[HONG KONG] Xiaomi’s quarterly revenue rose a slightly better-than-anticipated 31 per cent after the successful launch of its second electric vehicle helped counter slowing demand for smartphones.
Revenue climbed to 116 billion yuan (S$20.7 billion), versus the average analyst estimate of about 115 billion yuan. Net income roughly doubled to 11.9 billion yuan. Xiaomi delivered 81,302 cars in the second quarter, taking the total to more than 157,000 over the first half – on track to surpass 2024’s haul.
Strong demand for the YU7 sport utility vehicle, which co-founder Lei Jun released at the end of June, is propelling Xiaomi’s US$10 billion gamble on a fast-growing but crowded EV arena. The company aims to take on Tesla and BYD and become one of the world’s top five carmakers, despite a production crunch that is testing its ability to scale up. Wait times for the SUV have stretched to more than a year.
Lei said at an investor meeting in June that the carmaking venture is expected to turn profitable in the second half of this year.
Xiaomi has gained some US$120 billion of market value over the past year, galvanised by a drive into EVs that has gained momentum against much larger and more experienced rivals. The company seems to have shaken off a fatal accident involving one of its SU7 sedans in March, which had its Autopilot turned on. The crash prompted regulators to rein in the deployment of advanced driver assistance technology.
The Chinese government also intervened in June to try to stop a long-running price war that has squeezed margins all along the auto supply chain. Xiaomi has avoided getting embroiled in the discounting as demand for its vehicles remains high.
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Still, the stock is now trading at more expensive valuations than BYD as well as global smartphone rival Samsung Electronics
“Revenue from its Smart EV and other new-initiatives segment might have gained 11 per cent sequentially, supported by continued ramp-up in production capacity. The Internet of things division could have delivered 30 to 40 per cent sales growth on share gains in white goods and government subsidies,” said Steven Tseng and Sean Chen, analysts at Bloomberg Intelligence.
“However handset sales growth might have slowed to a mid-single-digit percentage. Gross margin could have expanded year over year to 22.5 per cent, driven by greater scale in the EV business and an improved Internet of things product mix. However, gross margin may have dipped slightly vs. 1Q due to promotional sales and rising input costs in the smartphone segment.”
Xiaomi is grappling with a slowdown in its core business and sluggish consumer spending. Xiaomi along with rivals Apple and Huawei Technologies offered steep discounts over the big June shopping festival in an attempt to lure shoppers, pressuring margins.
AI and chip design is another venture where Xiaomi is ramping up resources. The Beijing-based firm unveiled a three-nanometre chip called the Xring O1 chip, designed to power devices including the Tablet 7 Ultra. Lei said the company would invest US$7 billion this decade into its semiconductor. BLOOMBERG
