For many, Lei Jun embodies an enigmatic figure in the ever-changing landscape of technology and businessWhile he occasionally expresses his dissatisfaction with competitors, he generally steers clear of engaging in broader social debates that might tarnish his image or provoke controversyThis carefully curated public persona contributes to a degree of mystique surrounding him and his company, Xiaomi.

What truly sets Lei apart is his remarkable humility, especially striking for a man whose net worth is in the billionsObserving him interact with others, one might easily mistake him for a junior employee rather than the head of a multi-billion-dollar enterprise

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This genuine approach resonates with consumers, who tend to appreciate authenticity in their interactions, making them more likely to trust brands associated with such leaders.

Moreover, his personal magnetism has undeniably drawn significant attention to XiaomiThe strategic approach of offering a comprehensive range of high-quality and reasonably priced products means that Xiaomi's presence is virtually unavoidable in today's digital society; from smartphones to smart home devices, the tech company's offerings are designed to integrate seamlessly with consumers' increasingly connected lifestyles.

Today, Xiaomi has made significant strides in the automotive sector, even making a name for itself in the competitive automotive market in a remarkably short time

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This expansion has helped the company propel its market value to surpass BYD, positioning it as the third-largest automotive entity in the world, a testament to its impressive competitive edge and rapid growth.

However, the question of whether Xiaomi can be regarded as a legitimate car manufacturer remains a topic of heated debateCurrently, automotive revenue comprises only about 10% of the company's total earnings, making it somewhat misleading to categorize Xiaomi solely as an automaker, given its broader technology and smartphone foundations.

Unlike BYD, which has predominantly focused on batteries and cars, Xiaomi’s transition into the automotive world allows for a cross-disciplinary expansion that many believe enhances its corporate versatility

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Investors perceive greater potential in Xiaomi, leading to its surging market value when compared to BYD.

Reflecting on Xiaomi's journey, it stands as a classic example of a company that navigates through extraordinary market shifts, especially during the boom of 5G technology between 2020 and 2021. This period was not only characterized by enormous growth in consumer electronics but also played a pivotal role in forming Xiaomi’s current status.

At that time, smartphones equipped with 5G technology achieved a remarkable surge in sales and average selling price (ASP). As a result, Xiaomi experienced a 17.5% year-on-year increase in smartphone shipments, capturing an 11.2% share of the global market, solidifying its place as a top contender.

The company also benefitted significantly from favorable overseas markets and diverse expansions in the smart home sector

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These factors collectively drove Xiaomi’s stock upward, celebrating profits and positive momentum.

Yet, this promising trajectory faced turbulence in early 2021 when Xiaomi was placed on a “military blacklist” by the U.Sgovernment, striking a devastating blow to a company that relies on international revenue for nearly half of its earningsXiaomi’s stock price reacted promptly, leading to noteworthy declines.

Nevertheless, the company quickly rebounded, thanks in part to its strong response to the government’s actions, resulting in its removal from the blacklist by May of that yearHowever, the general decline in Xiaomi’s stock price can be attributed to the waning 5G boom and the cyclical nature of the consumer electronics industry.

By late 2022, global smartphone shipment volume dropped by 18% to 290 million units, further complicating Xiaomi’s position in the market.

As of Q3 2021, Xiaomi’s smartphone business recorded total revenues of 47.8 billion yuan, marking a mere 0.5% year-on-year growth, with shipments declining by 5.8%. Notably, as a cascading effect, the smart home segment also witnessed a continuous decline in gross margin for three consecutive quarters.

Initially, Xiaomi's peak market valuation was largely driven by cyclical booms

The company primarily remains an umbrella brand offering mainstream products, which renders it vulnerable to external competition and industry cycles.

With the disruptions caused by the pandemic and semiconductor shortages, the device replacement cycle was extended, leaving consumer demand across the board weakened, ultimately resulting in continuously declining overall salesThe ripple effect has hindered Xiaomi's smartphone business from reclaiming its previous heights.

Amidst these trials, Xiaomi's stock price has reached new heights as the company has successfully identified a second growth trajectory: the automotive sector.

In March 2024, Xiaomi unveiled the SU7 model, achieving unexpectedly high order volumes; the target annual sales had to be adjusted from 100,000 units to 130,000 units.

The pace and momentum displayed by the new automotive initiative have defied market expectations, leading to overwhelming consumer interest, while simultaneously creating an unprecedented rush at sales fronts as prospective buyers line up for the new offerings.

