Xiaomi snatches 10% of the air conditioning market share? Goldman Sachs: Midea is resilient, GREE is most vulnerable to impact

Goldman Sachs believes that Xiaomi is launching a new offensive in the Chinese air conditioning market, expecting its market share to rise to about 10% in the medium term.

According to a report from the Wind Trading Desk on September 15, Goldman Sachs pointed out that Xiaomi, the "catfish" in the Chinese home appliance market, is stirring up waves in the air conditioning sector, with an expected market share increase to about 10% by 2026. The essence of this competition is not merely a price war, but a comprehensive showdown of supply chain, manufacturing, channel, and ecosystem efficiency.

The report analyzes that Midea Group, with its globally leading manufacturing advantages and continuously optimized channel efficiency, is seen as the most resilient participant, even expected to further expand its market share.

In contrast, GREE, which heavily relies on its domestic air conditioning business, has the highest product premium and a relatively slow response strategy, is identified by Goldman Sachs as the giant most vulnerable to impact, leading to a downgrade of its rating from "Buy" to "Neutral."

Xiaomi, leveraging its ecosystem and distribution efficiency, is expected to become a solid leader in the second tier. In short, the market is rewarding players that are more efficient and adaptable.

New Battlefield: Xiaomi Strikes Hard, Disturbing the High-Profit Air Conditioning Market

The Chinese split air conditioning market has long been a "hot cake" — the market is highly concentrated, leading companies enjoy high profits, and supply and demand are balanced.

From 2019 to 2024, the industry's revenue compound annual growth rate (CAGR) is 4%, while manufacturers' net profit CAGR is as high as 8%, with the total profit pool growing from 22 billion yuan to 32 billion yuan.

The gross profit margins of leading companies Midea and GREE are significantly higher than those of second-tier companies, thanks to their advantages in manufacturing and more efficient distribution networks. Midea and GREE together accounted for 68% of revenue and an astonishing 91% of industry profits in 2024.

However, since 2023, Xiaomi has been making strides in the air conditioning market.

This is driven by Xiaomi's strategic consideration of building a "people, car, home" ecosystem, as well as its recognition of this huge and steadily growing profit pie. Xiaomi's strategy is very clear: to break through with high cost-performance entry-level products.

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

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

Giants Strike Back: Midea and Haier Actively Respond, GREE Reacts Slowly

In the face of Xiaomi's rapid offensive, the responses from traditional white goods giants have diverged.

Midea, Haier, and Hisense have redesigned entry-level products and launched competitive products through their mass-market brands (respectively, Hualing, Leader, and Kelon) that are comparable to Xiaomi in terms of price and functionality.

This proactive counterattack has effectively curbed Xiaomi's expansion momentum. Data shows that since December 2024, Xiaomi's online share has stabilized at around 15%, while Midea and Haier's shares have increased from 32% and 12% to 37% and 14%, respectively (as of June 2025). **

In contrast, GREE's product and pricing strategy appears to be less aggressive.

As a result, its online market share continued to decline from 18% in December 2024 to 17% in June 2025.

The Nature of Competition: A Comprehensive Showdown of Supply Chain Efficiency vs. Distribution Efficiency

Goldman Sachs points out that this competition appears to be a price war on the surface, but at its core, it is a showdown of efficiency across the entire industry chain. Both sides are trying to win market share by offering the best cost-performance ratio products:

The Moat of Traditional Giants:

• Traditional giants led by Midea have deep barriers in supply chain and manufacturing efficiency. This is reflected in their higher gross profit margins (GPM), economies of scale, vertical integration capabilities, and ongoing investments in automation and digitalization.

Xiaomi's Core Advantage:

• Xiaomi's competitiveness lies in its distribution efficiency and ecosystem empowerment. It primarily sells online, reducing distribution layers.

• At the same time, a large existing user base lowers customer acquisition costs. Although online channels account for only half of total air conditioning sales, Xiaomi plans to expand its offline "Xiaomi Home" stores through a light asset model (reaching 17,000 stores by June 2025) to support its premium strategy.

It is worth noting that both sides are addressing their shortcomings.

Xiaomi is enhancing manufacturing efficiency by building its first factory in Wuhan, which is expected to be operational by the end of 2025. The company is also committed to increasing vertical integration, including independently designing condensers and evaporators and investing in Sanhua Intelligent Control.

On the other hand, Midea is continuously pushing for channel reform, especially in offline channels. Midea is reducing the number of SKUs, unifying online/offline SKUs, and ensuring that offline distributors/retailers do not bear high inventory and corresponding warehousing/logistics costs, which are centralized by Midea's logistics.

Scenario Analysis: Midea is the Most Resilient, GREE is the Most Vulnerable

Goldman Sachs has constructed four scenarios to assess the impact of competition.

In the "base scenario," Goldman Sachs expects:

• Xiaomi will launch products with the same functionality at 7% below the market average due to its efficiency advantage, ultimately capturing about 10% of the market share by 2026.

• To remain competitive, the entire industry's prices will be forced to decline, leading to a 6% decrease in total industry profits compared to 2024.

In this scenario, the performance of different companies may vary:

Midea Group (Most Resilient):

• With its strong bargaining power and efficient channels, Goldman Sachs expects Midea to pass most of the price reduction pressure onto the supply chain and distributors. Its market share growth will be sufficient to offset the pressure from price declines, resulting in moderate profit growth.

GREE Electric (Most Vulnerable):

• Firstly, its business is highly concentrated in the domestic split air conditioning market, which contributed 51% of the company's revenue and 56% of its profits in 2024 (compared to Midea's 21%/29%)

• Secondly, GREE's products have an industry-high premium of up to 29%, making it an easier target in price wars.

• Finally, its distributors' profit margin of 10% is already lower than the industry average of 14%, leaving limited room for further compression, which means GREE itself needs to bear more profit losses.

In summary, Xiaomi's entry is forcing the air conditioning industry into an era where efficiency is king. For investors, identifying companies with core efficiency advantages that can actively adapt to changes will be key to navigating this industry upheaval