Xiaomi will swallow EV losses for now to join Tesla, BYD in big leagues

Xiaomi Corp. is willing to grow its nascent electric vehicle arm at the expense of profits for now, as it angles to join Tesla Inc. and BYD Co. among the world’s biggest automakers over the next decade or two.
 

The company, known for making everything from smartphones to rice cookers and luggage, is prioritizing growth of the EV business over margins for now, Chief Financial Officer Alain Lam told Bloomberg Television. The five-month-old business will take some time to stem losses, he said.

“We’re more focused on our growth than profitability at this point,” said Lam, a trained engineer and former Credit Suisse banker who orchestrated some of Xiaomi’s biggest bets. The value-for-money philosophy that Xiaomi used to climb into the upper echelons of the global phone business will also apply to its EVs, he added.

“We do believe scale will bring profit in the future. Right now at this point I only have one SKU, it’s far away from what we call profitability,” he said. “We need to continue to invest in this business.”

Xiaomi’s shares rose as much as 8.5 per cent Thursday after it reported its fastest pace of quarterly revenue growth since 2021 — taking its gain since the advent of its EV business in March to about 25 per cent.

The results may fuel investors’ hope that Xiaomi has hit upon a new source of growth. They also serve as an early vindication for billionaire founder Lei Jun, who’s taking his company into uncharted territory after staking out a claim on smartphones and consumer electronics.

Lei has pledged to invest $10 billion on carmaking, making a bold bet to replicate the success Xiaomi enjoyed in smartphones. His company launched its first EV into a space already crowded with far bigger players. The billionaire has said the firm aims to become one of the world’s top five carmakers in 15 to 20 years.

But that takes a lot of capital. Xiaomi recorded an adjusted net loss relating to smart EVs and other new initiatives of 1.8 billion yuan ($252 million) in the second quarter alone, on just 27,307 vehicles delivered. That means Xiaomi lost roughly 60,000 yuan per car sold (on an adjusted basis), based on Bloomberg calculations.

Lei wrote on his Weibo account that making cars was tough, asking for understanding while Xiaomi soldiers through an “investment phase.”

Lam wouldn’t be drawn on Xiaomi’s plans beyond 2024, when it’s targeting the delivery of 120,000 EVs — a target it raised in May from around 100,000. On Wednesday, President Lu Weibing told analysts he expects shipments to continue accelerating in coming months, and losses to gradually diminish.

The company is now developing more models in its EV lineup to better compete with industry leaders, with plans to sell a sport utility vehicle similar to Tesla’s Model Y as early as 2025, Bloomberg News has reported. It’s also expanding its capacity, purchasing a site in Beijing recently.

What Bloomberg Intelligence Says

Its surprisingly strong EV gross margin last quarter might have more room to run, as delivery continues to ramp up. The company’s 3Q EV sales might sequentially grow by 40 per cent to about 9 billion yuan, we calculate.

- Steven Tseng and Sean Chen, analysts

While Xiaomi is only selling the SU7 in China, it showcased the sedan during the Olympic Games in Paris and set up a pit garage at Germany’s famed Nürburgring race track. Lei said in Paris the company will make the vehicle available globally, without providing a time frame. In a live stream Aug. 17, group president Lu said that Xiaomi is studying how to take its cars to Europe, according to Chinese media, despite the European Commission working on import tariffs on made-in-China EVs.

“We do have the global expansion in mind, although right now we are trying to fulfill all the demand from customers in China,” Lam said.