Underpinned by a boom in orders, the sentiment in the capital market surged, marking a new chapter where Xiaomi’s total market value eclipsed that of BYD, positioning it as China’s most valuable auto company.

There remains, however, ongoing debate about whether Xiaomi qualifies as a genuine car manufacturer

Nevertheless, the success of the SU7 is indisputableIn 2024, the vehicle’s final delivery numbers exceeded 135,000 units, achieving completion rates of 103.9%, with the target for 2025 set to double that at 300,000 units.

Industry consensus dictates that sales of 30,000 vehicles monthly constitute the breakeven point for an automakerAt this trajectory, Xiaomi is projected to become profitable in the automotive domain by 2026. Comparatively, similar ventures took competitors like Seres over four years, Li Auto eight years, and Tesla over seventeen years to reach profitability; Xiaomi could potentially achieve this feat within two years.

The car business serves as a crucial second growth avenue, substantially aiding Xiaomi's crossing of the critical threshold towards enhanced valuation

However, it raises an intriguing question: How did Xiaomi succeed where even tech giants like Apple hesitated to enter?

Understanding the successful positioning of the SU7 hinges on recognizing a significant gap: the Chinese automotive market has long been craving an attractive, user-friendly, and affordable new energy vehicle—traits embodied by the Xiaomi SU7.

Research indicates that the primary purchase ratio for the SU7 was around 45%, with an exceptional 41% of SU7 users being female—outperforming Tesla's figures, which stand at approximately 33% for female buyers.

On the supply side, Xiaomi boasts cash reserves of an impressive 151.6 billion yuan, supported further by a robust talent pool and backing from local government initiatives, alongside the unique advantages provided by China’s integrated new energy industry supply chain.

In terms of successful methodology, Xiaomi adhered closely to Lei Jun’s vision of creating blockbuster products:

1. Efficient industrial-scale production.

Chinese electric vehicle production is surging, with an advanced supply chain capable of supporting rapid scaling for tech firms

As of the end of 2023, there are 398 vehicle manufacturing factories in the country, with 278 specializing in new energy production lines.

Xiaomi's initial phase factory operated at a staggering 200% capacity utilization, surpassing the expected target of 130,000 vehicles sold by an additional 6,000 unitsNo other country in the world can replicate such production efficiency.

2. Pricing tailored to consumer purchasing power.

With a price range between 200,000 and 350,000 yuan, the SU7 is positioned within one of the most competitive price brackets in the market—an area that also represents a significant portion of consumer spending in China

Furthermore, critical comparisons show that the SU7 offers advantages in pricing, range, performance, and intelligent driving features compared to its competitors.

3. Innovation driven by product experience.

Consumers today no longer view automobiles merely as transportation; instead, they demand enhanced interactivity and intelligent experiencesXiaomi has an undeniable head start in this regard, derived from its existing users’ expectation and familiarity with its mobile ecosystem.

Expanding its product ecosystem into the automotive market amplifies the brand’s specialization and individuality, substantially increasing the inertia against switching to alternative brands

Leveraging this trend means Xiaomi can effectively convert existing customers while also fostering customer loyalty.

For Xiaomi fans, the notion of having a product that works within the Xiaomi ecosystem creates a closed-loop experience that enhances usabilityIt is no surprise that survey data indicated that 64% of the initial locked orders for the SU7 were from users who owned more than 10 Xiaomi home ecosystem products.

4. The influence of key opinion leaders (KOLs).

Lei Jun, an early internet personality, perhaps never anticipated the extent of his own charisma

His presence has helped cultivate a loyal fan base, which not only fosters brand loyalty but has also unearthed a rich segment of female consumers who have considerably influenced SU7 sales.

Xiaomi's automotive success isn’t merely happenstance; it reflects years of accumulated technological prowess, adept supply chain management, and keen sensitivity to consumer needs—all of which establish a solid foundation for rapid elevation in the automotive sector.

Furthermore, entering the electric vehicle market later than some competitors may offer Xiaomi additional advantages, as it draws on a wealth of successful strategies from established companies, aligning both supply and demand characteristics that accelerate growth.

As a second pillar of growth, the automotive segment does not diverge from Xiaomi’s core business, since it is an extension of the existing ecosystem

The anticipated synergistic effects from this integration are concurrently driving market value expectations to expand significantly.

