our part in helping that industry deal with the pandemic.” 

Like all other companies, Bosch was forced to adapt to a new reality quickly, starting in March 2020. “There were negative aspects such as a temporary drop in demand, especially in the second quarter, although the tankless water heating market was relatively immune from this phenomenon,” Moffroid says. “There were also the cancellation of trade shows and in-person customer visits.”

On the positive side, Bosch workers were “highly productive in a work-from-home reality, while leaning heavily on our heroes who continued to work the production lines and the warehouses to keep the business running,” he adds. 

Carl Pinto, senior director of marketing communications at Bradford White Water Heaters, notes: “After [protecting our employees,] the Bradford White team worked to shore up the supply chain by working closely with our suppliers. Watching the disruptions happening for other manufacturers, we wanted to ensure production continuity. Our products are essential because of the need for hot water for health and sanitization purposes. 

 He adds that there are still well-publicized problems with the broad supply chain, so the company is working hard to meet the high demand for products.  

“To support essential workers and nationwide medical response efforts, Eemax took steps to prioritize orders and waived expedite fees for product shipments going to health-care facilities,” says Jens Bolleyer, vice president and general manager at Eemax. “In March 2020, Eemax launched a new continuing education unit, accredited by the American Society of Plumbing Engineers and the American Institute of Architects, titled ‘The Importance of Effective Handwashing and Its Impact on Global Health.’”

In the fall of last year, Eemax donated its new handwashing portable stations to 50 local public schools, providing students with additional access to safe and effective handwashing through the Rheem Heart of Comfort Program. 

“The business as a whole is on a very positive note as when some sectors declined, others performed better,” says Intellihot co-founder and CEO Sridhar Deivasigamani. “In a time where many businesses suffered the worst of fates, we view our results as favorable based on many actions that were immediately enacted to safeguard the employees and the business.”

Brett Butler, brand supervisor at Navien, explains: “Once we were able to ensure the safety of our team and partners, we found we were still able to operate at an elevated level and secure growth even in an uncertain year.” 

“COVID-19 has made things tricky for all parts of our business from overseas manufacturing to following ever-changing state and local mandates on COVID-19 safety,” says Andrew Tran, marketing manager for Noritz. “We’ve definitely had to stay flexible to stay productive and safe at the same time.” 

Madison Phillips, Rheem’s senior manager of product management, adds: “From a consumer demand perspective, we did see an increase over the last year. Many people took advantage of extra time at home by investing in renovations, while other families upgraded to tankless units as their water needs evolved from children returning from college or stays by extended family.”  

“COVID-19 impacted Rinnai’s way of doing business and serving our customers,” says David Federico, brand director. “We have continued to produce and ship product throughout the pandemic; however, from a sales standpoint, we experienced an initial slowdown in spring 2020 followed by a fast rebound that same summer.”

Homeowners continued to invest in home improvements and resulted in strong demand for tankless water heaters. “While our commercial business experienced some challenges due to the impact on the hospitality industry, 2020 was a strong year for Rinnai America,” he says. “We continue to see strong growth opportunities in 2021 on both our residential and commercial business.”

“It has been an interesting and complex year,” says Stiebel Eltron’s Goodman. “We are proud of what we accomplished, and even after facing the unique challenges due to the global pandemic and financial crisis, where many experienced considerable loss — both personal and professional — our production never stopped. Point-of-use sales have done extremely well this past year; we are proud to have served communities with our products that have provided handwashing stations for commercial and municipal use.”  

She adds that the biggest impact was not going to AHR and other canceled trade shows. 

“COVID-19 did affect our normal face-to-face business commerce,” notes Richard Ponce, national sales manager at Vesta DS. “Telecommuting and Zoom meetings have become our new normal customer interface.” 

Learning to navigate all the challenges of the last year, as well as meeting all the demand where it is, is no small feat. The manufacturers we spoke with are not only prepared, but they’re also ready to make changes as needed, when needed, too. We thank all of them for keeping their employees and customers safe while also keeping our industry moving. 

