Premium EVs should help put Xiaomi on the podium

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Xiaomi wants to make your dream car. When the Chinese smartphone maker first launched its electric car earlier this year, it entered a market saturated with fast-growing local and global automakers. But demand for Xiaomi’s EVs has been much stronger than expected. It has a real chance of unseating bigger, older rivals.

After entering the EV market with a $30,000 model in March, Xiaomi is now taking a bet on luxury. It launched a version of its SU7 electric sports car in late October, priced at $114,000. This puts the EV in direct competition with Tesla’s Model S Plaid in China, which sells for a similar price.

The SU7 Ultra’s features, including acceleration and top speed specifications, are competitive with global peers’ models. It set a record at Germany’s 20km Nürburgring track — considered a benchmark of performance — with a 6.46 lap time, accelerating from 0 to 62mph in 1.97 seconds and reaching a top speed exceeding 217mph.

Xiaomi has a record of successfully moving upmarket with its flagship product. When the world of smartphones was facing price wars, in 2021, it overtook Apple for the first time to become the world’s second-largest smartphone maker.

Shares of Xiaomi have doubled in the past year and trade at 27 times forward earnings, a discount to global smartphone and EV makers. Geopolitical risk has been an overhang on the stock since early 2021, when the Trump administration in the US added it to a blacklist of alleged Chinese military companies. Although it challenged the 2021 sanctions in federal court and won a reversal, its shares have yet to recover to their pre-sanction peaks. The smartphone industry in general has also been battling shrinking margins.

EV sales could add another source of increasing profits. Xiaomi has estimated gross profit margin of around 5 to 10 per cent for its auto business. It reported sales of nearly $1bn from its EV business in the second quarter. Break-even here could be 300,000-400,000 units a year, Citi estimated earlier this year. Xiaomi’s EV deliveries in China surpassed 20,000 vehicles in the month of October alone. Higher unit prices following its premium model launch and stronger than expected sales would help bring forward break-even significantly.

With EV makers going the way of smartphones and slashing prices, competing on features and technology is increasingly important. Xiaomi’s new model may not be everyone’s dream car, but it is well positioned to compete.

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