XIAOMI’S US$8 billion stock rally faces a key test when the Chinese smartphone giant unveils its first electric vehicle on Thursday, as it attempts to muscle into an unfamiliar and intensely competitive market.
It will start selling its SU7 series in China, the result of a US$10 billion foray into the world’s largest EV market dominated by Tesla and BYD. The sedan will probably enter the most competitive segment, based on pricing predictions by analysts.
Billionaire co-founder Lei Jun has called the challenge his final major endeavor, testing Xiaomi’s ability to crack a crowded market for a second time with its technological capabilities.
With a year-long EV price war going on in China, reception for the SU7 will likely dictate Xiaomi’s stock momentum after a 22 per cent gain since a February low.
“The EV business is likely to be a profitability drag for Xiaomi until it achieves scale, but we expect this to be a positive share price driver in the initial phase during early volume shipments,” JPMorgan Chase & Co. analysts including Gokul Hariharan wrote in a note.
The market expects more than 50,000 shipments in the first 12 months of SU7’s launch, they added.
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China’s electrified-car market is projected to slow for a second year, with a key industry body predicting sales growth in 2024 to drop to 25 per cent from 36 per cent last year and 96 per cent in 2022.
Market leader BYD sold three million new energy cars in 2023 while smaller player Li Auto Inc. delivered around 376,000 units.
Pricing estimates by Wall Street banks for Xiaomi’s sedan range from 200,000 yuan (S$37,320) to 300,000 yuan. A local media report cited a starting price of 266,000 yuan for the standard version of the SU7, which stands for Speed Ultra. Lei has said the car can go from 0 to 100 kmh in 2.78 seconds.
Xiaomi hasn’t yet disclosed how much the SU7 will cost. Lei hinted earlier that it wouldn’t be 99,000 yuan as some on social media had joked. Cars with the same specifications often go for 400,000 yuan or more, he said.
“If my guess is correct, the 200,000 to 250,000 yuan range, that actually is the most competitive segment in the China EV space at the moment,” said Johnson Wan, an analyst at Jefferies Financial Group.
The strength of initial orders and consumer feedback for SU7 will be of keen interest to investors. The bulls are pinning hopes on Xiaomi emulating tech giant Huawei Technologies’ early success with its inroads into EVs.
Rather than build its own model, Huawei partnered with at least five automakers to produce electric vehicles, leveraging its strong smartphone fan base, unique technology and connectivity features. Its partnered brand Aito was already China’s best seller among EV upstarts for two consecutive months.
While Xiaomi also enjoys a loyal following and a smart tech ecosystem, its EV business model is different and more cost heavy. As the cut-throat price war rages on, few local manufacturers have managed to stay profitable other than BYD and Li Auto.
Goldman Sachs’ analyst Timothy Zhao expects Xiaomi to rack in 14 billion yuan of EV sales in 2024, based on shipments of 65,000 units and an average selling price of 225,000 yuan. The company had total sales of 271 billion yuan last year.
“We see the unveiling of Xiaomi’s first smart EV model as a window for the market to re-value its new initiatives,” Zhao wrote in a note. BLOOMBERG