Drivers and Barriers: A Closer Look Within 

There usually are major factors behind the scenes that either help drive an industry or, in contrast, throw up barriers to its success. The tankless water heater industry is no exception. Although COVID-19 played a big role last year, there were other drivers and obstacles to consider, and we asked the manufacturers to share with us their experiences. 

Both Stiebel Eltron and Vesta DS point to convenience, space savings, energy savings and water savings as serious drivers in the industry. Earlier, we discussed how efficiency — water and energy — have played a role in the types of products manufacturers produce. It came up again as a primary driver for the industry going forward. 

“The biggest drivers of tankless today are customer interest in the benefits and state regulations that drive higher efficiency products,” says Rheem’s Phillips. “We hear more and more plumbers say their customers are asking about tankless — they hear about continuous hot water and the opportunity for space savings and want to upgrade. There is also increased demand in areas such as California that have building scores based on product efficiency.” 

Jennifer Kaminski, tankless product director at Rinnai, adds: “Consumers often remark on the desire not to run out of hot water and that desire often contributes to market growth. There is also a push for higher efficiency products, which is reinforced by rebates and tax credits.” 

Noritz’ Tran echoes that and adds: “We saw some local utility in some regions of the U.S. increase their rebate amounts for installing more efficient tankless water heaters. This has made it an easy decision for those who were on the fence about replacing their old heaters.”  

Replacing old heaters and new construction are both big market drivers. The design and feasibility of tankless water heaters make them more in demand — both in residential and commercial projects. 

“The tankless water heater’s biggest appeal is its ability to produce endless hot water, giving owners access to hot water as they need it,” says A. O. Smith’s Ogan. “There’s no need to adjust lifestyle or water-use habits. You could have one person showering while the dishwasher and washing machine are running. And you would still have hot water available for the next person who wants to shower without having to wait for a tank to heat.”

He adds that another big benefit is the space-saving component. Tankless units can be installed inside or outside of a home or building, freeing up additional space on the floor of a basement or garage.” 

“A big trend is a modular design, which lowers the cost of system redundancy, produces the smallest possible footprint, and eases retrofit in existing spaces, which minimizes downtime during system replacement and switchover,” AERCO’s Croce explains. 

Bradford White’s Pinto notes: “The commercial business sector continues to see growth in areas such as multiunit housing projects. In the residential market, we’re continuing to see demand for replacement work as housing stock from the early 2000s continues to age.”

Although it is great news that tankless water heaters are the go-to products across the board — whether it be because they are efficient or simply because they are the perfect fit, the industry still must contend with some barriers to growth, as well. 

 “The greatest barrier we see is resistance to change,” Intellihot’s Deivasigamani says. Whether it be a change from traditional water heaters or even within the tankless industry itself — to electric tankless water heaters — change can be hard for every industry. 

Deivasigamani notes that Intellihot provides engineering support and education within the industry daily. AERCO’s Croce adds: “We have enhanced our education and support tools with system design to address concerns around maintaining the comfort level with the reduction or elimination of storage and increased complexity inherent with tankless designs. 

“The biggest barrier to adoption of this technology is unfamiliarity with the technology,” Stiebel Eltron’s Goodman notes. “We are continuing to educate our manufacturers’ representatives and consumers of the benefits of electric tankless.” 

Vesta DS’ Ponce adds: “Unprofessionally installed tankless or tankless used in the wrong applications continue to be the main barriers to growth. We are addressing these factors by offering ongoing installation training and instructions for all levels of installation contractors.” 

Looking Ahead to More: Demand, Growth, Resolve 

As manufacturers look to the future, they are resolved in meeting all challenges and pushing through. We asked what their outlook is going forward, and most remained optimistic as consumer demand grows and as they continue to innovate. 

