How to view the rise and impact of Xiaomi's major appliances?

Report Overview

Building a Human-Vehicle-Home Ecosystem, Xiaomi's Major Appliances Make Rapid Breakthroughs

Since its establishment in 2010, Xiaomi Corporation has been committed to innovative businesses such as smartphones, IoT and consumer products, and smart electric vehicles, and was listed in 2018. With excellent cost-performance ratio and leading smart interconnection technology, it has driven the shipment and revenue growth of products such as air conditioners, refrigerators, and washing machines. In 2024, the revenue from IoT and consumer products, where Xiaomi's major appliances business resides, will account for 28.45% of the company's total revenue. Xiaomi's smart major appliances business continues to maintain rapid growth, with air conditioner shipments exceeding 6.8 million units, a year-on-year growth rate of over 50%, refrigerator shipments exceeding 2.7 million units, a year-on-year growth rate of over 30%, and washing machine shipments exceeding 1.9 million units, a year-on-year growth rate of over 45%. Strategically, Xiaomi proposed the "Human-Vehicle-Home Ecosystem" strategy in 2023, integrating mobile phones, home appliances, and vehicles through the Pengpai OS system to promote seamless connectivity of smart hardware. At the same time, Xiaomi has increased investments in offline channels and the supply chain, expanded smart appliance factories and research centers, further enhancing its self-production capacity. These measures indicate that Xiaomi's appliance business is deeply integrated with the group's overall ecosystem strategy, supporting sustainable growth in the future.

Rise: Three Major Strategies Work Together to Drive High Growth in the Appliance Business

Xiaomi Corporation's market share in major appliances has rapidly increased, not only due to its low-price strategy that aligns with cautious market consumption but also thanks to the following points: 1) Creating Best-Sellers: New products like air conditioners launched by Xiaomi maintain a simple SKU; leveraging Lei Jun's personal IP and other products from the group to drive traffic and increase brand exposure; designing more innovative products to attract young consumers. 2) Differentiated Competition: Xiaomi's appliances leverage high cost-performance ratio and a unique AIoT ecosystem to enhance product experience through smart interconnection technology. 3) User Stickiness: Drawing on Apple's smart ecosystem experience, Xiaomi enhances user stickiness and market competitiveness by creating a highly collaborative ecosystem.

Impact: Leading Brand Advantages Remain, Xiaomi's Entry Sparks Transformation

Xiaomi has quickly risen to the forefront of the air conditioning industry by adopting a low-price differentiation strategy similar to AUX, attracting a large number of price-sensitive consumers who also pursue quality. However, AUX has seen its market share rapidly decline due to weak profitability amid fierce price competition, exposing the limitations of its low-price strategy. In contrast, Gree and Midea focus more on profitability and the mid-to-high-end market; although their short-term market share has declined, they still maintain strong competitiveness. Overall, while Xiaomi's rise has impacted the market, it primarily focuses on the low-price segment, and future breakthroughs will require an enhancement of overall product positioning and continuous user recognition. Conversely, leading air conditioning brands have seen a rebound in market share driven by the old-for-new policy, indicating that they can still maintain their dominant market position in an improving consumer environment. Xiaomi's entry can stimulate industry leaders to actively seek transformation, further learn from Xiaomi, and optimize their own operational strategies, potentially bringing new vitality to the industry Report Body

Overview: Building a Human-Vehicle-Home Ecosystem, Xiaomi's Rapid Breakthrough in Major Appliances

Xiaomi Corporation was established in 2010 and went public on the Hong Kong Stock Exchange on July 9, 2018. It is a technology company focused on innovative businesses such as smartphones, IoT and consumer products, and smart electric vehicles. Since its establishment over a decade ago, Xiaomi has been committed to providing consumers with "heartwarming, reasonably priced" quality products, allowing everyone around the world to enjoy the wonderful life brought by technology. In the home appliance sector, Xiaomi has also become one of the most representative companies in the industry due to its excellent cost-performance ratio. The company is not only competitive in pricing but also leads the industry in whole-home smart interconnection technology. Xiaomi's major appliance business is categorized under IoT and consumer products, with revenue from IoT and consumer products accounting for 28.45% of total revenue in 2024. In recent years, revenue from IoT and consumer products has been growing year by year, reaching a historical high in 2024. In 2024, Xiaomi's smart major appliance business continued its rapid growth momentum, with air conditioning product shipments exceeding 6.8 million units, a year-on-year growth rate of over 50%, refrigerator shipments exceeding 2.7 million units, a year-on-year growth rate of over 30%, and washing machine shipments exceeding 1.9 million units, a year-on-year growth rate of over 45%. In terms of profitability, the overall gross margin of the IoT and consumer products segment in 2024 is 20.3%, an increase of 3.9 percentage points year-on-year. However, Chairman Lei Jun promised at the new product launch in April 2018 that "Xiaomi's hardware comprehensive net profit margin will never exceed 5%. Any excess will be fully returned to users." It is expected that the overall net profit margin of the major appliance segment will not exceed 5%.

