Goldman Sachs: InstallerSHOW research indicates clear long-term room for growth in the European heat pump market, but competition and installation costs remain the key constraints

Overview

This report is Goldman Sachs' conference note based on on-site research at the Birmingham InstallerSHOW on June 24, 2026, covering the European Heat Pump Association as well as HVAC, heat pump, radiator, EV charging, and energy storage-related companies such as NIBE, Viessmann, IMI, Stelrad, and Luceco. The core conclusion is that the UK and European heat pump markets have significant long-term growth potential, with policy subsidies, energy cost pressure, residential new-builds, and improved installer capabilities as the main drivers; however, the industry still faces challenges including competition from Chinese and Asian suppliers, high installation costs, high upfront consumer spending, unstable subsidy policies, and changes in channel models.

Core views

The report's core views include: first, air-to-air heat pumps, because they provide both heating and cooling, may become a market focus over the next year alongside hot weather and product innovation; second, the current penetration rate of the UK heat pump market is extremely low, and policy targets and broader subsidies support medium- to long-term demand; third, European OEMs still rely on installer and distributor channels to build competitive barriers, but D2C models and low-cost Asian products are changing the competitive landscape; fourth, NIBE benefits from the inclusion of exhaust air heat pumps in subsidy programs, but valuation and competition risks mean it remains rated Sell; fifth, IMI's Heatmiser brand, connected devices, and in-house software enhance demand pull in the residential climate control business, but the rating remains Neutral.

Analysis framework

The analysis is primarily based on Goldman Sachs' discussions with industry associations and company management, sales, and product teams during InstallerSHOW, combining market demand, policy subsidies, the installer ecosystem, channel structure, competitive landscape, product line expansion, and company valuation methods to assess industry opportunities and stock-specific implications.

Methodology notes

• Valuation methodsEV/IC vs. ROIC/WACC

  Segment relative valuation method

  NIBE's 12-month target price of SEK34 is based on a segment-relative EV/IC and ROIC/WACC methodology, using 9m27/3m28E; IMI's target price is mainly based on similar methods, with an added M&A factor.

• Valuation methodsM&A Rank

  M&A probability score

  Goldman Sachs uses an M&A framework to assess the probability that covered companies become acquisition targets, where 1 represents high probability, 2 medium probability, and 3 low probability; an M&A component can be incorporated into the target price for companies ranked 1 or 2.

• FactorGS Factor Profile

  Growth, financial returns, valuation multiples, and integrated percentile

  GS Factor Profile ranks stocks by percentile on Growth, Financial Returns, Multiple, and Integrated attributes versus the market and industry peers, and is used to supplement the investment context.

• Data toolQuantum

  Goldman Sachs proprietary financial database

  Quantum provides historical financial statements, forecasts, and ratio data, which can be used for deep single-company analysis or cross-industry comparison.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• NIBE Industrier AB

  Covered company; beneficiary related to UK heat pumps, exhaust air heat pumps, and future air-to-air products

  Strengths

  The inclusion of exhaust air heat pumps in the Boiler Upgrade Scheme is positive; it already has a 20-year operating history and installer base in the UK; it has trained about 5k installers with GTEC; it has launched D2C quotations and is considering financing solutions to lower the consumer hurdle.

  Weaknesses

  The current scale of the UK air-to-air heat pump market is very small, with limited short-term sales contribution; the heat pump market was weak in 1Q; the company is still rated Sell by Goldman Sachs.

  Comparison

  Compared with the more competitive air-to-water heat pump market, NIBE is relatively scarce among UK exhaust air heat pump suppliers; however, it faces pressure from Asia and new entrants in D2C and low-cost competition.

  Risks

  Changes in subsidy policy, the pace of recovery in the European construction market, cost improvements or M&A synergies falling short of expectations, supply chain, cost inflation, tariffs, natural gas prices, and FX changes.