“The tankless water heater market only continues to grow in strength and popularity with both contractors and homeowners,” notes A. O. Smith’s Ogan. “Our teams have remained focused on continued product development to ensure alignment with overall industry trends and needs, including tankless products and applications. We expect the market to keep growing, so maintaining strong research and development efforts, as well as training for our contractor partners, will remain a priority.” 

Bosch’s Moffroid states that the tankless water heater market continued to grow despite the ongoing pandemic. “Part of that can be attributed to the need for hot water in everyday life, and part of it is due to the increased demand for hot water to ensure hygiene targets are met,” he adds. “We see this growth continuing throughout 2021 and 2022 as the tankless market has proven resilient and continues to increase.”  

“It’s no secret that the pandemic made operations more challenging for everyone,” says Bradford White’s Pinto. “We encountered communication difficulties with contractors and outside firms, and it was harder to reach jobsites and keep in touch with contractors and engineering firms. To accommodate, we’ve doubled down on the use of virtual training and online communication to reach all our stakeholders.”  

Eemax has seen positive market gains in 2021 with growth in residential and commercial product segments.  

“COVID-19 has impacted commercial jobs in many cities affected by current stay-at-home guidelines, influencing a shift away from commercial/light industrial product demand,” explains Bill Dahlin, Eemax senior director of sales. “At the same time, we see an increased focus on handwashing product solutions.” 

Intellihot’s Deivasigamani says: “There is significantly increased awareness around health and safety and how building systems can both pose risks to and protect the health of building occupants. Many proactive building owners and operators view tankless water heating as a key component in their strategies to mitigate the risk of Legionella in their buildings’ domestic hot water systems.” 

The drive toward net-zero capabilities also has increased tankless adoption as a means of significantly reducing energy usage and carbon footprints, he adds. 

Navien chose to hold off on launching its new water heater lines in 2020 due to the uncertainty caused by COVID-19. “As things started to look up, we felt the industry was ready and introduced the NPE-2, NVW-C, and an additional NPN-E model during our water heater virtual launch event in March 2021,” Butler says.  

Although residential installations saw an uptick and commercial slowed down due to some struggling businesses, Noritz’ Tran notes that “we expect to see the commercial sectors bounce back as things slowly return to normal.”  

“The tankless outlook for 2022 is very positive,” Rheem’s Phillips notes. “The residential demand for continuous and instant hot water continues to grow as more people become familiar with tankless technologies. We expect to see an increase in commercial jobs that were previously paused during the pandemic. Engineers and commercial plumbers have started to see the benefits of redundancy, scalability and space savings afforded by commercial tankless products.”  

Rinnai’s Kaminski notes: “In general, I believe 2021 has been positive for the building products industry. There has been a large focus on remodeling and replacement and new construction. We see some of these market trends continuing as we sort through what becomes standard practice for businesses and society. The commercial market has experienced a very positive uptick; businesses are planning for or entering more normalized operations.” 

“The market will continue to grow as people realize the benefits of endless hot water plus the energy savings of eliminating the standby losses of a tank,” Stiebel Eltron’s Goodman says. “We continue to believe that electric tankless in particular is poised for growth due to the increasing generation of electric energy through renewable technologies rather than the use of fossil fuels.” 

Although most manufacturers note the uptick in demand, Vesta DS’ Ponce points to other factors that temporarily impact 2021 operations. “A global shortage of shipping containers has slightly affected the tankless water heater market,” he says, “Product availability has been hindered and may impact residential and commercial installations.” 

Only time will tell how soon the supply chain will get back to normal operations and how that will ultimately affect the tankless water heater industry. But for the most part, all signs point to a healthy industry forecast, and almost all manufacturers seem poised to pick up steam to meet demand. 

One Objective: Together We Turn Up the Heat  

One thing is clear: no one can go it alone. Although competition is steep among the manufacturers we spoke with, all are part of this larger ecosystem of the tankless water heater industry. They all play a very pivotal role in making it move and succeed.  

We asked the manufacturers how each of them is helping the wholesaler, specifying engineer and contractor to move the needle in the industry, and help take their product across the finish line. 

