Xiaomi share price surged hard in Hong Kong as investors cheered the company’s move into the electric vehicle (EV) industry. The stock jumped by over 10%, pushing it to H$15, its highest point since January 8th of this year. It has soared by over 77% from its lowest point in 2023.

Xiaomi stock price chart

Xiaomi has done well over the years as it transitioned into one of the leading smartphone companies in the world. The company is widely known for making quality smartphones that sell for a fraction of the cost.

The company has come under intense pressure in the past few years as the smartphone industry has matured. People are no longer upgrading their smartphones as often as they did a few years ago.

As a result, its revenue growth has faded. The most recent results shows that its revenue dropped by 7.6% in the nine months to September last year. It dropped from RMB 213.9 billion to RMB 197.7 billion. 

On the positive side, its efforts to prioritise profit growth is working. Its profit for the period jumped to RMB 12.7 billion, a big improvement from the RMB 639 million loss it made a year earlier.

Xiaomi is now moving to its biggest launch ever. The company announced that it will launch its SU7 EV on March 28th of this year. While it did not mention the price, the vehicle is expected to retail for between 220k and 260k yuan. 

Analysts at Bloomberg estimate that the company will sell between 30k and 50k vehicles in the first year. At the top end of these estimates, it means that the company will make about 13 billion yuan or $1.8 billion.

Xiaomi’s entry into the EV industry is a sharp contrast to what Apple did. After spending billions of dollars, the company decided to abandon its EV ambitions this year. It then transferred most of these employees to other divisions while some layoffs will be inevitable.

Apple claimed that it was difficult to make stronger margins even though the vehicle was expected to cost about $100k. 

Therefore, the question is whether Xiaomi, often seen as China’s answer to Apple, will succeed where the latter failed. 

The reality, based on the current market dynamics means that Xiaomi faces major challenges ahead since the EV industry is highly saturated. China made over 9.3 million EVs in 2023 and most manufacturers have pledged to boost output this year. There are now over 100 EV companies in China.

The implication of all this is that margins will likely continue thinning as a price war in the industry intensifies. Companies like Nio, Tesla, and BYD have all slashed prices, a move that has affected their margins. 

Therefore, there is a likelihood that Xiaomi’s EV business will affect the company’s profitability in the long term. History shows that it takes a long time before EV companies become profitable. This includes some well-known brands like Rivian and Lucid Group.

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