Group Strategy Upgrade to "Human-Vehicle-Home Full Ecosystem"

In October 2023, Xiaomi Corporation announced a strategic upgrade, officially launching the "Human-Vehicle-Home Full Ecosystem" strategy. This strategy positions Xiaomi's Surge OS as the key to supporting the new strategy, centering on people and organically integrating the "Human-Vehicle-Home Full Ecosystem." This marks that Xiaomi not only includes its home appliance business in its future development blueprint but also assigns equal importance to home appliances alongside other core businesses of the group. The home appliance business is seen as a key link in further developing Xiaomi's ecosystem, achieving deep integration with Xiaomi's smart hardware, internet services, and new energy vehicles, further promoting the seamless connection of smart homes and smart mobility.

In line with the company's human-vehicle-home ecosystem framework, the company further optimizes its channel layout and supply chain system. In terms of channels, the company has historically focused on online channels, but in recent years, Xiaomi has been making continuous efforts in offline channels, with 2024 seen as a key year for Xiaomi's new retail expansion and full ecosystem upgrade According to the company's annual report, the number of Xiaomi's offline retail stores in mainland China has increased from over 10,000 in 2022 to over 15,000 in 2024, further proving Xiaomi's deep cultivation and expansion in offline channels. In addition, Xiaomi Group President Lu Weibing announced on Weibo in November 2024 that one of the group's main goals is to open more than 100 "integrated stores for people, vehicles, and homes," each with an area of over 500 square meters. These integrated stores will not only showcase Xiaomi's full range of products but also deeply integrate diversified businesses such as home appliances, smart hardware, and automobiles, demonstrating the comprehensive services of the Xiaomi ecosystem.

From the supply chain perspective, in November 2024, Xiaomi's smart home appliance factory officially broke ground, marking the third smart factory built by Xiaomi Group following the automotive super factory and the smartphone smart factory, signifying the completion of Xiaomi's "integrated ecosystem for people, vehicles, and homes" strategy in the large self-built smart factory sector. Additionally, on October 24, Xiaomi's major appliance department invested 120 million RMB to establish the Xiaomi Smart Home Appliance Experimental Center, covering an area of over 10,000 square meters with a total of 47 laboratories. Thanks to the company's continuous investment in research and development, in October 2024, the company introduced a series of products featuring technological and form innovations, including the Mi Air Conditioner Pro 1.5 HP with ultra-first-level energy efficiency, the Mi Washing Machine with dual-zone washing and drying, and the Mi Refrigerator with separate storage for fresh Pro cross-crystal 508L. This series of industrial chain expansion measures further highlights Xiaomi's emphasis on the home appliance business, and by enhancing self-production capacity, it can reduce reliance on upstream OEMs, thereby helping to strengthen the company's competitive advantage in the industrial chain.

White Goods: Resonance of Internal and External Factors, Market Share Increase

Due to the single function and slow iteration speed of air conditioning products, consumers are increasingly inclined to consider the core functions of products when choosing air conditioners. This consumption trend has driven the expansion of low-priced air conditioning products in the market. From the sales share, it can be observed that the sales share of air conditioners priced below 2,100 RMB online in 2024 has increased year-on-year. As a brand positioned for cost-effectiveness, Xiaomi has quickly increased its air conditioner market share by leveraging industry dividends, with its online sales market share rising by 10.50 percentage points since 2020.

Adapting to Consumer Trends, Focusing on Low Price Segment

There is a significant difference between Xiaomi and leading white goods brands in the air conditioning price segment, with Xiaomi's online air conditioner average price around 2,300 yuan, which is markedly different from other brands in the industry. Additionally, according to AVC, Xiaomi's online market share for air conditioners is mainly concentrated in the 1,800-2,100 yuan price range.

