Air conditioning: record heatwaves fuel second wind for makers

Cool air is in hot demand. Even before the start of summer, Asia has experienced record temperatures that climbed as high as 49C. As rising incomes allow more people to alleviate the misery, air conditioning manufacturers can expect a surge in sales.

Japanese officials on Friday expressed concern over the number of deaths due to heatstroke in recent years. In Tokyo, about 90 per cent of those who died last summer had not used air conditioning, according to the government. It wants to set up cooling shelters and encourage the elderly to use air conditioning.

Singapore, India, Vietnam and Thailand have faced similar issues as they endured scorching temperatures this year. The answer has been simple: buy more air conditioners.

Longer term, it is not so straightforward. Cooling is warming. Globally, the use of air conditioners and electric fans accounts for about a tenth of all electricity usage. Much of that is sourced from fossil fuels in Asia, releasing carbon dioxide that heats the atmosphere. Nonetheless, the risks to people’s lives and economic productivity require urgent solutions, even if they aggravate the underlying problem.

Manufacturers have been under the weather recently. Shares of the largest Chinese makers Midea and Gree have halved from a 2021 peak. Midea trades at 11 times forward earnings, less than half the levels three years ago. The pair, along with local peer Haier Smart Home, did well for many years as average Chinese household income surpassed $10,000 in 2011. But their growth stagnated as the largest cities reached saturation. Japan’s Daikin and South Korea’s LG reached that point much earlier.

Households typically need an average income of $10,000 to afford air conditioning. That excludes many of those worst hit by rising temperatures. Nonetheless, a growing middle class in South Asia will stoke demand for cool air. Expect that to lift the fortunes of equipment makers.