(Bloomberg) — Xiaomi Corp. is willing to expand its fledgling electric vehicle division at the expense of profits for now in order to become one of the world’s largest automakers alongside Tesla Inc. and BYD Co. over the next decade or two.
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The company, known for making everything from smartphones to rice cookers to luggage, is currently prioritizing growth in its EV business over margins, Chief Financial Officer Alain Lam told Bloomberg Television. The five-month-old company will need some time to stem losses, he said.
“We are currently more focused on our growth than profitability,” said Lam, an engineer by training and former Credit Suisse banker who has engineered some of Xiaomi’s biggest bets. The value for money philosophy that propelled Xiaomi to the top ranks of the global phone business will also apply to its electric vehicles, he added.
“We believe that scale will bring profit in the future. Right now I only have one SKU, which is far from what we call profitability,” he said. “We need to continue to invest in this business.”
Xiaomi shares rose as much as 8.5% on Thursday after the company reported its fastest quarterly revenue growth since 2021, bringing the gain to about 25% since the launch of its electric vehicle business in March.
The results could boost investors’ hopes that Xiaomi has found a new source of growth. They also provide initial satisfaction for billionaire founder Lei Jun, who is breaking new ground with his company after specializing in smartphones and consumer electronics.
Xiaomi Gains After Q2 Results Highlight EV Margins: Street Wrap
Lei has pledged to invest $10 billion in automobile manufacturing, a bold bet on replicating Xiaomi’s success in the smartphone sector. His company launched its first electric car in a market that already has much larger players. The billionaire has said that the company wants to be among the top five car manufacturers in the world in 15 to 20 years.
But that requires a lot of capital. Xiaomi reported an adjusted net loss related to smart EVs and other new initiatives of 1.8 billion yuan ($252 million) in the second quarter alone, despite only delivering 27,307 vehicles. That means Xiaomi lost around 60,000 yuan per car sold (adjusted), according to Bloomberg calculations.
On his Twitter-like Weibo account, Lei said it was difficult to build cars and asked for understanding as Xiaomi struggled through an “investment phase.”
Lam declined to comment on Xiaomi’s plans beyond 2024. This year, the company aims to deliver 120,000 electric vehicles – a target raised in May from around 100,000. On Wednesday, President Lu Weibing told analysts he expected deliveries to continue to rise in the coming months and losses to gradually narrow.
The company is currently developing more models for its electric car lineup to better compete with industry leaders. Bloomberg News reported that it plans to launch an SUV similar to Tesla’s Model Y as early as 2025. The company is also expanding its capacity and recently purchased a site in Beijing.
What Bloomberg Intelligence says
Last quarter’s surprisingly strong gross margin on electric vehicles could increase even further as deliveries continue to increase. According to our calculations, the company’s electric vehicle sales could rise 40% sequentially to about 9 billion yuan in the third quarter.
– Steven Tseng and Sean Chen, analysts
The study can be found here.
While Xiaomi only sells the SU7 in China, the company unveiled the sedan during the Paris Olympics and set up a pit station at Germany’s famous Nürburgring race track. Lei said in Paris that the company would make the vehicle available worldwide, but did not give a timeframe. In a livestream on August 17, company president Lu said Xiaomi is looking into how to bring its cars to Europe, according to Chinese media, even as the European Commission is working on import tariffs on electric vehicles made in China.
“We have our sights set on global expansion, although we are currently trying to meet all of our customers’ demands in China,” Lam said.
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