From a product perspective, the differences in basic parameters among air conditioner brands are relatively small, making it difficult for consumers to clearly distinguish product differences when choosing. Xiaomi's advantage compared to leading brands mainly lies in its significant price advantage. On JD.com, Xiaomi's first-level energy efficiency air conditioners are cheaper by 570 yuan and 270 yuan compared to Gree and Midea, respectively, making them affordable and offering high cost-performance, quickly attracting price-sensitive consumers. Compared to brands in the same price range, Xiaomi has further strengthened its differentiated competitiveness through its unique "full ecosystem of people, vehicles, and home" strategy and the Surge OS operating system. Xiaomi not only offers air conditioners as a single product but also seamlessly connects air conditioners with other smart devices (such as Xiaomi speakers, smart locks, etc.) through its smart home system, creating an interconnected whole-home smart ecosystem. With the Xiao Ai voice assistant and smart systems like Xiaomi SU7, consumers can easily control home appliances, including air conditioners, achieving a more convenient and intelligent living experience. This ecological service model allows Xiaomi air conditioners to stand out in the market, not only meeting consumers' demand for cost-performance but also enhancing the brand's appeal in intelligence, creating a unique competitive advantage in the fiercely competitive air conditioning market.

Selected Product SKUs, Driving Efficient Growth

Xiaomi's strategy is to create best-selling products through a small number of SKUs, brand traffic, and innovative designs. According to AVC, the company has introduced fewer than 20 new SKUs each year since 2022, significantly fewer than other brands in the market, while its main selling models' sales contribution rate is also at an industry-leading level, with the Top 1 model's share reaching 36.5% in 2024. The advantage of this approach lies in leveraging scale effects to enhance supply chain efficiency, reduce operational and production costs, and facilitate in-depth refinement of core products, improving product quality and brand recognition. A limited number of SKUs also allows for more concentrated marketing resources and more efficient after-sales service. This strategy optimizes internal management, creating an efficient competitive advantage for the company.

Xiaomi's other products in the white goods sector continue the same strategy as its air conditioners, achieving differentiated competition with other market brands through streamlined SKUs and lower average prices. For example, in 2024, the online average price of Xiaomi refrigerators is 1,560 yuan, significantly lower than the average price range of other major brands in the market (approximately 2,500-3,000 yuan).

Moreover, Xiaomi's product launch events attract a high level of attention, especially with the public's anticipation for Xiaomi cars, making these events key points for driving traffic. According to Baidu's search index, the search index for "Xiaomi SU7" during the Xiaomi car launch event on March 28, 2024, reached 336,500; the search index for "Xiaomi" during the Xiaomi 15 series smartphone launch on October 29 was 293,500; and the search index for "Lei Jun" increased by 152% year-on-year in 2024. This not only significantly enhances the overall brand awareness of Xiaomi but also brings more traffic and attention to its other product lines, including home appliances. Additionally, Lei Jun has a large fan base on platforms like Douyin and Weibo, with a prominent personal IP influence that can continuously attract user interest in the Xiaomi brand and effectively drive targeted traffic to Xiaomi's home appliance business, further strengthening market competitiveness and brand influence.

At the product launch event on October 28, 2024, Xiaomi continued its overall strategy by introducing the Xiaomi SU7 Ultra and Xiaomi 15 smartphones to drive traffic to its home appliance products. One of the highlights of the home appliances at this launch event was the new air conditioner and washing machine products introduced by Xiaomi, which sparked widespread attention in the industry due to their innovative designs. The air conditioner features a unique upward airflow design that effectively avoids the discomfort caused by direct blowing of cold air. According to Taobao, several stores with the keyword "air conditioner wind deflector" have annual sales in the hundreds of thousands, indicating that consumer demand for solutions to the discomfort of direct cold air remains strong. Xiaomi has filled this industry pain point for the first time. Meanwhile, the Xiaomi washing machine adopts an innovative design with two tubs, using standard sizes that allow for dual-zone washing without needing to expand space. The small tub is for medical-grade underwear health washing, while the large tub is a high-capacity 10kg drum. This dual-zone washing and drying washing machine won the Special Award at the 76th Nuremberg International Inventors' Fair in Germany. Xiaomi has always emphasized design, and its air conditioners have intuitive differences from other brands, including the KFR-35GW/N1A1 round LED display and the curved outdoor unit, which are technologically appealing and more in line with young people's aesthetics, having won the Red Dot International Design Award as early as 2022 Xiaomi's innovative design further highlights the company's capability for innovation in the home appliance sector, bringing users a more comfortable and user-friendly experience. The two new products launched at the conference are expected to become "explosive products" for Xiaomi in the future.

