Huawei's AI-powered toy, dubbed 'Smart Buddy' and priced at 399 yuan, quickly sold out following its debut at the Mate80 launch event, with over 100,000 units pre-sold in the first week alone. This success has once again thrust the AI toy sector—a domain where technology meets emotional connection—into the public spotlight.

The popularity of 'Smart Buddy' not only underscores strong market demand for emotionally interactive AI toys but also aligns with national policies aimed at driving industrial upgrades within the toy sector.

At a recent press conference held by the Ministry of Industry and Information Technology (MIIT), He Yaqiong, Director of the Consumer Goods Industry Department, disclosed, "China's AI toy market reached approximately 24.6 billion yuan in 2024 and is projected to grow to 29 billion yuan in 2025." MIIT has also explicitly positioned AI toys as a new growth engine for industrial upgrading, encouraging collaboration between toy companies and AI technology firms.

Fueled by policy support and market enthusiasm, the AI toy industry is poised for unprecedented growth. However, a deeper analysis of the underlying logic of industrial evolution, existing challenges, and future directions is warranted.

01 Rapid Market Expansion and Diverse Ecosystems

MIIT data reveals that China's domestic toy retail market reached 97.85 billion yuan in 2024, marking a 25.5% increase from 2020. AI toys, as an emerging category, are becoming a key driver of industry growth.

He Yaqiong noted that AI and large language models have injected new vitality into toys, significantly enhancing their interactive capabilities. AI toys capable of interaction, evolution, and exhibiting personality and memory are gaining traction among young consumers, creating a new competitive landscape within the industry.

This surge is driven by expanding market demand. According to Market Research Future, as cited by The Paper, the global AI toy market exceeded $11 billion in 2024 and is projected to reach $58 billion by 2030.

China's growth is particularly robust. According to Northeast Securities, AI toy penetration in China is expected to reach 29%, 41%, and 47% by 2026, 2028, and 2030, respectively, with the domestic market potentially nearing 85 billion yuan by 2030.

The core drivers of the AI toy boom lie in product value reconstruction and user base expansion.

Firstly, from a product perspective, AI toys have evolved from mere "functional tools" to "intelligent companions."

The integration of advanced language and visual models has enabled toys to "listen, see, and think." For instance, the AI Fly Fly Rabbit, developed by Shifeng Culture and Baidu Intelligent Cloud, supports bilingual (Chinese-English) dialogue and encyclopedia answers. Aofei Entertainment's AI dolls adjust story content based on children's interaction habits.

More notably, AI toys command significantly higher prices. Industry analysis indicates that AI-enabled toys can be priced 5-10 times higher than traditional plush toys. A report by Forward Industry Research Institute shows that basic AI toys priced between 300-400 yuan can achieve gross margins of 50%-65%, underscoring the substantial value added by technology.

Secondly, the expansion of user demographics has shattered the notion that toys are exclusively for children.

While children remain the primary market, adult emotional companionship products have also found success. For instance, Luobo Intelligence's Fuzozo, targeting adult women with its emotional soothing features, ranked among the top sellers in JD.com's trendy toy category during the 618 shopping festival. Another brand, Yueran Innovation's AI pendant toy BubblePal, has sold over 250,000 units, with new releases often selling out immediately.

In the elderly market, AI toys are also gaining traction. Xiaomi's AI memory assistant toy, which includes medication reminders, old song playback, and heart rate monitoring, ranked among the top five best-selling smart products for the elderly in JD.com's 2024 report, creating a market that spans all age groups.

In terms of competition, traditional companies like Shifeng Culture and Aofei Entertainment are accelerating their AI transformation through technological partnerships, while tech firms like UBTECH and Robosen are leveraging their technical advantages to enter the market. Robosen's AI transformable toys, priced over 8,000 yuan, have achieved significant sales due to their high-precision mechanical structures and intelligent interaction capabilities.

The capital market is also highly active. According to IT Juzi, over 20 investment and financing events have occurred in China's AI toy sector since 2024, with leading firms like Sequoia Capital China and Hillhouse Capital making strategic bets.

02 Three Key Bottlenecks Behind the Boom

Despite the prosperity, the AI toy market faces hidden challenges. According to Intelligent Emergence, industry insiders reveal that e-commerce return rates for AI plush toys currently hover around 30%-40%. Hardware limitations, security risks, and commercialization challenges are the three primary obstacles hindering the industry's transition from "explosive growth" to "maturity."

The first hurdle is balancing hardware performance and cost.

A toy industry practitioner summarized the key requirements for AI dialogue capabilities as "clear listening, accurate understanding, fast response, and low power consumption." However, few brands meet all these criteria.

