Xiaomi's AC Blitz Cracks China's Appliance Cartel, Goldman Warns Of "Inevitable" Profit Hit
Goldman Sachs released a comprehensive analysis on September 15, 2025, examining how Xiaomi's aggressive expansion into China's air conditioning market is disrupting the established order and forcing traditional white goods leaders to adapt or face margin compression. The report, which downgrades Gree Electric Appliances to Neutral while maintaining Buy ratings on Midea, offers a sobering assessment of how efficiency rather than brand power may determine future market winners.
The Battleground: A RMB 32 Billion Market Under Pressure
China's split air conditioning market represents an attractive profit pool that grew from RMB 22 billion yuan (US$ 3.1billion) to RMB 32 billion yuan(US$4.5 billion) between 2019-2024, expanding at an 8% CAGR despite revenue growth of only 4%. This concentrated market, where the top two players command 68% of revenue and 91% of profits, has historically rewarded scale and manufacturing efficiency.
However, Xiaomi's renewed push since 2023 has fundamentally altered the competitive dynamics. The tech giant's strategy centers on leveraging its "Human x Car x Home" ecosystem while targeting the substantial profit margins enjoyed by traditional players like Gree and Midea.
Efficiency War: Different Weapons, Same Battle
Goldman Sachs analysts led by Nicolas Yi argue that the competition extends beyond simple pricing wars to encompass the entire value chain. "The competition between white goods leaders and Xiaomi is essentially related to the overall efficiency of the industry value chain from supply chain/manufacturing to distribution network," the report states.
Traditional players like Midea, Gree, and Haier Smart Home maintain manufacturing advantages through vertical integration and economies of scale. Their gross profit margins reflect this edge, with established players commanding 45-49% GPMs compared to Xiaomi's estimated 30%.
Conversely, Xiaomi's competitive advantages lie in distribution efficiency and ecosystem integration. The company primarily sells online with fewer distribution layers and benefits from lower customer acquisition costs through its existing user base. Xiaomi's market share surged from 7% in January 2023 to 15% by December 2024 in online channels.
Gree Bears the Brunt
The Goldman Sachs team singled out Gree as most vulnerable to the intensifying competition. The company derives 51% of revenue and 56% of profits from domestic split AC sales, compared to just 21%/29% for Midea. Gree also maintains the highest price premium at 29% above industry average, leaving it more exposed to pricing pressure.
"We expect Gree to sustain the most impact to its overall profits assuming the company maintains its current product/pricing strategy," analysts wrote. The firm cut Gree's earnings forecasts by 9-15% through 2027 and reduced its target price to RMB 42 from RMB 53.
Scenario Analysis Points to Industry Profit Decline
Goldman Sachs constructed four scenarios to model potential outcomes. In the base case, assuming Xiaomi offers functionally comparable products 7% cheaper than market average, industry profits would decline 6% versus 2024 levels. A more aggressive scenario where Xiaomi achieves 13% cost advantages could trigger an 18% industry profit decline.
The analysis assumes traditional players would need to match pricing cuts, with burden-sharing across the value chain varying by company positioning. Midea, with its superior supply chain integration, is expected to absorb only 5% of price reductions directly, while suppliers and distributors bear 25% and 70% respectively.
Market Share Redistribution Expected
The report forecasts continued market share concentration toward the most efficient players. Xiaomi is projected to reach approximately 10% market share medium-term, primarily at the expense of Gree and smaller players. Midea and Haier are expected to gain share through proactive product strategies and operational improvements.
Haier has responded by launching price-competitive products under its Leader brand, while Hisense Home Appliances Group introduced comparable offerings through its Kelon sub-brand. Gree's response has been notably less aggressive, contributing to its continued online share erosion.
Investment Implications
Goldman Sachs maintains Buy ratings on Midea, Haier, Hisense, and Xiaomi while downgrading Gree to Neutral. The firm raised target prices for Midea to RMB 94 and Haier to RMB 32, reflecting their superior positioning for the evolving competitive landscape.
For Xiaomi, analysts maintain a HK$65 target price, viewing white goods as a key driver of the company's ecosystem strategy. The firm expects white goods to contribute 20-25% of Xiaomi's AIoT revenue by 2025-27, up from mid-to-high teens in 2024.
The analysis suggests that while overall industry profitability may decline, the most adaptable and efficient players will emerge stronger from this competitive reshuffling – a familiar pattern in China's rapidly evolving consumer markets.