Summary of Key Points
The air conditioning industry has been engaged in domestic competition over the past few years, focusing on price, distribution channels, and market structure. However, there are two overlooked areas for growth: firstly, the substitution of imported central air conditioners with domestically produced ones (the global market is worth over 250 billion euros, yet international brands dominate); secondly, the expansion of Chinese brands overseas (China accounts for 80% of global production, but the top three Chinese companies only hold 22% of the global market share). The extreme heatwaves in Europe in 2026 have opened up new opportunities for expansion: air conditioning penetration rates are low in Europe (only 20%), and the normalization of high temperatures has led to a surge in demand, resulting in a significant increase in Chinese air conditioner exports. However, going overseas is not just about selling products; companies must overcome challenges such as product localization, trade barriers, and environmental compliance requirements. If the leading companies can make the right strategic moves, they have the potential to create another "Chinese air conditioning market" abroad.
1. European Heatwaves: Turning a "Lesser Market" into a Blue Ocean
Why were there few air conditioners in Europe before? Firstly, the climate is cooler (with average summer temperatures in the twenties); secondly, there are many historic buildings that require special permits for installing air conditioners, which can be very expensive (up to 7,000 euros); thirdly, there are strict low-carbon policies due to concerns about high energy consumption. But the summer of 2026 was exceptional: temperatures in Western Europe were 10°C higher than usual, and June was the hottest on record, making high temperatures the new norm.
This has dramatically increased demand: from January to May 2026, China's exports of portable air conditioners to Western Europe grew month by month, with a doubling in sales in May. In the first half of the year, exports to the EU totaled 3.76 billion US dollars, an increase of 43.2% (exports to France and the Netherlands doubled). Companies have responded promptly: Midea's "no-hole-needed" portable split air conditioners sold 200,000 units in Europe (a year-on-year increase); TCL and Gree also ran out of stock, with distributors urgently seeking more supplies.
In the long run, Europe represents a large market opportunity: with 200-250 million households and an air conditioning penetration rate of only 20%, the International Energy Agency predicts that the number of units in use will more than double by 2050. The price per unit is twice as high as in China, suggesting an incremental market potential of 20%-30% of China's domestic market size, which gives the air conditioning industry new hope for growth.
2. Overseas Markets: Can We Really Create Another "Chinese Air Conditioning Market"?
Air conditioning penetration rates are low in most regions around the world: 30% in Southeast Asia and Latin America, 19% in the Middle East and Africa, and even lower in India (4%). Compared to China and Japan (162 units per 100 households versus 280 units), there is huge potential for growth in these areas.
Roughly speaking, if Europe contributes 20%-30% of the incremental market (based on China's sales volume) and Southeast Asia, Latin America, and the Middle East/Africa each contribute another 50%, that would total a new market equivalent to China's current size. IndexBox predicts a 60% increase in global air conditioner sales by 2035, reaching a market value of 169 billion US dollars, which is consistent with this analysis.
Why are penetration rates so low? In Europe, it's due to policy and cost factors; in Southeast Asia and India, it's because of lower incomes and poor infrastructure (such as unstable electricity supply). However, the normalization of high temperatures will gradually overcome these barriers. After all, when it gets too hot, air conditioners will become a necessity rather than a luxury.
3. China Can Produce, but Going Overseas Is More Than Just Selling Products
China has the world's largest air conditioning production capacity: 200 million units in 2025 (80% of global production), with 90 million units exported (half of which are manufactured on behalf of others), and capacity utilization is less than 70%. Moreover, Midea and Gree produce 70% of the world's air conditioner compressors, giving them a significant advantage in the supply chain.
The problem is that Chinese companies have a low global brand share (the top three companies combined hold only 22%) and mostly manufacture products for others. To transition from being contract manufacturers to established brands, they need to overcome three major hurdles:
1. Product Localization: There is no single air conditioning product that can appeal globally. For example, Europe requires portable air conditioners without the need for drilling holes, while Southeast Asia needs units that can handle unstable electricity supply, and North America values brand reputation and service. Midea's PortaSplit series was successful because it was designed specifically for European consumers.
2. Local Production Capacity Is Inevitable: Trade barriers are increasing (such as US tariffs and the EU's CBAM, or Carbon Border Adjustment Mechanism), which erode profit margins from direct exports. Therefore, companies must establish manufacturing facilities overseas (in Thailand, India, Mexico, etc.). Those who act first will gain a competitive advantage.
3. Environmental Barriers Are More Subtle: The EU's CBAM requires calculating the carbon footprint of products throughout their lifecycle, from production to disposal. Chinese companies not only need to reduce their own emissions but also must help their supply chains do the same, which is a significant challenge for China's cost-effective manufacturing industry.
4. Who Can Capture the Overseas Opportunities? The Marathon Ahead for Leading Companies
In the short term, companies should seize the opportunity presented by extreme weather events. Midea's sales in Europe increased by over 70% this year, and its PortaSplit series sold 60,000 units in Germany in just half a year, with an expected annual sales target of 200,000-300,000 units across Europe. In the medium term, they need to build production capacity and distribution channels overseas; Thailand and India are already important bases, but further expansion in Europe is necessary. In the long run, they must aim to become global brands, transitioning from contract manufacturing to independent design and development of their own products, which requires significant investment and time (in terms of building distribution networks, providing services, and establishing local teams).
Domestic leaders such as Midea, Gree, and Haier have the advantage of a complete supply chain, financial resources, and strategic focus, making them the best candidates for success. For them, globalization is not an optional choice; it could lead to creating another market overseas or continue the domestic competition for excess capacity.
In Conclusion
The story of the air conditioning industry is shifting from domestic competition to global growth opportunities. However, this new market is not accessible to all companies; success will depend on product localization, global production capabilities, and long-term brand building.