• Viessmann / Carrier Global

  Viessmann is a subsidiary of Carrier Global; participates in the UK and European smart climate and energy solutions market

  Strengths

  Integrates the R&D capabilities of Carrier, Toshiba, and Viessmann; has strong brand and warranty capabilities; distribution partners include large wholesalers and national distributors; datacentre business, aftermarket, and Heat Geek investment provide growth levers.

  Weaknesses

  Faces intensifying Chinese competition and market inventory pressure; some growth comes from price rather than pure volume.

  Comparison

  Compared with Asian suppliers that mainly enter the market through D2C, Viessmann believes its distributor-based model is better aligned with UK installer purchasing habits.

  Risks

  Low-cost competition, changes in channel models, rising costs, slowing market demand, and technological substitution.

• IMI Plc

  Covered company; exposure to residential Climate Control, Heatmiser, and smart controls

  Strengths

  The Heatmiser brand has strong recognition among installers; more than 90% of purchasing decisions in the residential market are driven by installers; >1.5m connected devices and in-house software enhance user insights; smart valves are worth 4-6x manual valves.

  Weaknesses

  Changes in residential and commercial construction activity will affect Climate Control; the current rating is Neutral.

  Comparison

  Compared with peers that rely on third-party software, IMI's in-house software team is seen as a differentiating advantage.

  Risks

  Industrial production, oil prices, customer capex, truck OEM production, residential/commercial construction, cost inflation, tariffs, M&A execution, and FX risk.

• Stelrad Group plc

  Uncovered company; supplier of radiators for European central heating and low-temperature heat pump systems

  Strengths

  More than 50% share of the UK radiator market; daily production close to 15,000 units; products cover standard steel panel radiators, low-temperature heat pump system radiators, electric radiators, and designer radiators; expands into the electric heating market through DeLonghi technology.

  Weaknesses

  Switching from boilers to heat pumps may require new piping and larger radiators, raising customer costs; installer education is insufficient; interruptions in ECO funding affected market performance.

  Comparison

  Holds a leading position in European radiators, with 70% of sales through distributors and 30% through other channels and installer partnerships.

  Risks

  Lack of financial support for consumers, insufficient installer training, competition from alternative heating solutions, and raw material and supply chain risks.

• Luceco / Sync Energy

  Uncovered company; exposure to EV charging and residential/commercial energy storage

  Strengths

  About 10-12% share in the UK EV charging market; regulations require EV charging points in new homes; non-residential EV charging sales grew 80% last year to £30m; residential battery systems cost £4-6k and are relatively affordable; proprietary app and low-cost Chinese manufacturing enhance competitiveness.

  Weaknesses

  Competition in energy storage and EV charging is intense, and some mid-sized competitors are constrained by production capacity; battery cells still come from external suppliers.

  Comparison

  Compared with smaller mid-market competitors, Sync Energy benefits from Luceco group resources, relationships with wholesalers and installers, and manufacturing capacity in Jiaxing.

  Risks

  Market growth falling short of expectations, insufficient installer network, supply chain and battery cell sourcing risks, price competition, and technology iteration.

• European Heat Pump Association

  Source of industry association views

  Strengths

  Provides a framework on European heat pump policy, industry consolidation, key components, and country policy drivers.

  Weaknesses

  Not a listed investment target; its views mainly reflect the industry level.

  Comparison

  EHPA emphasizes four categories of drivers: policy, price ratios, subsidies, new builds, and installer capability.

  Risks

  Inconsistent national policies in Europe, unstable subsidy design, insufficient electrification economics, and persistently high installation costs.

