Xiaomi Corp. is nearing a record high stock price, mirroring its smartphone success by rapidly penetrating the competitive electric vehicle (EV) market. The company’s stock has surged an impressive 101% this year, outperforming global peers. This remarkable growth is fueled by Xiaomi’s surprisingly swift ascent in China’s EV landscape, challenging established leaders like BYD Co. and Tesla Inc. Anticipation is building for a potential summer launch of Xiaomi’s next model, a pure electric sport utility vehicle (SUV), which could further propel the stock’s upward trajectory.
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Xiaomi’s EV Strategy Echoes Smartphone Triumph
Investors are drawing parallels between Xiaomi’s current EV venture and its disruptive entry into the smartphone market in 2011. Within a few years, Xiaomi rose to prominence, rivaling industry giants Apple Inc. and Samsung Electronics Co., and transforming its founder, Lei Jun, into a billionaire. Xiaomi’s Hong Kong-listed shares are now within 10% of their 2021 peak.
Shuyan Feng, deputy general manager for investment management at Huatai Asset Management (Hong Kong) Co., remarked on Xiaomi’s unexpected success: “Xiaomi is the dark horse. When Lei Jun announced Xiaomi’s $10 billion investment in the EV market, there was significant skepticism. Few believed they could succeed in such a competitive landscape.”
Outperforming in a Challenging Market
Xiaomi’s stock performance has defied the broader trends in the auto and smartphone sectors, which have faced uncertain recovery prospects. While Chinese EV startups like Nio Inc. and Li Auto Inc. have grappled with demand concerns and subsequent stock declines, Xiaomi’s strong EV debut has set it apart.
In the September quarter, Xiaomi reported stronger-than-anticipated sales growth, with its nascent EV business contributing approximately 10% of total revenue. The company’s rapid market penetration is attributed to its leveraging of established marketing prowess and strong brand appeal among younger consumers, cultivated through its smartphone business.
Ambitious Growth Projections for Xiaomi’s EV Business
Xiaomi initially projected 130,000 deliveries for its SU7 sedan this year, a target that has been raised twice. The SU7 boasts nine color options, smart driving features, and a connected entertainment system. Analysts predict that the launch of the YU7 SUV in 2025 could more than double the company’s total sales. Bloomberg Intelligence analyst Steven Tseng noted, “Xiaomi’s EV business could overtake smartphones as the company’s key sales-growth driver in 2025,” citing the popularity of larger vehicles in China and increased production capacity at Xiaomi’s second EV factory as contributing factors.
Navigating a Competitive Landscape and Valuation Concerns
Despite broader economic uncertainties, China remains the world’s largest passenger EV market, with BloombergNEF forecasting sales exceeding 11 million units this year. However, competition is fierce, with new entrants like tech giant Huawei Technologies Co. vying for market share. Analysts at Macquarie Group Ltd. believe Xiaomi’s YU7, priced between 250,000 yuan and 330,000 yuan ($34,000-$45,000), could enable the company to capture additional market share.
Following Xiaomi’s substantial stock rally, valuation concerns have emerged. The stock currently trades at approximately 27 times forward earnings estimates, exceeding its five-year median of 21 times. Despite this, analyst sentiment remains largely bullish, with 42 buy recommendations compared to just one hold and one sell. Analysts highlight the impressive profitability of Xiaomi’s EV business thus far.
Xiaomi’s Cost Control Advantage
Xiao Feng, co-head of China industrial research at CLSA Hong Kong, emphasized Xiaomi’s cost management capabilities: “It’s a company that’s extremely good at controlling costs in a complicated manufacturing process. Partially, you should credit their experience in making smartphones, which also involves a very long, complicated supply chain.” Xiaomi’s ability to leverage its existing expertise in supply chain management and cost control positions it favorably in the capital-intensive EV market.
The company’s successful foray into the EV sector, coupled with its established strength in the smartphone market, paints a promising picture for future growth. While challenges remain in a competitive landscape, Xiaomi’s strategic approach and proven track record suggest a strong potential for continued success.
