Current state and growth opportunities
The low voltage motors market is highly consolidated, with the top five participants accounting for more than 75 percent of the market revenues as of 2009. Low voltage alternating current (AC) motors dominate the industry, generating 92.1 percent of market revenues for 2009. That number is expected to increase to 95.9 percent by 2016, with a Combined Annual Growth Rate (CAGR) of 7.6 percent between 2006 and 2016. Low voltage direct current (DC) motors, on the other hand, are expected to have a negative 3.4 percent CAGR between those years.
What's Happening in the Market: Sector and End-user Drivers and Restraints
Activity in certain industry sectors will continue to drive positive growth within the low voltage motors market in North America through 2016. The oil and gas sector, for example, is expected to experience positive growth as companies continue to invest in increasing their existing and planned capacities. In the power generation sector, the drive towards cleaner energy will likely boost demand for low voltage motors, particularly for wind and solar power projects.
In addition, motor upgrades and retrofits will increase due to both aging equipment and increasingly stringent environmental regulations. This is particularly true in the power generation and heating, ventilation and air conditioning (HVAC) sectors. As a result of federal regulations concerning emissions, the U.S. Department of Energy has assigned a loan guarantee of $38.0 billion for power plant upgrade projects to help reduce greenhouse emissions.
The aging infrastructure of water and wastewater treatment facilities in North America is also expected to impact the low voltage motors market in a positive way, with continued investments in the public utilities sector to upgrade, replace and retrofit the equipment. In fact, despite the recent global economic recession, the North American municipal wastewater treatment segment has witnessed significant growth, with an estimated $1 trillion expected to be invested and spent within the wastewater treatment segment by 2020.
Due to the economic difficulties of the last couple of years, end users have lacked the capital to invest in new equipment. As a result, and with the economy now recovering, pent-up demand for low voltage motors will likely strengthen market growth over the next few years, decreasing over the medium- and long-term.
It is worth noting, however, that the global economy remains uncertain and thus still limits end users' expenditures. Coupled with the higher price of premium-efficient motors now being required by law, cost still presents a barrier to adoption of these types of low voltage motors.
The increased attention on equipment efficiency and concern about regulatory compliance regarding energy efficiency has also promoted end-user use of low voltage motors. The 2007 Energy Independence and Security Act (EISA), which went fully into effect in December 2010, is also driving end-user need to replace motors currently in use with premium-efficient motors over the next few years. The impact of this legislation will be high over the next three to four years (as companies replace their older motors with new ones) and slowly decline in impact in the years following. For more information on EISA, see the article in the Pumps & Systems, November 2010.
Current Trends: Challenges and Opportunities
The low voltage motors market is mature and highly consolidated, with the top three players accounting for 60 percent of market revenue. Such market consolidation makes entering the market difficult for new players, while the market maturity also limits new opportunities. Faced with challenges to reduce lead time, provide effective after market services and meet increased customer demands for energy efficient products that are affordable, many of the larger, low voltage motor suppliers have been pursuing merger and acquisition strategies to withstand competitive pressures and improve their standing in the market.
Mergers, acquisitions and partnerships are also creating opportunities for suppliers to meet the growing end-user demand for a one-stop shop solution. End-user need for integrated solutions has increased due to the dwindling skilled labor force, as a result of both the poor economy and an aging population. This loss of in-house expertise increases the need for suppliers who can offer operational expertise and after market support services, as well as products.
Such a trend poses a challenge for manufacturers, who take on serious risks when expanding their business capabilities beyond manufacturing. On the other hand, it also opens up opportunities for distributors to fulfill the aftermarket services niche.
Competition has also increased from abroad, with low-cost Asian (primarily Chinese) manufacturers entering the market, creating a strong price pressure against domestic manufacturers. While these low-cost manufacturers have been a threat for years, domestic manufacturers have often had the upper hand in terms of product quality. However, over the next few years, product quality from these competitors is expected to be on par with those from North American manufacturers, therefore creating a significant challenge to domestic producers within five to seven years. One mitigating factor to this threat, however, is that labor costs have been on the rise in some of these low-cost regions, such as China and India.
What the Future May Hold
While the electric motors market, including low voltage motors, is considered mature in North America, government incentives and regulations promoting energy-efficient products have opened the door to innovation within motor research and development. Although the EISA regulation mandates the use of premium-efficient motors, it does not require that users immediately replace the motors currently in place. Given that the newer premium-efficient motors are up to 30 percent more expensive than the traditional ones, end users must weigh the value of saving money now versus saving money over the long-term.
With the economy still sluggish, end users may opt to repair motors rather than replace them in the interest of saving money now. Therefore, one of the most important challenges for manufacturers in this market going forward will be to continue developing premium-efficient low voltage motors at an affordable cost for end users.
There are a few emerging trends that illustrate this cost dilemma facing end users. For example, squirrel cage motors are being used more frequently in applications than the slip-ring type motors. This is primarily a result of the lower manufacturing and maintenance costs associated with squirrel cage motors. Slip-ring motors have specialized characteristics that make them more difficult to install and maintain. Incorrect installation can result in high levels of brush damage, reducing the life span of the motor.
Raw material costs also have a continuous impact on manufacturers. When these costs rise, manufacturers are pressured to pass the cost onto the consumer. This can hinder manufacturer's offering premium-efficient, low voltage motors, which already have a hefty price tag. One of the ways manufacturers can soften the impact of current price pressures is by either establishing long-term partnerships with, or acquiring, distribution channel companies. The bulk of sales in this market are carried out through large original equipment manufacturers and distributors. Companies with an efficient distribution channel and a global, but regional, presence can differentiate themselves in a highly competitive and consolidated market.
Many industries began rebuilding their stock of low voltage motors in 2010. A number of motor manufacturers reported that they made up a large percentage of losses sustained in 2009. Going forward, the low voltage motors market is expected to experience positive growth, specifically the low voltage AC motors market, with many motor suppliers expecting to reach pre-recession levels in 2011.
Pumps & Systems, June 2011