According to a report by the Financial Associated Press on December 22 (Reporter Lu Tingting), Xiaomi has recently been active in the smart home appliance sector, with reports stating that "Xiaomi will be able to self-develop and produce Air Conditioners next year." According to incomplete arrangements made by Financial Associated Press reporters, listed companies such as Zhenjiang Dongfang Electric Heating Technology (300217.SZ), Zhongshan Broad-ocean Motor (002249.SZ), and Shanghai Highly (600619.SH) are all involved in supplying Xiaomi with Air Conditioners and may benefit further in the future.

In recent years, Xiaomi's influence and market share in the Air Conditioner sector have continued to rise. Xiaomi Group Partner and President Lu Weibing recently mentioned on Weibo that from January to November, the sales volume of Xiaomi Air Conditioners increased by 53% year-on-year. According to data from AVC, the market share for Air Conditioners shows that Xiaomi's sales revenue market share ranks third in the online market in 2024.

Tang Haoxuan, a consultant for Sullivan in Greater China, told Financial Associated Press reporters that from Xiaomi's entry into self-developed and produced products, two major industry signals have been released: the urgent need to strengthen independent research and development and industry chain integration, and the achievement of cost control and brand enhancement through self-development and production. Xiaomi's self-developed and produced Air Conditioner will disrupt the current market structure of the Air Conditioner industry and may intensify competition in both price and quality across the entire industry.

End of OEM?

According to Xiaomi Group, the newly established Xiaomi Smart Home Appliance Experimental Center officially started operations in October this year, with a total investment of 0.12 billion yuan, a total area of 10,300 square meters, and a total of 47 laboratories.

At the end of November this year, Xiaomi's first smart home appliance factory officially began construction, with the initial project building a demonstration factory for Intelligent Manufacturing of household Air Conditioners. According to information revealed by Wang Hua, General Manager of the Public Relations Department of Xiaomi Group, next year (2025), Xiaomi will be able to self-develop and produce its own Air Conditioner.

"This indicates that in today's increasingly fierce competition in the Air Conditioner industry, the simple OEM model can no longer meet market demand, and companies are shifting from OEM models to an independent research and development and production asset self-research model to enhance competitiveness and adapt to market changes," Tang Haoxuan stated.

Tang Haoxuan believes that through independent research and development and its own production capacity deployment, Xiaomi can achieve full-link control of technology from core components, software support to complete machine design, which helps it gain stronger bargaining power in the supply chain, thus optimizing production costs and reducing intermediate links, enabling the launch of products at more competitive prices and improving price elasticity and market competitiveness. With a high degree of autonomy in production lines and quality control standards, Xiaomi can more effectively implement strict quality control standards and optimize user experience.

Changhong Meiling (000521.SZ), as one of the main OEMs for Xiaomi's air conditioners, saw its largest revenue source—air conditioning products—achieve an income of approximately 8.5 billion yuan in the first half of this year, representing a year-on-year increase of 21.47%. Regarding the impact of Xiaomi's self-researched and self-produced air conditioners on the company, staff from the securities department of Changhong Meiling stated to a reporter from China Finance on an investor call, "We also have our own brand, and we have been deeply cultivating our business in our core regional market for many years, continually implementing other gradually stable plans, mainly considering the development of our own brand."

In Tang Haoxuan's view, the industry chain upgrade brought by Xiaomi's independent research and production will lead to a reshuffling and value reconstruction of various links in the supply chain. Suppliers focused on key components such as compressors, electronic control modules, efficient heat exchangers, and intelligent control chips are expected to benefit.

Manufacturers that have previously joined the Xiaomi air conditioner supply chain may benefit first. A reporter from China Finance, posing as an investor, contacted the securities department of Zhongshan Broad-ocean Motor and learned that the company indirectly supplies fans to Xiaomi air conditioners through Xiaomi's OEM manufacturers, with staff stating, "If they (Xiaomi) have a direct demand for air conditioner fans, we can definitely strive to secure the order." A person from Shanghai Highly's securities department stated, "We are the main supplier of compressors for Xiaomi's household air conditioners."

Guangdong Sunwill Precising Plastic stated that the company primarily sells plastic air conditioning blades to downstream air conditioner manufacturers. Due to some cooperation with Xiaomi, the company indirectly supplies plastic air conditioning blades to Xiaomi air conditioners. The above business accounts for a small proportion of the company's overall business. Zhenjiang Dongfang Electric Heating Technology also indirectly supplies electric heaters for air conditioners to Xiaomi. Meishuo Technology (301295.SZ) previously revealed on an interactive platform that its products are primarily used in Xiaomi air conditioners.

Will the air conditioner brand landscape change?

Xiaomi air conditioners have grown rapidly in recent years. According to the earnings reports of Xiaomi Group (01810.HK), in Q1, Q2, and Q3 of this year, the shipment volume of Xiaomi air conditioner products exceeded 0.69 million units, 3.3 million units, and 1.7 million units respectively, with a year-on-year growth rate of over 40% for each quarter. This means that in the first nine months of this year, the total shipment volume of Xiaomi air conditioners exceeded 5.69 million units.

Behind the growth of Xiaomi air conditioner data, there are market voices attributing it to aspects such as cost-effectiveness and intelligence. Analysts from GF SEC, including Zeng Chan and Gao Runxin, mentioned in relevant research reports that the rise of online channels and price increases by leading brands both contributed to the increase in Xiaomi's market share.

Since 2020, first-tier brands such as Midea, Gree, and Haier have successively increased the prices of air conditioners across various price ranges, with average prices generally rising to the range of 3000-4000 yuan. Against this backdrop, the number of air conditioner brands in the 2000 yuan price range has significantly decreased, creating an opportunity for Xiaomi, which has traditionally adopted a low-price strategy, to increase its market share with products averaging 2000-2500 yuan.

According to AVC data, as of December 15, 2024, Xiaomi air conditioner's sales value market share reached 11.82%, an increase of 4.33 percentage points year-on-year, ranking third behind Midea and Gree. During the same period, Xiaomi ranked 20th in the domestic offline air conditioner market. In terms of price, Xiaomi air conditioner's average sales price increased by 4.71% year-on-year to reach 2353 yuan, while the average sales prices for Midea and Gree air conditioners were reported as 3187 yuan and 3540 yuan, respectively, both showing a year-on-year decline.

"Xiaomi's self-researched and self-manufactured air conditioners will further impact the current structure of the air conditioning market, with specific trends including intensifying price and value competition, promoting brand differentiation and market segmentation, and facilitating industry integration and innovative ecosystem construction," said Tang Haoxuan. He believes that after Xiaomi promotes self-research and self-production, by optimizing cost structure and technological iteration, it is expected to offer more competitive prices with equal performance and quality. This may force other traditional air conditioner brands to reposition their prices and value, thereby intensifying price and quality competition throughout the industry.

Looking back, the air conditioner industry experienced a booming market from 2022 to 2023, entering a replenishment stage in the second half of 2023. As 2024 begins, the industry faces pressures from insufficient consumer demand, a sluggish real estate market, and overcapacity, leading to intensified competition in the air conditioner industry.

"In the future, competition among air conditioner manufacturers will focus on the comprehensive enhancement of intelligence, energy efficiency, and health functions, as well as industry chain integration and supply chain control, along with deepening expansion into overseas markets. Manufacturers need to simultaneously focus on technological innovation, operational management, and market expansion to adapt to rapid market changes and diversified consumer needs, ensuring they achieve a leading position in intense market competition," Tang Haoxuan analyzed.