Xiaomi Corp.’s stock price is nearing an all-time high, fueled by its successful entry into the electric vehicle (EV) market, mirroring the company’s earlier rapid ascent in the smartphone industry. The stock has surged an impressive 101% this year, outperforming global peers, as Xiaomi quickly established itself as a challenger to EV leaders BYD Co. and Tesla Inc. in the competitive Chinese market. Anticipation is building for the potential summer launch of Xiaomi’s next EV model, a pure electric sport utility vehicle (SUV), which could further propel the stock’s upward trajectory.
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Xiaomi EV
Investors are drawing parallels to Xiaomi’s disruptive entry into the smartphone market in 2011. Within a few years, the company rose to challenge industry giants Apple Inc. and Samsung Electronics Co., transforming founder Lei Jun into a billionaire. Xiaomi’s Hong Kong-listed shares are currently about 10% shy 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, stating, “Xiaomi is the dark horse. When Lei Jun touted Xiaomi’s $10 billion foray into the EV market, there was serious discounting of the stock, and few believed it would actually make it given how competitive this market is.”
Xiaomi Outperforms Amidst Market Challenges
Xiaomi’s stock performance stands out against the backdrop of uncertain recovery prospects in the global auto and smartphone markets. While Chinese EV startups like Nio Inc. and Li Auto Inc. have grappled with demand concerns and subsequent stock price declines, Xiaomi’s strong EV debut has defied the trend. In the September quarter, the company reported stronger-than-expected sales growth, with its nascent EV business contributing approximately 10% of total revenue. This success is attributed to leveraging the company’s established marketing prowess and strong brand appeal among young consumers, cultivated through its smartphone business.
Xiaomi Smartphone
Ambitious EV Sales Targets and Future Outlook
Xiaomi has set an ambitious target of 130,000 deliveries for its SU7 sedan this year, a figure that has been revised upward twice. The SU7 boasts nine color options, smart driving features, and a connected entertainment system. Analysts anticipate a more than twofold increase in Xiaomi’s total sales by 2025, driven by the launch of the YU7 SUV. Bloomberg Intelligence analyst Steven Tseng noted, “Xiaomi’s EV business could overtake smartphones as the company’s key sales-growth driver in 2025. Its next model ‘might spur EV sales growth of 137% in 2025 due to the popularity of larger vehicles in China and a ramp-up in capacity at its second EV factory.'”
Navigating a Competitive Landscape
Despite macroeconomic uncertainties, China remains the world’s largest passenger EV market, with projected sales exceeding 11 million units this year, according to BloombergNEF. However, the market is intensely competitive, with new entrants like tech giant Huawei Technologies Co. Analysts at Macquarie Group Ltd. predict Xiaomi could capture further market share with the YU7, expected to be priced between 250,000 yuan and 330,000 yuan ($34,000-$45,000).
Xiaomi Stock Chart
Valuation Concerns and Bullish Analyst Sentiment
Xiaomi’s remarkable rally has raised some concerns about valuations. The stock currently trades at approximately 27 times forward earnings estimates, exceeding its five-year median of 21 times. Despite this, analysts remain predominantly bullish, with 42 buy recommendations compared to just one hold and one sell. This optimism stems from the impressive profitability demonstrated by Xiaomi’s EV business thus far. Xiao Feng, co-head of China industrial research at CLSA Hong Kong, commented on Xiaomi’s cost management capabilities: “It’s a company that’s extremely good at controlling costs in a complicated manufacturing process. I think, partially, you should give the credit to their experience in making smartphones, which also has a very long, complicated supply chain.” While potential challenges remain, including the impact of US tariffs under a second Trump term, Xiaomi’s successful foray into the EV market positions it for continued growth and reinforces its reputation for disruptive innovation.
