Summary of Key Points
In the first half of 2026, the domestic home appliance industry faced a "stress test" following the reduction of government subsidies: total retail sales decreased by 9.9% year-on-year (with the decline in the second quarter expanding to 12.4%), with the air conditioning category suffering the most (a 15.9% drop). The performance of the four leading companies varied significantly:
- Midea saw both revenue and net profit increase, thanks to diversification and overseas markets.
- Gree, Haier, and Hisense all experienced declines in profits. Gree cut expenses to maintain its profit margin; Haier was affected by exchange rate fluctuations but managed to gain market share domestically; Hisense, with a focus on the air conditioning sector, faced the greatest pressure.
This test revealed the differences in the companies' ability to withstand risks amidst subsidy reductions, rising costs, and exchange rate volatility. In the post-subsidy era, the focus of competition shifts to business structure and "core competitiveness."
The Three Major Pressures Facing the Industry
The cooling trend in the home appliance industry is driven by three factors:
1. Reduced government subsidies: In 2026, the number of eligible subsidy categories for trade-in programs was cut from 12 to 6 (including vacuum cleaners and kitchen appliances), and the subsidy ratio was reduced from 20% to 15%. The maximum subsidy amount per item was also lowered from 2,000 yuan to 1,500 yuan, with subsidies only available for products with the highest energy efficiency. More importantly, the total subsidy amount decreased significantly—300 billion yuan in 2025 compared to just 62.5 billion yuan for the first batch of special government bonds in 2026. Local governments even implemented lotteries and quota systems for subsidy distribution, with some suspending them altogether. The subsidies in 2025, combined with high temperatures and promotional activities, prematurely exhausted future demand. As a result, consumers found products expensive even without subsidies, squeezing out smaller distributors in the supply chain.
2. Soaring material costs: Copper prices exceeded 100,000 yuan per ton (accounting for 20-30% of air conditioning costs). Midea increased prices twice, with a total increase of over 6%, followed by Hisense and Oaks, while Gree pledged not to raise prices. This led to a sharp rise in final product prices. For example, an air conditioner that cost 1,601 yuan after the subsidy in June 2026 now costs 2,124 yuan, representing an additional expense of 523 yuan for consumers, further suppressing demand.
3. Appreciation of the RMB: The RMB continued to appreciate in the first half of the year, resulting in significant exchange rate losses for companies with a large proportion of overseas revenue. For instance, Haier, which generates over 50% of its revenue overseas, suffered a net exchange loss of 700 million yuan. Midea, with 43.5% of its revenue coming from overseas, saw its non-recurring net profit drop by 25% due to exchange rate impacts, although its net profit attributable to the parent company was supported by investment returns.
The Survival Strategies of the Four Leading Companies
Each company adopted a different approach:
- Midea: Diversified its business beyond home appliances, with ToB (business-to-business) segments such as building technology and robotics growing by 10.84% and 10.27% respectively, generating 66.7 billion yuan in revenue. Overseas revenue accounted for 43.5% of its total sales, and more than half of this was from its own brand products. The 25% decline in non-recurring net profit was due to exchange rate losses, but its core business performed relatively well.
- Gree: Cut expenses to maintain its profit margin, despite a 8.15% decline in revenue and a 7.87% drop in net profit. Its net profit margin of 14.81% was the highest among the four companies. It reduced sales and research and development expenses by 17.29% and 19.16%, respectively. The main issue was its declining overseas sales, particularly in the Middle East, which offset gains in other regions. Dealer sentiment was low, with contract liabilities decreasing from 15.2 billion yuan to 8.4 billion yuan. Gree did not distribute dividends in its interim report and did not initiate share repurchases.
- Haier: Although its net profit attributable to the parent company decreased by 14.27%, this was largely due to exchange rate losses (compared to a profit of 880 million yuan in the same period last year). Excluding exchange rate impacts, its pre-tax profit decline was more modest. For the first time, overseas revenue exceeded 50% of its total sales (78.7 billion yuan), and it managed to gain market share domestically, both online and offline. Its smart heating and ventilation business grew by 6.1%, and its profit increased by 26.8%. Haier also increased its dividend payout ratio to 58%.
- Hisense: Focused on the air conditioning sector, which faced significant pressure, with revenue and net profit declining by 5.22% and 20.16%, respectively, and cash flow decreasing by 39%. Nearly half of its revenue came from air conditioning (47.8%). The decline in air conditioning sales volume (19.5%) combined with rising copper prices and exchange rate fluctuations led to a 2.88% decrease in gross profit margins. Although its overseas revenue grew by 4.56%, the gross profit margin was only 11.2% (compared to 28.2% domestically). The growth in its washing and cooling business (12.88%) was not enough to offset the losses in the air conditioning sector. The former vice president in charge of air conditioning reforms left the company, and the reforms did not meet expectations.
The Test Reveals the Real Strengths and Weaknesses of the Companies
This stress test highlighted several key issues:
1. Who can gain market share during a downturn? Haier's success in both online and offline sales indicates that its products and distribution channels remain competitive.
2. Do companies have a "second growth engine"? Midea's diversified business, including building technology and robotics, helps to mitigate the risks associated with the home appliance sector.
3. Is overseas business a source of profit or a burden? While companies like Haier and Hisense benefit from overseas sales, exchange rate fluctuations can be detrimental. Gree's lower overseas sales volume reflects weaknesses in its competitiveness.
4. How do companies manage to survive on reduced subsidies? Gree cut research and development and sales expenses to maintain profits, but this may impact its long-term innovation capabilities, as competitors are investing heavily in AI and robotics.
The Post-Subsidy Era
Subsidies will not return to their 2025 levels. Future competition will focus on:
- Business structure: Midea's diversification gives it a competitive advantage, while companies like Hisense, with a focus on a single segment (air conditioning), may struggle.
- Overseas quality: It's not just about exporting; companies need to build strong brands and target high-profit markets (e.g., Haier's success in Northwest Europe).
- Cost control and innovation: Gree's approach of cutting research and development expenses may limit its ability to innovate, while competitors are investing in these areas.
- Distribution channels and brand strength: Haier's ability to gain market share demonstrates the importance of a strong brand and distribution network.
In the subsidy era, companies competed on speed; in the post-subsidy era, it will be about their overall resilience and financial strength. The performance of the four companies provides a preliminary indication of these factors. More challenges lie ahead, and only time will reveal the true winners.