Midea’s European AC hit boosts sales, but AI push still lacks payoff
Midea Group is experiencing a stark operational contrast in 2026, driven by a sudden surge in European air conditioner exports amid record heatwaves, while its strategic transition into artificial intelligence and new growth sectors faces slower-than-expected progress.
A severe 40°C heatwave across Europe has triggered massive demand for Midea’s specialized PortaSplit mobile air conditioners, leading to sold-out inventories and secondary market premiums in Germany, France, and Spain. The unexpected export boom briefly pushed the company’s valuation higher before stabilizing at a market capitalization of approximately RMB 589.3 billion (US$81.8 billion) by early July 2026.
Despite the overseas success, the appliance giant is grappling with a cooling domestic market and a 14.02% drop in first-quarter non-GAAP net profit. In response, management has accelerated its AI integration, recently signing strategic partnerships with major tech firms to embed AI agents into household devices, though immediate impacts on product revenue remain limited.
As the traditional white goods sector reaches a saturation point, investors are closely watching whether the company's planned RMB 60 billion (US$8.3 billion) research investment over the next three years can successfully establish a viable second growth curve beyond its core manufacturing business.
European Heatwave Drives Export Boom
The recent sales spike in Europe is largely attributed to a combination of extreme weather and targeted product design. With temperatures breaking historical records in countries where household air conditioning penetration has traditionally hovered between 5% and 20%, European consumers are rapidly altering their purchasing habits.
Midea capitalized on this shift through its PortaSplit model, which bypasses stringent European installation regulations. By utilizing a window-frame bracket instead of drilling through walls, the product eliminates the need for property owner association approvals and expensive professional installation. Furthermore, the unit features a refrigerant capacity of 1.99kg—just below the strict 2kg regulatory threshold—and operates at 35 decibels, meeting rigorous German noise control standards.
The localized strategy has yielded immediate financial results. In May 2026, Midea’s e-commerce sales in Germany increased by approximately 37% year-on-year, while shipment volumes in Spain and France surged by 108%.
Shifting Revenue Dynamics and Market Headwinds
The European success underscores Midea’s broader reliance on international markets to offset domestic stagnation. In 2025, the company’s overseas revenue reached RMB 195.94 billion (US$27.2 billion), representing a 15.92% year-on-year increase. Domestic revenue reached RMB 260.50 billion (US$36.1 billion), up 9.4% year-on-year. Consequently, the overseas revenue share climbed from 41.52% in 2024 to 42.93% in 2025.
However, the traditional home appliance market is facing structural headwinds. Industry data shows the domestic market scale contracted by 4.3% in 2025 and dropped a further 6.2% in the first quarter of 2026. This macro environment has pressured Midea’s profitability. While the company reported a 2.55% revenue increase to RMB 131.09 billion (US$18.2 billion) in the first quarter of 2026, its core earnings declined.
Chairman Fang Hongbo recently noted at the annual shareholder meeting that the company must maintain its domestic market share while seizing overseas opportunities amid low growth and high uncertainty. Fang also confirmed that Midea will refrain from major mergers, acquisitions, or capital expenditures over the next three years, relying instead on its core white goods and HVAC (heating, ventilation, and air conditioning) businesses to fund new ventures.
AI Integration and the Search for a Second Curve
Efforts to diversify away from traditional manufacturing have yielded mixed results. Midea’s 2017 acquisition of German robotics firm KUKA for RMB 29.2 billion (US$4.06 billion) was intended to spearhead its transformation into a technology group. Yet, robotics and automation accounted for only 6.79% of total revenue in 2025, falling short of becoming a dominant second growth curve.
The company is now pivoting heavily toward AI applications. Rather than developing foundational large language models, Midea is positioning itself as an ecosystem integrator. In June 2026, the company became one of the first smart home enterprises to integrate with the WeChat AI ecosystem. Two days later, on June 10, Midea signed a strategic cooperation agreement with Alibaba Group to jointly develop an AI-powered smart home brain utilizing the Tongyi Qianwen model.
These partnerships aim to eliminate the need for standalone applications, allowing users to control appliances via natural language and seamless ecosystem integration. Despite these technological advancements, the financial return on AI investments remains unclear. In 2025, Midea’s selling expenses rose by approximately 10% to RMB 42.89 billion (US$5.9 billion), while administrative expenses increased by roughly 10% to RMB 16.09 billion (US$2.2 billion). Meanwhile, broader industry revenues remained virtually flat. Moving forward, the market will assess whether Midea's substantial R&D commitments can translate technological features into sustainable profit margins.