Key data

• UK 2025 heat pump salesAbout 125k units, up 27% year-on-yearStill at an early stage compared with annual gas boiler sales of more than 1.8m units.
• UK household heat pump penetrationNo higher than 1%Indicates substantial long-term room for growth.
• Warm Homes Plan targetAbout 450,000 installations per year by 2030UK government policy target supports growth in heat pump installations.
• Standard Boiler Upgrade Scheme subsidy£7,500 per ASHP/GSHP systemFor consumers replacing fossil-fuel heating systems.
• Air-to-air heat pump subsidy£2,500The report states this subsidy will begin to be available later this year.
• Additional subsidy for off-grid oil/LPG homes£1,500 upliftFrom July 21, eligible homes installing ASHP/GSHP can receive additional support.
• Boiler Upgrade Scheme 2025/26 funding£295mAt the standard subsidy of £7,500, this can support about 39,333 heat pump installations.
• EHPA scale threshold viewAnnual production above 500k unitsEHPA believes competitiveness requires sufficient economies of scale.
• Compressor value shareAbout 20-25%EHPA says there are about four major global compressor suppliers, indicating high concentration in key components.
• UK air-to-air heat pump marketBelow 10% of system sales in 2025; NIBE estimates about 2.5k units/yearTraditional central heating in the UK is mainly hydronic, so the air-to-air heat pump market remains small.
• NIBE installer trainingAbout 5k installersNIBE works with GTEC to train installers in the UK.
• Viessmann UK price contributionTwo price increases of about +3% this year, with expected UK growth of about +6% coming from priceReflects rising costs and price pass-through in the industry.
• IMI connected devices>1.5m connected devices; about 600,000 Heatmiser Neo app usersThe connected ecosystem supports user insights and demand pull for smart control products.
• Stelrad market positionMore than 50% share of the UK radiator market; daily production close to 15,000 radiatorsThe company has scale and channel advantages in the European and UK radiator markets.
• Luceco EV charging market share10-12% of the roughly £500m UK EV charging marketMandatory EV charging point installation in new residential builds supports demand.

Impact & implications

From an investment perspective, the report reinforces the long-term themes of European energy transition and residential electrification, but also reminds investors that they cannot look only at demand growth; they also need to assess channel moats, installer capability, product mix, the durability of policy subsidies, and competitors' cost curves. Heat pump OEMs such as NIBE may benefit from broader subsidies and product line expansion, but Chinese and Asian competition, D2C disruption, and valuation pressure limit upside; Viessmann/Carrier may gain advantages through brand, distribution, and datacentre cooling opportunities; IMI has differentiation in smart residential controls and connected devices; Stelrad benefits from radiator retrofit demand but is constrained by installation costs and insufficient consumer education; Luceco benefits from rising penetration of EV charging and residential energy storage.

Risks

• Chinese and Asian HVAC and heat pump manufacturers are intensifying competition through low-cost, D2C, or technology-leading strategies, which could suppress European OEM margins.
• Unclear, inconsistent, or poorly designed subsidy policies could reduce consumers' willingness to switch to heat pumps.
• High installation costs, strict installer qualification requirements, and insufficient consumer education in the UK and parts of Europe could limit the speed of heat pump penetration.
• Retrofitting traditional boiler systems to heat pumps may require replacing piping and radiators, increasing customers' upfront costs.
• The rise of D2C models may weaken the channel advantages of traditional distributors and installers.
• Cost inflation, tariffs, supply chain disruption, FX, and interest rate changes may affect company profits and valuations.
• A weak construction market could drag on demand related to residential climate control, radiators, and heat pumps.

What to watch

• The pace of implementation, subsidy scope, and funding burn rate of the UK's Warm Homes Plan and Boiler Upgrade Scheme.
• Product launches, subsidy rollout, and actual installation volumes of air-to-air heat pumps in the UK and Europe.
• Orders and installer conversion for NIBE exhaust air heat pumps after the subsidy expansion in the UK.
• Progress of Viessmann/Carrier in UK datacentre cooling, the Heat Geek system platform, and air-to-air heat pump expansion.
• Pricing, channel, and technology competition strategies of Chinese, Daikin, Mitsubishi, Samsung, and other Asian manufacturers in Europe.
• The number of installer training programs, changes in installation costs, and the speed at which distributor channels adopt new products.
• Demand for Stelrad low-temperature and electric radiators, and whether Luceco's EV charging and residential energy storage growth materializes.