Building a Smart Ecosystem to Enhance User Stickiness

According to a report released by the market research firm Consumer Intelligence Research Partners (CIRP), in the fourth quarter of 2023, among users who had purchased Apple products, 91% owned an iPhone, 75% owned an iPad, 66% owned an Apple Watch, and 54% owned a Mac computer. Apple has a wide and diverse hardware ecosystem that includes a range of devices from iPhones to Mac computers, each category attracting a specific user group. These users not only demonstrate a high level of brand loyalty but also tend to continue using Apple's subsequent iterative products and further purchase other products within the Apple ecosystem. Xiaomi's strategy in this regard bears a clear resemblance to Apple's. Xiaomi not only draws on Apple's ecosystem model but also incorporates areas such as automobiles and smart home appliances that Apple has not ventured into. According to Xiaomi Group's annual report, from 2019 to 2024, the connection volume of Xiaomi AIoT devices has increased by 669 million units. Brand stickiness is one of the key factors for its success. To better experience the ecological synergy among hardware, many "Mi fans" actively repurchase Xiaomi products, ultimately forming a situation where they are deeply bound to the Xiaomi ecosystem.

Black Appliances: Demand Structure Upgrade, Dual Brands Stabilizing Market Share

In 2024, Xiaomi's color TVs ranked fifth globally with a market share of 5.1% in global shipments. Notably, in recent years, the market share of Mini LED TVs has shown rapid growth, becoming the fastest-growing technology among all TV technologies. In 2024, the sales volume share of Mini LED in China reached 18.0%, demonstrating its strong market performance. Although Xiaomi only entered the Mini LED market in 2023, by 2024, its shipments had surpassed one million units, successfully ranking third in Mini LED TV shipments and becoming an important player in this niche market.

From a product perspective, Xiaomi Corporation has two television brands: Xiaomi and Redmi. The average price of Xiaomi TVs has been steadily rising in recent years, especially in the mid-to-high-end price segment, where its market share is gradually expanding, reflecting the company's increasing focus on profit growth and high-end brand positioning in its product strategy. Meanwhile, Redmi TVs maintain a mid-to-low-end brand image, continuing to launch affordable mid-to-low-end television products in an effort to capture a broader market share. By enriching its product line in the mid-to-low-end price segment, Redmi meets the needs of a large consumer group that is highly sensitive to price, thereby seizing more market space and further consolidating its advantage in the cost-performance sector.

Impact: Leading Brand Advantage Remains, Xiaomi's Entry Sparks Change

With its unique strategic layout and market operations, Xiaomi has successfully risen to the forefront of the air conditioning industry by August 2024. This achievement is remarkable and has drawn considerable attention and concern from investors, especially against the backdrop of increasingly fierce competition in the air conditioning industry, leading many to worry about the potential onset of a new round of "price wars." To better understand the current competitive landscape of the air conditioning market and the possible trends for future evolution, this chapter will analyze and interpret the current competitive situation and future development trajectory of the air conditioning industry by reviewing the performance of AUX during the 2019 air conditioning price war.

Referring to AUX, exploring Xiaomi's impact trends from 2014 to the first half of 2019, the key brand AUX once held a leading position in the industry. Its success was primarily due to significant optimization of its product structure, particularly in the variable frequency air conditioning sector. AUX increased the retail volume share of variable frequency air conditioners, achieving nearly a 30% increase in the average online product price, making it one of the brands with the most noticeable product upgrades. This strategy effectively enhanced its market competitiveness, allowing it to quickly emerge in the industry. Specifically, in the early stages of the e-commerce market expansion, the differences in product structure between leading brands and small-to-medium brands were very significant. Leading companies such as Gree, Midea, Haier, and Hisense had a variable frequency product share exceeding 50% in their online sales, while key brands generally had a variable frequency product share below 20%. Leading brands vigorously developed e-commerce channels, not only successfully activating the online air conditioning market but also promoting the upgrade of the product structure in the online market. In response to this consumer trend, AUX did not choose to stick to the low-end market to maintain short-term price advantages but decisively adjusted its strategy to actively increase the share of variable frequency products to capture a broader market share. This strategy allowed AUX to gradually stand out in the competition. Meanwhile, other key brands maintained a structure dominated by low-end products until 2016, failing to timely implement effective product upgrades. It was not until 2016 that many brands began to gradually increase the share of variable frequency products, but by then, their disadvantages had become very apparent, and with the intensification of market competition, brand competitiveness had also significantly declined

