Goldman Sachs believes Xiaomi is launching a fresh assault on China's air conditioning market, projecting its market share will climb to approximately 10% over the medium term.

According to a Goldman Sachs research report released on September 15, Xiaomi, the "disruptor" in China's home appliance market, is creating significant waves in the air conditioning sector, with market share expected to reach around 10% by 2026. This competitive battle fundamentally represents not merely a price war, but a comprehensive confrontation involving supply chain efficiency, manufacturing capabilities, distribution channels, and ecosystem integration.

The research analysis suggests that Midea Group, leveraging its globally leading manufacturing advantages and continuously optimized channel efficiency, is viewed as the most resilient participant and may even expand its market share further.

In contrast, Gree Electric Appliances,Inc.Of Zhuhai, which heavily depends on domestic air conditioning operations, commands the highest product premiums, and has shown relatively sluggish response strategies, is identified by Goldman Sachs as the most vulnerable industry giant. Consequently, the investment bank downgraded its rating from "Buy" to "Neutral."

Xiaomi, through its ecosystem and distribution efficiency, is positioned to become a solid leader in the second tier. Simply put, the market is rewarding players with higher efficiency and stronger adaptability.

**New Battleground: Xiaomi's Aggressive Push Disrupts High-Profit Air Conditioning Market**

China's split-type air conditioning market has long been a lucrative sector—highly concentrated with leading companies enjoying substantial profits and balanced supply-demand dynamics.

From 2019 to 2024, the industry's revenue compound annual growth rate was 4%, while manufacturers' net profit compound annual growth rate reached 8%, with the total profit pool expanding from 22 billion yuan to 32 billion yuan.

Leading companies Midea and Gree Electric maintained significantly higher gross margins than second-tier competitors, benefiting from manufacturing advantages and more efficient distribution networks. Midea and Gree Electric together captured 68% of industry revenue and a remarkable 91% of industry profits in 2024.

However, since 2023, Xiaomi has intensified its focus on the air conditioning market.

This strategy reflects both Xiaomi's strategic consideration to build a comprehensive "people, vehicles, home" ecosystem and its recognition of this substantial and steadily growing profit opportunity. Xiaomi's approach is clearly defined: using high value-for-money entry-level products as the breakthrough point.

Data shows that in 2023 and 2024, products priced below 3,000 yuan accounted for 75% and 66% of Xiaomi's online sales respectively, significantly higher than the industry averages of 42% and 39%.

Through this strategy, Xiaomi's online market share surged from 7% in January 2023 to 15% in December 2024.

**Giants Strike Back: Midea and Haier Actively Respond, Gree Electric Reacts Slowly**

Facing Xiaomi's aggressive offensive, traditional white goods giants have shown divergent responses.

Midea, Haier, and Hisense redesigned entry-level products and launched competitive offerings through their mass-market brands (Hualing, Leader, and Kelon respectively) that match Xiaomi's pricing and functionality.

This proactive counterattack effectively contained Xiaomi's expansion momentum. Data indicates that since December 2024, Xiaomi's online share has stabilized around 15%, while Midea and Haier's shares increased from 32% and 12% to 37% and 14% respectively during the same period (as of June 2025).

Comparatively, Gree Electric's product and pricing strategies appear insufficiently aggressive.

Consequently, after continuous online share losses in 2023-2024, its market share slightly declined from 18% in December 2024 to 17% in June 2025.

**Competition Essence: Supply Chain Efficiency vs. Distribution Efficiency Comprehensive Battle**

Goldman Sachs notes that while this competition appears to be a price war on the surface, its core represents a battle of entire industrial chain efficiency. Both sides attempt to win market share by offering optimal value-for-money products:

**Traditional Giants' Moats:** - Traditional giants led by Midea possess deep competitive barriers in supply chain and manufacturing efficiency. This is reflected in higher gross profit margins (GPM), economies of scale, vertical integration capabilities, and continuous investment in automation and digitalization.

**Xiaomi's Core Advantages:** - Xiaomi's competitiveness lies in its distribution efficiency and ecosystem empowerment. It primarily sells through online channels, reducing distribution layers. - Simultaneously, its large existing user base reduces customer acquisition costs. Although online channels account for only half of total air conditioning sales, Xiaomi has planned to expand offline "Xiaomi Home" stores through an asset-light model (reaching 17,000 stores as of June 2025) to support its premium strategy.

Notably, both sides are addressing their respective weaknesses.

Xiaomi is enhancing manufacturing efficiency by building its first factory in Wuhan, expected to commence production by the end of 2025. The company is also committed to improving vertical integration, including independently designing condensers and evaporators and investing in Sanhua Intelligent Controls.

Meanwhile, Midea continues promoting channel reforms, particularly in offline channels. Midea reduces SKU numbers, unifies online/offline SKUs, allowing offline dealers/retailers to avoid high inventory burdens and corresponding warehousing/logistics costs, with these functions centrally handled by Midea's Ande Logistics.

**Scenario Analysis: Midea Most Resilient, Gree Electric Most Vulnerable**

Goldman Sachs constructed four scenarios to assess competitive impacts.

In the "base case scenario," Goldman Sachs expects: - Xiaomi will leverage efficiency advantages to launch products with identical functions priced 7% below market average, ultimately capturing approximately 10% market share by 2026. - To maintain competitiveness, industry-wide prices will be forced downward, leading to a 6% decline in total industry profits compared to 2024.

Under this scenario, different companies may perform differently:

**Midea Group (Most Resilient):** - Leveraging strong bargaining power and efficient channels, Goldman Sachs expects Midea can transfer most price reduction pressure to supply chains and distributors. Its market share growth will sufficiently offset price decline pressure, achieving moderate profit growth.

**Gree Electric Appliances,Inc.Of Zhuhai (Most Vulnerable):** - First, its business is highly concentrated in domestic split-type air conditioning markets, contributing 51% of company revenue and 56% of profits in 2024 (compared to Midea's 21%/29%). - Second, Gree Electric commands the industry's highest premium of 29%, making it more vulnerable in price wars. - Finally, its distributors' 10% profit margin is already below peers' 14%, limiting further compression space, meaning Gree Electric itself must absorb more profit losses.

In summary, Xiaomi's market entry is forcing the air conditioning industry into an efficiency-driven era. For investors, identifying companies with core efficiency advantages and ability to actively adapt to changes will be key to navigating this industry transformation.