Could Elevator & Escalators installations softness put pressure on industry growth

Our in-depth industry review & 4th UBS Evidence Lab global elevator survey (on 300 senior E&E decision makers, show that the Elevator and Escalator (E&E) industry (c.€75bn market according to our 2020 estimates) will face a modest installations recovery in 2021 (3% in unit terms) driven by sluggish fundamentals even prior toCOVID-19. Beyond 2021, demand and supply COVID-19 shocks, and the lackluster recovery could well be followed by further weakness in E&E demand driven by sluggish new building cycle fundamentals. We still expect global maintenance growth (at lower rates) driven by an expanding installed base.

The number of respondents who expect a flat or deteriorating equipment demand rising to ~50% (or 45% and 48% for services, which is ~5% and ~10% worse than the readings obtained last year). Interestingly, US respondents were actually the more stable when answering about the demand environment, although ~45% see no growth or declines, with the European respondents answering with a bearish tone vs. previous surveys, with nearly 55% of them seeing no growth or declines and with Chinese respondents also turning more cautious (~40% see no growth or declines), vs a universally positive picture painted in previous surveys. This deterioration in the Chinese E&E market, was significantly more marked in the low tier cities versus the high tier ones, which in our view is also an interesting takeaway from the survey results.

With soft growth trends for new installations, we expect the industry to heat up the battle for installed base wins to generate future service revenues. Together with potential pressures stemming from price competition, we believe brand innovation will be the key levers to drive market share gains. The 4th UBS Evidence Lab procurement survey and 3rd patent filing studies confirm a weaker growth outlook for the industry and two competitive drivers of market share gains (other than price):

1. equipment procurement tied closely with "best in class perception",
2. innovation, measured as patent filing activity does prove as a consistent tool driving brand and quality perceptions.