“COVID-19 reinforced the deep importance of communication not only internally at A. O. Smith, but also externally with our contractor partners and customers,” Ogan says. “Knowing how critical evolved communications would become, we pursued new levels of consistent custom communications and training resources for each audience segment.”  

For example, the A.O. Smith Contractor Rewards program champions regular communication, customer leads, rewards and benefits. Additional emphasis was placed on communications and resources tools for wholesale channel partners. 

The pandemic made access to mobile and online training resources more important than ever. 

“Growing our online tools had one key goal: to become a hub of resources dedicated for each audience segment and product,” Ogan adds.

AERCO’s Croce says: “We provide direct engineering support for sizing, designing and installing the optimal tankless DHW system. Among our initiatives is a proprietary sizing program with a design guarantee. We also have extended warranty options for enhanced long-term coverage for our equipment.”

“Our job is to provide our industry partners the tools they need to be effective and efficient, including training and product information, CEU credits, customer leads, software programs to enable plug-and-play solutions, partnership benefits, etc.,” Bosch’s Moffroid says. “We have a team of people dedicated to doing just that, and whenever we have the opportunity, we do our best to show the appreciation we have to those partners.” 

“Bradford White has a long-standing commitment to help our customers succeed,” Pinto says. “Most importantly, we’re always working to understand and respond to the needs of our customers. We believe in supporting them through a robust training program and have expanded online and live opportunities. We make sure our manufacturers’ representatives have the tools to support training in the field.” 

Darin Barnes, Eemax director of sales, notes: “Eemax offers our partners tankless electric water heating training at our Innovation Learning Centers,” says. “With interactive classrooms, live demonstration labs and virtual reality stations, these high-tech facilities provide a unique experience for plumbing contractors and engineers across the country to experience our latest tankless electric technologies first-hand. 

“We have a team of applications engineers who work directly with contractors and engineers to ensure proper system design and to educate them on tankless water heating systems,” says Intellihot’s Deivasigamani. “We have many support initiatives underway, including several online calculators so engineers can easily size systems and estimate energy usage and savings; piping diagrams can be downloaded for the specific system designed from our sizing calculator.”  

Navien supports its partners by only offering products through wholesale distribution to be installed by professional contractors, Butler says. 

“Especially during the pandemic, we have realized a need to offer more resources to our partners through digital channels,” he notes. “Whether it be through exhibiting at virtual tradeshows, offering contractors digital resources such as sizing calculators and virtual training classes, or even launching our own products through virtual events, we understand the industry is making that digital shift.”  

Rheem is launching ProPlumber, a new loyalty program designed to further build on its strong relationships with its plumbing partners.

“The program aims to offer unparalleled support to our plumbers by providing them exclusive tools and programs focused on growing their businesses while rewarding them for Rheem purchases,” Phillips explains. “Rheem also introduced the P2P training program, designed to deliver in-depth product training led by certified master plumbers and developed specifically for their plumbing colleagues in the field.” 

Last year, Rinnai launched its PRO Network program, a group of highly trained installers and plumbers who advocate for the brand.

“Benefits include receiving qualified leads from Rinnai, rewards programs and other incentives,” Federico explains. “Additionally, we provide members of our PRO Network assistance with advertising their businesses in local markets. Rinnai has also developed a new CEU presentation, approved for both AIA and ASPE members, geared toward educating specifying engineers on the benefits of Rinnai products.” 

“Vesta DS is committed to supporting the professional contractor B2B channel market by strategically partnering with wholesalers who sell wholesale only and provide the necessary product placement and support locally,” Ponce says. “This is not a new initiative; it is a tried business model that involves hiring a territory manufacturers’ representative agency to support the wholesalers, specifying engineers, and contractors.”  

Every tankless water heater manufacturer we spoke with has had its fair share of challenges in the last year. However, all made it clear that their resolve to keep pushing forward and meet the industry’s demands is steadfast. They kept the industry moving even through the worse of unexpected challenges and have come out on the other side all the better. 


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