Xiaomi has always had a deep connection with air conditioning.
From the audacious "1 billion bet" in 2013 to the mid-year controversy of air conditioning sales being "faked", and more recently, the buzz surrounding a supposed "500,000 patent infringement compensation" that was later denied, Xiaomi’s foray into the air conditioning industry has created quite a stir, proving to be far more tumultuous than its ventures into routers and speakers.
Recently, the General Manager of Xiaomi Group's Public Relations Department, Wang Hua, revealed on Weibo that Xiaomi is set to manufacture its own air conditioners by 2025. The market was already bracing for this move, yet many still find themselves whispering, "The wolf has truly arrived," and speculating on the outcomes.
Adhering to the initial purpose of cost-effectiveness
"Thin profits, wide spreads," has long been a crucial strategy for Chinese manufacturers aiming for global dominance.
Xiaomi has mastered this concept.
Those who appreciate Xiaomi’s smartphones often dub them the "kings of cost-effectiveness", while critics derisively label them as "electronic waste".
Cost-effectiveness is ingrained in Xiaomi's DNA.
On April 25, 2018, during the launch of the Xiaomi 6X at Wuhan University, Lei Jun, the co-founder of Xiaomi, stated clearly: "The board of directors at Xiaomi has resolved from today onwards to commit to our users that the overall tax-adjusted net profit margin of our hardware businesses—including smartphones, IoT, and lifestyle products—will not exceed 5%. If it does exceed, we will return the excess to Xiaomi users in a reasonable manner."
This 5% threshold has sparked debates, but fundamentally, Xiaomi’s products consistently offer either superior parameters at the same price or lower prices for equivalent parameters.
However, this does not guarantee that Xiaomi’s products are better than competitors; after all, paper specs are only one dimension, and actual user experience matters greatly.
In its unyielding quest for unparalleled cost-effectiveness, Xiaomi has long endured mixed reviews, a trend that resonates similarly within the air conditioning sector.
The air conditioning industry: A "price butcher"
Since entering the air conditioning market in 2017, Xiaomi has experienced rapid growth with an average annual increase of around 50%, positioning itself as a disruptive force challenging the status quo held by industry giant Gree.
In fact, Xiaomi had already dipped its toes into the air conditioning waters back in 2015 when they acquired a stake in Midea, launching their first "i
Youth Smart Air Conditioner" priced at 2699 yuanHowever, it wasn't until July 2018 that the authentic Xiaomi air conditioner was introduced with the launch of the Mi Jia Internet Air Conditioner, priced at 1999 yuanThat year, Xiaomi achieved record-breaking sales of over 1 million units.
Fast forward to 2023, after several years of rapid growth, Xiaomi's air conditioner shipments exceeded 4.4 million units, securing a commendable fourth position in the industry and creating a ripple of pressure industry-wide.
So, what is the true competitive advantage of Xiaomi’s air conditioners? The answer is clear: price.
For instance, in a certain platform comparison, a 1.5-horsepower new first-level energy efficiency air conditioner from Gree or Midea costs over 2000 yuan, compared to the more budget-friendly price of around 1600 yuan for similar models from Haier and Xiaomi.
According to AVC data, by December 15, 2024, Xiaomi's air conditioner average sales price increased by 4.71% to 2353 yuan, while the average sales prices of Midea and Gree showed declines of 3187 yuan and 3540 yuan, respectively.
In today's economic climate, consumers have become significantly more price-sensitive; even a few hundred yuan difference can sway purchasing decisions, particularly among budget-conscious youth who often resist paying for "brand premiums."
Looking into specific consumption scenarios, new air conditioning purchases primarily fall into two categories: owner-occupied and rented housing.
Owner-occupied scenarios further divide into replacing old systems and renovating new homes, with replacement options being quite varied.
As for renovating new homes, contemporary consumers increasingly prioritize smart home integration, making Xiaomi’s smart ecosystem another attractive feature, alongside its established marketing and product design expertise that propels the growth of Xiaomi air conditioners.
In rental situations, most rented apartments equipped with air conditioners tend to utilize second-hand units, and when air conditioners malfunction, landlords often replace them with used models as well.
Thus, for tenants, the traditional emphasis on "quality-price ratio" favored by established air conditioning manufacturers is set aside for "cost-effectiveness".
Rapid growth, transitioning to self-research and production
The shift in consumption patterns among youth has significantly fueled Xiaomi’s air conditioning growth.
Recently, Xiaomi Group President Lu Weibing disclosed on Weibo that from January to November, sales of Xiaomi air conditioners surged by 53%. According to AVC data, Xiaomi is ranked third in market share for online air conditioner sales.
Xiaomi's quarterly reports show that air conditioner shipments exceeded 690,000 units, 3.3 million units, and 1.7 million units in Q1, Q2, and Q3, respectively, with each quarter boasting year-on-year growth of over 40%. In the first nine months of this year, Xiaomi's total air conditioner shipment surpassed 5.69 million units.
Moreover, it's noteworthy that Xiaomi established a new smart appliance research center in October, with an investment of 120 million yuan, encompassing 10,300 square meters and 47 laboratories.
In 2023, Xiaomi inaugurated an air conditioner manufacturing facility in Wuhan, projecting an annual capacity of 6 million units, which is already operational
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Many consumers have reported that their newly purchased Mi Jia air conditioners now bear the label of Xiaomi Smart Appliances (Wuhan) Co., Ltdas the manufacturer!
By the end of November this year, Xiaomi's first smart home appliance factory officially broke ground; the initial phase will focus on establishing a smart manufacturing demonstration facility for home air conditioners.
Xiaomi is gradually shedding the "OEM" label and moving towards a path of independent development.
Conclusion
A noteworthy point to ponder is whether Xiaomi's strategy of "driving prices down" comes without any trade-offs.
There’s a plethora of discussions online regarding Xiaomi air conditioners’ claims of "planned obsolescence" and "failures once out of warranty". High prices do not guarantee high quality, nor do low prices ensure lower quality, yet attaining high quality at low prices is exceptionally challenging; it all boils down to the adage, "You get what you pay for".
For the entire industrial chain, Xiaomi's entry necessitates “cost reduction and efficiency enhancement.” For specific enterprises, there may be a temporary windfall period, but from an industry perspective, persisting in a model of "thin profits and wide distributions" in a saturated market can be somewhat self-defeating; while individual companies may temporarily enlarge their slice of the pie, the overall market shrinks.
From a capital market standpoint, concepts like "fruit chain" and "Huawei concept" frequently attract attention; however, the "Xiaomi concept" seems to garner markedly less interest, reflecting the market sentiment.
Balancing cost control and technological iteration is crucial, but in the process of company growth and product updates, which holds more significance?
With Xiaomi acting as a catalyzing force, all air conditioning producers must reassess their strategic positions and industry standings in the quest for a sustainable pathway amidst sectoral changes.
