Chinese electronics company Xiaomi is starting in-house production of home appliances as the company shifts to high-performance products that offer interconnectivity with smartphones and electric vehicles.
Xiaomi’s first dedicated home appliance plant opened last October, with a total investment of RMB 2.5 billion (USD 350 million). The facility in Wuhan, Hubei, covers 500,000 square meters and has an annual production capacity of up to 7 million.
CEO Lei Jun said the plant will enable Xiaomi to produce appliances by putting customer needs first.
Xiaomi makes home appliances in over 20 categories, including televisions and robot vacuum cleaners. It develops major home appliances in-house and outsources production, while sourcing the rest from the roughly 400 manufacturers in which it has invested.
The company plans to produce 20% of its air conditioners and other products in-house moving forward.
Xiaomi’s aim is to increase production and sales of value-added products. The first step is production of an air-conditioning system that consists of a single main unit and six circulator units.
It has the ability to selectively blow both hot and cold air in differing directions, and can detect and blow air toward people. Its price, about USD 7,000, was set at the same level as products from Gree Electric Appliances, a rival with a strong brand presence.
The company is also revising its sales structure. While most sales have been online, it will increase brick-and-mortar stores to make it easier to explain features to customers.
With about 18,000 stores in mainland China that mainly sell smartphones as of the end of September, the company plans to primarily increase the number of large stores that also sell home appliances. It also aims to increase stores in other countries from about 300 to 10,000 by around 2030.
While Xiaomi is known as a major smartphone maker, home appliances is also a core business. Sales and gross profits from the home appliance business account for about 30% of the company’s total for each.
The business had seen continued expansion, driven by government subsidies encouraging people to replace old products, primarily in large appliances like air conditioners, refrigerators and washing machines. But sales of large appliances began to decline in the July-September period.
Xiaomi’s home appliances have long been known for cost-effectiveness, with the average price of its air conditioners and refrigerators falling 14% and 34% below the market average as of 2024, according to China’s Changjiang Securities.
At the same time, some customers have complained about malfunctions, and customer satisfaction has been pointed out as being low.
Changing consumer preferences in China also appear to be a headwind. Chinese consumers are increasingly polarized, with some seeking the lowest prices for practical products and others seeking products that offer high satisfaction even if they are more expensive, according to China’s Soochow Securities.
This tendency is particularly pronounced among people in their 50s and Generation Z, who have the greatest influence on consumption. Focusing on cost-effectiveness alone can also lead to long-lasting price wars.
Amid that backdrop, Xiaomi is increasing the added value of its products through in-house production while also working to improve usability. The key is the company’s app, which allows users to control and manage home appliances remotely, such as checking if they forgot to turn off the lights or turning on the air conditioning before returning home.
By connecting the monitor inside their EV to a camera at their front door, users can even talk to a person at their home’s front door from their car.
As of the end of September, there were 21.6 million users who had connected five or more Xiaomi home appliances, excluding smartphones, to the app. From September, some products sold in China by German companies Siemens and Bosch have also become controllable through the Xiaomi app. The company hopes to expand this ecosystem and further lock in customers.
Xiaomi’s earnings continue to grow, thanks in part to the success of its EVs, which it launched in 2024. But its net profit margin for the year ended December 2024 was only 6.5%, 0.8 percentage points lower than smartphone rival Huawei.
It hopes to increase sales of value-added products and broaden profit margins by extending the brand image it bolstered through EVs to smartphones and home appliances.
Xiaomi president Lu Weibing has said the company aims to become a leader in the domestic home appliance market by 2030. Its market share for refrigerators and air conditioners currently sits around 10%, far below major players like Midea and Haier.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.