Emotional interaction demands high sensor accuracy and chip computing power, but AI toys are constrained by size and cost. Most mid-to-low-end products suffer from recognition inaccuracies, with voice command misinterpretations and delayed responses common in products priced under 1,000 yuan. High-precision products like Robosen's premium AI transformable toys, which use advanced mechanical structures and custom chips, are prohibitively expensive at over 8,000 yuan, limiting mass adoption.

The second challenge is data security and content compliance risks, which have raised public concerns.

AI toys collect children's voice, movement, and even facial data, with some companies storing this information improperly. In 2024, an AI toy brand was penalized by the State Administration for Market Regulation for illegally collecting children's data, exposing industry-wide data management flaws. Additionally, children may feel more comfortable sharing sensitive thoughts with toys, yet companies lack credible and transparent data handling practices.

At the content level, some products lack proper review mechanisms, leading to inappropriate responses. A study by the Public Interest Research Group (PIRG) found that an AI-enabled teddy bear discussed gender-related topics, while a FoloToy Kumma equipped with an OpenAI model answered "adult" questions and provided inappropriate relationship advice.

MIIT has announced plans to develop relevant standards to regulate the market.

The third issue is the vicious cycle of commercialization and homogenized competition.

Despite high industry value-added, profit distribution remains uneven. Industry analysis shows that mid-range AI toys priced between 300-500 yuan have gross margins of 45%-60%, while high-end products with multimodal interaction can exceed 70%. However, most small and medium-sized enterprises are trapped in a cycle of "price competition-insufficient R&D investment-homogenization."

Homogenization is severe. According to Forward Industry Research Institute, as of June 2025, China had 1,766 active AI toy companies. Many products remain at the "plush toy + voice box" stage, lacking core technological differentiation, leading to a high industry attrition rate. Over 70% of early-stage startups were eliminated in 2024, with only 20%-30% securing follow-up funding.

From a market perspective, no phenomenal product has yet achieved stable annual sales exceeding 500,000 units. Even leading brands like Fire Rabbit and Mi Rabbit's core AI products typically sell 200,000-300,000 units annually, indicating that scalable business models remain unproven.

03 Breakthrough Paths Under Policy Support

Facing these challenges, and aligned with MIIT's vision of "top-level design + innovation-driven growth + security safeguards," technological precision, niche market segmentation, and ecosystem collaboration may define the future of the AI toy industry.

Technologically, advancements in multimodal large models are enabling AI toys to achieve multi-dimensional emotional recognition through "voice + facial expressions + actions." As He Yaqiong, Director of MIIT's Consumer Goods Industry Department, noted, AI is making toys "more understandable, visible, and thoughtful," bringing them closer to users.

Market-wise, vertical segmentation will drive the emergence of differentiated hits.

In the children's market, products are deepening into "personalized education." Xiaodu's AI early education machine dynamically adjusts English teaching based on children's pronunciation accuracy, with annual sales exceeding 250,000 units as of March 2025, according to Ebrun.

The adult market focuses on "emotional healing." Breo's AI companion doll, featuring breathing lights and ASMR audio, has over 65% female users.

The elderly market emphasizes "health management." 360's AI companion toy integrates heart rate monitoring and medication reminders, with a 35% repurchase rate among elderly users in pilot cities, as per JD.com's 2024 elderly smart product report.

Policy-encouraged "AI + traditional culture" initiatives also show promise. Shifeng Culture's AI doll featuring Peking Opera facial elements commands a 150% premium over basic models, with over 10,000 units sold in three months, according to Ebrun.

Ecosystem-wise, "technology + IP + manufacturing" collaboration will build competitive barriers.

MIIT explicitly encourages partnerships between toy companies and AI firms. Guangdong Province's 2024 "Smart Consumer Products Industry Upgrade Plan" lists "AI + toys" as a priority area, aiming to establish a full-stack collaboration system—from AI algorithm development to smart manufacturing—leveraging traditional toy clusters in Shantou and Dongguan.

According to Northeast Securities' 2025 "AI Toy Industry Investment Report," China's toy industry benefits from a complete supply chain and manufacturing costs 15%-20% lower than Southeast Asian competitors. Combined with leading firms' original IP strategies, China's competitiveness in the global mid-to-high-end AI toy market continues to rise.

04 Conclusion

From the enthusiasm surrounding Huawei's 'Smart Buddy' to its strategic positioning in national policies, AI toys have emerged as a focal point for industrial upgrading. Their development trajectory reflects the practical application of AI technology moving from laboratories to consumers. The existing hardware and security challenges are inevitable steps in the maturation of this emerging industry.

The future of AI toys lies not in achieving perfect companionship but in continuously improving through iterative upgrades, striving to approximate the imperfect yet authentic interactions between humans. When technology fades into the background, what remains will be the warm memories woven by code.