In the realm of high-end manufacturing, the intersection of appliances, smartphones, and vehicles challenges any company's sustainable brand premium and cost management capabilitiesNotably, while Xiaomi has yet to achieve profitability in the automotive sphere, it boasts commendable gross margins.

By Q3 2024, Xiaomi achieved revenue of 92.5 billion yuan, indicating a 30.5% year-on-year increase and establishing a historical high; adjusted net profits reached 6.252 billion yuan, an increase of 4.4%. Among these figures, automotive revenues accounted for 9.5 billion yuan, incurring a loss of 1.5 billion yuan, although individual vehicle losses decreased significantly from 66,000 in Q2 to 37,700 yuan

Gross margins improved by 1.7 percentage points to 17.1%, showcasing admirable cost control capacity.

In strategic terms, efforts to enhance brand premiums while managing costs are gradually reflecting within the product matrixThe upcoming SUV model, Xiaomi YU7, is poised to boost these initiatives further.

Initial projections suggest overlapping components between YU7 and SU7—similar to how Tesla’s Model 3 and Model Y share nearly 75% of their partsXiaomi can leverage existing production designs to optimize costs on the supply side.

Moreover, both market segments of pure electric and hybrid SUVs are currently characterized by rapid growth, indicating strong market demand that could escalate sales and subsequently lower unit costs by distributing fixed costs across greater product volumes.

Additionally, with rivals like Tesla's Model Y nearing a six-year cycle without significant updates, accompanied by a strategic pivot towards AI applications rather than vehicle innovation, consumer interest is liable to funnel back toward Xiaomi’s auto offerings as they bring forth refreshed models.

Following this trend, YU7 is likely to replicate SU7’s success, with the introduction of this new model potentially serving as a further catalyst for enhancing Xiaomi's automotive profits and broader corporate profitability.

Goldman Sachs anticipates significant potential for this new vehicle, projecting a compound annual net profit growth rate of 31% for Xiaomi Group from 2024 to 2027, with the automotive sector contributing about 5 billion yuan in net profit, signifying a crossover to profitability.

It is crucial to note, however, that relying solely on the automotive sector for establishing stock price highs is insufficient; the shift toward premium branding within the automotive domain generates synergistic effects across the company’s product landscape that is becoming increasingly apparent.

By Q3 2024, Xiaomi's smartphone average selling price (ASP) rose by 10.6% year-on-year, attributed to the increasing proportion of high-end smartphones sold in the domestic market.

This growth trajectory has successfully disrupted a stagnant trend that had afflicted Xiaomi smartphones in the Chinese market for several consecutive years

The underlying rationale indicates effectiveness in brand premium generation, charged potentially by the successful automotive line, as evidenced by the SU7, in which 51.9% of users previously owned Apple products—this transition revealing latent opportunities to capture high-end smartphone users.

Nevertheless, it remains essential to recognize that Xiaomi’s smartphone revenue continues to dominate its income structure, accounting for over 50%. As such, fluctuations in the smartphone industry will have lasting implications for Xiaomi's overall performance.

In Q4 2024, while the global smartphone market recorded a modest 3% growth continuing across five quarters, the pace of expansion has noticeably slowed

Concurrently, average replacement cycles have extended from 24 to 31 months in the past three years, reflecting diminished replacement frequencies among consumers.

Such patterns imply a diminishing marginal impact of the smartphone segment on Xiaomi's revenue over the next one to two yearsAlthough a surge in domestic demand can be sustained through government support, the overseas markets are likely to face strain from cyclic demands, lowering overall shipment figures, thus warranting caution against overly optimistic assumptions regarding smartphone valuations.

Should the smartphone sector navigate through turbulent industrial cycles, it may necessitate price adjustments to counteract sluggish sales, which in turn hinges upon the automotive business maintaining its favorable market conditions.

Thus, the concept of synergistic effects acts as a double-edged sword: when all three sectors thrive, they mutually stimulate growth, boosting stock prices

However, if one falters—particularly in the automotive sector—it can significantly curb growth in the smartphone premium market and adversely impact stock performance.

Conclusion

The trajectory of increased market capitalization coinciding with expansive growth potential is certainly justified; nonetheless, the accompanying risks are amplifiedInvestors must remain vigilant in monitoring business sectors' cooperative development dynamics within the group.

Furthermore, the surpassing of BYD's market valuation by Xiaomi does not imply that BYD's advantages have been stifled