AUX has a significant price advantage compared to traditional leading brands, while it shows a unique structural advantage compared to small and medium-sized brands. Overall, when most small and medium-sized brands are still focused on the low-end low-price market, and traditional leading brands continue to adhere to the high-end high-price route, AUX decisively chose the "mid/high-end low price" strategy. This uniquely differentiated competitive strategy has successfully helped AUX stand out in the fiercely competitive e-commerce platforms, attracting a large number of price-sensitive consumers who pursue quality. It is worth noting that AUX's "mid/high-end low price" strategy is quite similar to Xiaomi's philosophy of "affordable products that touch people's hearts." This differentiated competition is also Xiaomi's current strategy, which has a price advantage compared to leading brands; compared to key brands, its advantage lies in the potential user base of Xiaomi smartphones and cars, as well as the multi-scenario interconnection and mutual empowerment achieved by the Surge OS system between "people, cars, and homes."

AUX air conditioners have secured a place in the market with their differentiated competitive strategy, and their parent company, AUX Group Co., Ltd., saw continuous revenue growth before 2019. However, the rise of AUX air conditioners has not been smooth, as their profitability has always been at a relatively low level. Analyzing the financial data of the parent company shows that Samsung Medical, as an important part of the group, has performed relatively well, maintaining a net profit margin of over 10% for many years. However, it is noteworthy that despite Samsung Medical's strong performance, the overall profitability of the group has shown significant fluctuations in recent years. If we exclude the positive contribution from Samsung Medical, AUX Group's profitability shows a continuous downward trend, indicating that the operational pressure and challenges in the air conditioning business segment are gradually increasing due to low prices.

Therefore, as Midea Group launched a more aggressive pricing strategy after March 2019, AUX air conditioner's market share experienced a significant decline. Midea Group systematically lowered its online average price by more than 20% in the first half of 2019. Gree followed suit and began to intensify its pricing strategy. Due to AUX's relatively weak financial situation and lack of sufficient financial flexibility to cope with fierce price competition, its former market-leading advantage has become particularly fragile. In this price game, AUX's sales volume market share plummeted from a high of 31.42% in week 23 of 2019 to 16.88% in the first week of 2020

From the above analysis, it can be seen that leading air conditioning companies have sufficient resources and competitiveness to cope with market pricing strategies. Compared to the "price war" recognized in the market in 2019, the current situation is more about meeting the trend of tightening consumer spending, and overall, the extent of price decline is limited. According to monthly data for 2024, the sales prices of leading air conditioning brands have only seen a slight single-digit decline year-on-year, and the impact on the profitability of leading companies is expected to be limited.

Impact of Demand Structure, Leading Advantages Remain

Cautious Demand, Leading Companies Focus on Profit Quality

In the face of Xiaomi's rapid increase in market share, why do leading companies appear so calm? On one hand, we believe that industry leaders pay more attention to profit quality. According to Aowei data, Gree and Midea have not shown a significant downward price trend in their air conditioning products in recent years. From the perspective of net profit attributable to shareholders of the parent company after deducting non-recurring gains and losses, the net profit level of leading companies has maintained an upward trend.

Support from National Subsidy Policies, Leading Shares Rapidly Rebound

On the other hand, since the nationwide implementation of the old-for-new policy in September 2024, the sales share of Gree and Midea's air conditioners has rebounded, indicating that leading companies in the air conditioning industry still possess strong brand influence. In recent years, although their market share has declined, this is mainly due to consumers' overall cautious consumption attitude rather than a decline in product competitiveness. From the market performance across different price segments online, Gree still holds a leading position in the mid-to-high-end price segment. Therefore, we believe that, at this stage, Xiaomi's entry will have a relatively limited impact on the market landscape. In response, leading companies are also actively transforming and optimizing, learning and enhancing their capabilities from multiple dimensions such as products and marketing.

Author of this article: Chen Liang, Source: Changjiang Securities, Original Title: "How to View the Rise and Impact of Xiaomi's Major Appliances?"

Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances Invest based on this, and you bear the responsibility