Xiaomi’s success means more trouble for battered China electric vehicle stocks

Xiaomi’s success means more trouble for battered China electric vehicle stocks

Xiaomi’s success means more trouble for battered China electric vehicle stocks

In stark contrast to Apple’s failed car dreams, Xiaomi and Huawei Technologies are demonstrating early success in transferring their smartphone prowess into the crowded EV market, where rampant price competition is taking a toll.

Strong sales of Xiaomi’s ‘game changer’ SU7 turbocharges China’s EV price war

“The entry of Xiaomi and Huawei is a significant disruption, particularly by the leverage of their expertise in consumer technology and supply chain management,” said Bing Yuan, fund manager at Edmond de Rothschild Asset Management. “Their focus on smart functionalities set a high bar for what consumers expect in terms of vehicle capabilities.”

In addition to the new competition, the broader EV industry is suffering from shifting consumer preferences, China’s slowing economy and concerns of higher interest rates in the US and elsewhere.

Tesla’s shares are down 35 per cent so far this year, while Nio and Xpeng have halved in US trading.

The cash-burning Chinese start-ups are seen as more vulnerable to the negative impact of industry-wide price cuts than more established traditional carmakers like BYD. They may also need to make major adjustments to compete with the new entrants from the smartphone industry.

“The disruption is beyond the product itself – rather, it stems from the effective combination of successful marketing, branding, and, to a greater extent, established ecosystem,” Morgan Stanley analysts including Tim Hsiao wrote in a note. “Competing with tech veterans appears to be an uphill but inevitable battle for carmakers.”

Xiaomi sees strong SU7 demand even as wait times stretch to more than 5 months

The marketing capabilities and strong appeal among young consumers that Xiaomi have developed are well utilised in its EV business. The SU7 has been a hot topic on Chinese social media with a push from Lei Jun, the company’s billionaire co-founder, who boasts 23 million followers on Weibo.

Xiaomi has said it is targeting the premium segment especially. With a base price of 215,900 yuan (around US$30,000), the SU7 series comes in nine different colours and features a connected entertainment system as well as autonomous driving.

Enthusiasm for the launch has helped push Xiaomi’s Hong Kong-listed shares up 36 per cent from a February low, but it still has much to prove in terms of customer satisfaction and delivery ability. And the company’s overall results will most likely continue to hinge on the slowly recovering demand for smartphones, which account for around 60 per cent of its sales.

Two men walk past an Xpeng store in a mall in Beijing, February 29, 2024. Photo: AFP

As the macro outlook is still unclear, costs are key to success not only for individual EV models but ultimately to the financial health of the carmakers themselves.

BYD has managed to stay profitable, supported by its broader array of products and strong exports, while the smaller China-focused EV pure plays Nio and Xpeng post losses.

Promotional spending to boost sales will magnify the bottom-line pressure from price cuts, with Nio and Xpeng both launching new campaigns recently. They both make vehicles seen in direct competition with Xiaomi’s offerings.

“Ultimately everyone could be a loser within the 200k-300k yuan BEV segment, unless the strong SU7 features attract incremental substitution effects from internal combustion engines, partially mitigating the negative impacts from model oversupply,” Citigroup analysts including Jeff Chung wrote in a note.

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