Xiaomi's Electric Vehicle Business Sacrificing Profits for Growth
Xiaomi Group's Chief Financial Officer (CFO) Lin Shiwei said in an interview that the company is currently willing to sacrifice profits to develop its nascent electric vehicle business, as Xiaomi aims to rank among the world's largest automakers in the next one or two decades and keep up with companies like Tesla and BYD.
Lin Shiwei stated that Xiaomi currently prioritizes the growth of the electric vehicle business over profits. The electric vehicle business of Xiaomi has only been established for five months, so it needs some time to curb losses. He said, At present, we focus more on growth rather than profitability.
Lin Shiwei, a trained engineer and former banker at Credit Suisse, has planned some of Xiaomi's biggest investments. He also added that Xiaomi has risen to the top of the global mobile phone industry with the concept of cost performance, and this concept also applies to the electric vehicle business.
He said, We do believe that scale will bring us profits in the future. At present, I only have one SKU, which is far from what we call profitability. We still need to continue investing in this business.
On Thursday, Xiaomi's share price rose by 8.5% at one point, bringing the cumulative share price increase since the electric vehicle went public in March to about 25%. Yesterday, Xiaomi released its second-quarter financial report for 2024, with total revenue reaching 88.9 billion yuan, a year-on-year increase of 32.0%, which is also the largest increase since 2021.
This result may inspire investors' hope that Xiaomi has found a new growth point. At the same time, it also provides an early defense for the founder Lei Jun, that is, after occupying a place in the field of smart phones and consumer electronics, he led the company into a new unknown field.
Lei Jun has promised to invest 10 billion US dollars in car manufacturing and made a bold bet, hoping to replicate the success of Xiaomi in the field of smart phones. In the crowded auto market, Xiaomi has launched its first electric vehicle. Lei Jun said that the company's goal is to become one of the world's top five automakers in 15 to 20 years.
But this requires a lot of funds. In the second quarter alone, the adjusted net loss related to smart electric vehicles and other new initiatives of Xiaomi reached 1.8 billion yuan (about 252 million US dollars). In the second quarter, Xiaomi delivered 27,307 vehicles, which means that Xiaomi lost about 60,000 yuan for each vehicle sold.
Lei Jun once said on his Weibo that making cars is very hard, but success must be very cool. Xiaomi cars are still in the investment period and hopes everyone understands.
Lin Shiwei is unwilling to disclose Xiaomi's plans after 2024. This year, Xiaomi's goal is to deliver 120,000 electric vehicles. In May this year, Xiaomi raised the delivery target from about 100,000 to 120,000. The company also said that it is expected to complete the cumulative delivery target of 100,000 new cars ahead of schedule in November this year.
On Wednesday, Xiaomi President Lu Weibing told analysts that he expects the shipment of Xiaomi cars to continue to accelerate in the coming months and the losses will gradually decrease.
It is reported that Xiaomi is currently developing more electric vehicle models to better com pete with industry leaders and plans to sell an SUV model similar to Tesla Model Y as early as 2025. At the same time, Xiaomi is also expanding its production capacity and recently purchased a site in Beijing.
Analysts Steven Tseng and Sean Chen said that as the delivery volume continues to increase, the surprisingly strong electric vehicle gross margin in the previous quarter may have more room to run. In the third quarter, the sales of Xiaomi electric vehicles may increase by about 40% quarter-on-quarter to about 9 billion yuan.
Although Xiaomi only sells its SU7 electric vehicle in China, it has shown this sedan during the Paris Olympics and set up a maintenance station on the famous Nurburgring track in Germany. Lei Jun said in Paris that Xiaomi will launch this car globally, but did not provide a timeline.
In addition, in a live broadcast on August 17, Xiaomi President Lu Weibing said that Xiaomi is studying how to promote its cars to Europe.
Lin Shiwei said in response, We do take into account global expansion, although right now we are trying to meet all the needs of Chinese customers.