Summary of Key Points
In the first half of 2026, Gree Electric's revenue, profits, and cash flow all declined, but this is not a problem unique to Gree; the entire air conditioning industry is under pressure. The reasons include: last year's government subsidies, high temperatures, and early promotions that stimulated future replacement demand (creating a "time debt"), which has led to a decline in demand this year; rising costs and price wars that have squeezed profits; and while exports have cooled, some companies have achieved growth overseas through localized strategies. The industry is shifting from simply selling products to providing services and building long-term customer relationships in order to find new sources of growth.
1. It's Not Just Gree That's Struggling; the Entire Industry Is Paying off Last Year's "Time Debt"
Last year (2025), government subsidies were substantial: purchasing air conditioners with a high energy efficiency rating resulted in a 20% rebate (for example, a 4000 yuan air conditioner received a 800 yuan rebate, equivalent to a 20% discount). Many households that had planned to replace their air conditioners next year decided to do so earlier due to the subsidies. This was like spending money that was supposed to be spent tomorrow on today—air conditioner sales surged last year (manufacturers' shipments increased by 11.5% in the cold season of 2025), leaving less demand this year. According to data, air conditioner retail sales dropped by 13% in the first quarter of 2026, and continued to decline by 9.2% from January to May. Gree's revenue from consumer electronics decreased by 2.89%, while Hisense's revenue from heating, ventilation, and air conditioning products decreased by 5.66%. However, Hisense's revenue from refrigerators and washing machines increased by 12.88%, indicating that not all household appliances are performing poorly; it's just that air conditioners were particularly affected by the earlier subsidies.
Therefore, Gree's declining performance is not a sign of the company falling behind; rather, the industry is working through the consequences of last year's subsidies. Consumers are unlikely to buy another air conditioner right after replacing one.
2. Selling Air Conditioners Is No Longer Profitable? Rising Costs and Price Wars Are Crushing Profits
Declining sales are not the worst part; profits are also being eroded. Gree's domestic sales revenue increased by 1.9% in the first half of the year, but costs rose by 5.96%, resulting in a 2.62 percentage point decrease in gross profit margin. Hisense's revenue from heating, ventilation, and air conditioning products decreased by 5.66%, while costs only increased by 1.94%, leading to a 2.88 percentage point decrease in gross profit margin. The reasons include rising prices for raw materials such as copper and aluminum, as well as increased costs for core components like compressors and heat exchangers. Additionally, government subsidies, platform promotions, and brand price wars have made consumers more price-sensitive. Companies like Midea and Gree focus on the mid-to-high-end market, while Oux and Xiaomi compete on cost-effectiveness, leading to similar product features, forcing them to lower prices to compete. However, price cuts are ineffective: they neither attract new customers (a family won't buy multiple air conditioners) nor prevent the consumption of demand that was intended for next year. Industry associations have stated that price wars will not save companies; what's needed is "profitable sales"—that is, differentiation through energy efficiency, smart air management, and installation services to break away from homogenization.
3. Going Global Is More Than Just Selling Goods; You Need to Establish a Local Presence
With declining domestic demand, overseas markets were expected to be a growth opportunity, but Gree's exports actually decreased by 21.98%. However, not all companies are struggling: Hisense's overseas revenue increased by 4.56% (accounting for 45.7% of its total revenue), and its revenue from refrigerators in North America increased by 29%. Haier's profits in Europe and Southeast Asia grew by over 10%. Midea has built a factory in Thailand, with 80% of its 6 million units produced destined for the U.S. The difference lies in the approach: in the past, going global meant simply exporting products; now, companies need to establish a local presence, adapting to local conditions (such as humid climates in Southeast Asia), voltage requirements, and housing structures (such as smaller apartments in Europe and America). They also need to build their own brands, distribution channels, and after-sales services. For example, Hisense sells refrigerators and washing machines in North America as a local brand, rather than relying on contract manufacturing. Midea's overseas factories reduce trade risks and provide a better understanding of local markets.
Gree's declining exports highlight the new reality of going global: the competition is no longer about who can sell the most goods, but who can become a integral part of the local market.
4. New Air Conditioners Aren't Selling Well? Focus on Providing Services for Existing Customers
Air conditioners are durable products that can last for a decade, meaning the demand for replacements is slow to grow. Companies need to shift their approach from selling a product once to managing customer relationships over a long period. For instance, are installations done properly? Do filters need to be cleaned? When should repairs be performed? How should old air conditioners be recycled? These services may seem like small businesses individually, but with hundreds of millions of air conditioners in use nationwide, they represent a large market. Although Gree's revenue from smart equipment increased by 19% to 374 million yuan, it is not enough to drive overall growth. Providing services may be a more sustainable strategy. This path is challenging: selling products relies on factories and distributors, while providing services requires stable service points, transparent pricing, and continuous customer management. However, in a time of slowing new product demand, this is a necessary lesson for the industry. In the future, the scarcity will not lie in selling another air conditioner, but in establishing a ten-year service relationship with each customer.
Conclusion
Gree's semi-annual report reflects a broader transformation in the household appliance industry. In the past, growth relied on weather, subsidies, and sales volume; now, companies need to focus on profits, localization, and services to navigate economic cycles. Once the excitement of government subsidies subsides, companies must rely on their products, brands, global operations, and long-term services to repay the "time debt" incurred. High temperatures may activate air conditioners, but they won't necessarily open consumers' wallets. True growth will come from genuine competitiveness and solid business foundations.