SUMMARY: Our PowerTrackerTM dealer and distributor survey of 200 respondents reported that overall gen-set sales continued a positive trend in Q4 2020 up 6.3% from Q3 2020 levels. Sales gains could have been even higher because dealers ran out of inventory. This increase follows a slow start to the year in Q1 2020 where overall dealer reported sales were down 9.8% from Q4 2019 levels followed by successive increases of 4.5% in Q2 2020 and 11.9% in Q3 2020.
Although sales were up 6.3% for the fourth quarter, the results were unique in that there was a different story depending on the fuel and power range being considered. The quarterly sales increase was anchored by abnormally high increases for gaseous fueled units in the 10-50 kW range and moderate to large decreases in the other power ranges of gaseous fuels as well as diesel fueled sets.
The data comes from the proprietary PowerTrackerTM series of syndicated surveys conducted each quarter by Power Systems Research. A total of 500 interviews are completed each quarter with gen-set dealers and distributors and businesses across North America.
Within gaseous fueled gen-set ranges, the 10-20 kW range had a fourth quarter increase of 13.3% and the 21-50 kW range an increase of 19.8%. Other power ranges within gaseous fueled gen-sets experienced quarterly decreases ranging from -2% to -5% in contrast to Q3 2020 where quarterly sales increases were in the range of 10% to 30%. The demand for gaseous units other than 10-50 kW has subsided from Q3 to Q4 whereas there is still a very strong demand for the residential standby gaseous fueled units in the 10-50 kW range.
Diesel fueled gen-sets experienced sharp quarterly declines across the power ranges ranging from -18% to -16% in the <10 kW and 10-20 kW range respectively and then declines of -7% to -8% in all other power ranges. This follows Q3 2020 where diesel fueled sets generally experienced low single digit increases from Q2 2020 to Q3 2020.
Looking by application, Standbys carried the recovery this quarter with a quarterly increase of 16.4%. Portables had a quarterly decrease of -2% in Q4 2020 after a Q3 2020 increase of 10%. Demand in all other application categories remained relatively flat including Temporary, Peak Shaving, Baseload, and Cogeneration compared to Q3 2020 levels. This highlights the increase in demand for Standby as consumers have started to spend in 2020.
This continued trend towards increased spending comes after a slow start to the 2020 year with the onset of the COVID-19 pandemic as well as general uncertainty and security of power supply and weather activity that has created a surge in demand for residential standby units.
In Q4 2020, dealers reported overall that inventories declined by 19.1% from Q3 2020 levels. This is significant as it represents the largest magnitude of change in quarterly inventories we have observed since starting our PowerTrackerTM survey in 1998.
The large quarterly decline in inventories for Q4 2020 follows a Q3 2020 where inventories fell 8.3%. As demand has continued to peak for residential standby units an overwhelming number of dealers reported they cannot maintain supply to meet customer demands.
Sales would most likely be higher in the 10-50 kW range for gaseous units, but dealers simply cannot obtain products to meet customer demands due to the long lead times.
Year-on-Year, inventories were down 26% in Q4 2020. This is from a Year-on-Year change of -7.9%% in Q3 2020 representing a total 18.2% shift in one quarter when considering Year-on-Year inventory levels in Q4 2020 relative to Q3 2020. Again, this seems to be due to dealers not being able to replenish needed inventories and not the case that dealers are hesitant towards placing orders for new inventory.
METHODOLOGY: Since 1998, Power Systems Research (PSR) has been continuously maintaining its PowerTrackerTM series of syndicated surveys, conducting at least 500 interviews each quarter among two key respondent groups in North America: gen-set dealers and distributors, and business consumers.
We conduct 200 interviews each quarter among dealers and distributors; the focus of this survey is on recent sales and market observations for the current quarter as well as expectations for the coming quarter.
Our Business Consumer survey consists of 300 interviews per quarter among a wide cross section of businesses to gather their input concerning ownership, usage trends and motivating factors for purchase, including any concerns about the reliability and availability of electric power.
Dealer/Distributor Outlook for Q1 2021
Expectations of quarter-to-quarter sales growth for Q1 2021 varied, depending on the power range and fuel type. Sales for diesel fueled sets are expected to be positive in the low single digits for units above 300 kW and slightly negative for units less than 300 kW.
We interpret this outlook from dealers to indicate that the declines in diesel may have bottomed out and we will start to see some leveling off (<300 kW diesel) and slight recovery (>300 kW diesel) as dealers fulfill commercial and industrial demand that has been withheld due to COVID-19 during 2020 year-to-date.
Sales expectations for gaseous fueled gen-sets are expected to range from -3% to -10% in the power ranges <50 kW. We see this as not a decrease in demand but rather a situation where current supply cannot meet current demand.
Lack of inventories and long lead times will defer sales of these units to future quarters when product is available. The outlook for gaseous fueled units above 50 kW is positive – ranging from 2% to 4% for Q1 2021 most likely reflecting a situation where there is demand and dealers feel that there will be suitable product available to meet current demand.
When asked, “Why do you expect sales to change in the upcoming quarter?” comments from dealers focused on these market observations:
- Longer lead times for gen-set delivery to dealers: Over 30% of dealers interviewed this quarter cited long lead times and lack of inventory as a reason that their sales would be affected in the upcoming quarter. The lack of available product is delaying their sales pipeline. This was most specifically targeted with the smaller end of the range for residential and some small commercial standby sets (<50 kW).
- The waiting is over: Interestingly in Q3 2020 we did not hear as much as we normally do in an election year of consumers taking a “wait and see” approach in the run-up to the presidential election. In Q4 2020, we did hear (in retrospect) that some dealers are now reporting that their customers are feeling that since the election is over and the pandemic is not so “new” any longer they are now ready to move forward with quotes and purchases.
- Weather: As we reported last quarter the weather effects are varied depending on the region of the country. The Q4 reporting period is always varied because some parts of the country see more activity during the winter months and the end of the year whereas other parts of the country see less activity during the winter months as hurricane season has passed.
When asked, “What changes have you recently noticed among particular customer groups or product categories within your market?” there were several comments that emerged as common themes. Many of these are comments that have carried from quarter to quarter, but this is a sample of some key observations:
- Significant increase in demand from residential for standby generators due to COVID-19 and general security of energy supply concerns.
- This is a repeat from last quarter but even more pronounced in Q4 2020 as inventories declined overall by 8.3% in Q3 2020 and 19.1% in Q4 2020. There is a severe shortage for gaseous fueled gen-sets <50 kW. In many cases there is a short-term demand that may result in a lost sale if they cannot guarantee shipment within a certain timeframe.
- This has generally been an older demographic but there were a few comments this quarter that indicated a wider age range of interested customers including a definite younger end of the demographic too.
- This relates back to the shortage of supply. We typically see several comments from dealers about customers shopping around and bargaining on price; in this quarter there were no comments relating to price sensitivity. If the product is available, the customers are willing to spend. PSR
Joe Zirnhelt is President and CEO of Power Systems Research
