Apple out, Xiaomi zooms ahead in electric vehicles market

While Apple recently abandoned its electric vehicle ambitions, its Chinese competitor, Xiaomi, is making significant strides in the market. The $48 billion smartphone manufacturer has announced its foray into electric cars just weeks after Apple abandoned its decadelong efforts in the same domain.

Despite the less-than-ideal timing, Xiaomi's CEO Lei Jun is banking on the company's software prowess to give them the edge.

From smartphone to Sedan: Xiaomi's electric dreams unveiled

Xiaomi publicly unveiled its EV ambitions only three years ago when CEO Lei Jun outlined a $10 billion investment roadmap over a decade.

Since then, the company has strategically partnered with state-backed manufacturer BAIC, which has notable collaborations with BMW in China. Xiaomi has also assembled a dedicated team of 4,400 engineers and experts to bring their electric dreams to life.

The fruits of their labor were evident on Tuesday when Xiaomi, listed on the Hong Kong stock exchange, announced plans to release its inaugural electric car model, the SU7 sedan, later this month. The revelation resulted in an 11% surge in Xiaomi's shares.

While specific financial details remain scarce, Lei Jun previously highlighted impressive technical specifications, including acceleration speeds outpacing some Tesla and Porsche models.

Challenges in EV market

However, Xiaomi enters the EV market during a more challenging period than three years ago. Annual demand for battery-powered vehicles is experiencing slower growth, with sales up 30% in 2023 compared to a 60% increase in 2022, according to Rho Motion.

Analysts, as polled by LSEG, predict a tough battle in Xiaomi's home market, marked by a cutthroat price war and intense competition. This could potentially impact the company's slim 5% operating profit margin forecast for 2023.

Xiaomi's unique selling proposition

In a bid to carve out a niche, Xiaomi unveiled a new operating system in October that seamlessly connects its smartphones, cars, and an array of gadgets – from air purifiers to robotic dogs.

The SU7 model, Xiaomi's latest offering, boasts compatibility with over 1000 Xiaomi devices, a significant advantage in a market driven by connectivity. Users can even opt to integrate their iPhones, underscoring Xiaomi's commitment to user choice.

This interconnected feature aligns with the preferences of China's premium segment, the target market for Lei Jun. A McKinsey survey conducted in July revealed that drivers in this segment prioritize internet-connected features as much as traditional factors like steering, fuel efficiency, and maintenance costs.

Financial resilience

Xiaomi's financial robustness sets it apart from its pure-play rivals. Projections indicate the company is poised to generate nearly 19 billion yuan ($2.6 billion) in operating cash this year, according to LSEG data.

As of June, Xiaomi boasts a net cash reserve exceeding $1 billion. This financial health contrasts sharply with Nio, which analysts expect to report a net loss of 15 billion yuan this year.

Source: Newsroom