Xiaomi Shocks Industry by Selling EVs at $8,400 Loss Per Car: CEO Says It's Just the Beginning

Xiaomi Sells EVs at $8,400 Loss Per Vehicle: CEO Says It's Just the Start

In a bold move that has captured the attention of the tech and automotive industries alike, Xiaomi, the Chinese electronics giant, revealed in its 2024 mid-year financial report that it is selling its electric vehicles (EVs) at a significant loss of over ¥60,000 ($8,400) per vehicle. Despite the shocking figure, Xiaomi's founder, Chairman, and CEO Lei Jun remained calm, emphasizing that this is only the beginning of the company's long-term strategy in the EV space.

In its latest financial report, Xiaomi disclosed that its smart electric vehicle business achieved an average selling price (ASP) of ¥228,600 per vehicle in the second quarter of 2024, with deliveries reaching 27,307 units. However, this new business segment also posted a net loss of ¥1.8 billion ($240 million) for the quarter, translating to a loss of more than ¥60,000 per vehicle sold. This has sparked widespread debate online, with the topic trending on Chinese social media.

Lei Jun responded to the discussion by acknowledging the challenges but expressed confidence in Xiaomi's future in the automotive industry. "Building cars is tough, but success will be amazing!" he remarked. He also pointed out that Xiaomi's EV business is still in the investment phase, and losses are expected as the company continues to scale up.

Key Takeaways

1. Xiaomi Faces Heavy Losses in EV Sector: Xiaomi’s first EV report card shows a significant loss of $8,400 per vehicle, a cost associated with scaling up its operations.
2. CEO Optimistic About Future Success: Xiaomi's CEO, Lei Jun, emphasized that these losses are part of the company's long-term strategy and that success will come as the business scales up.
3. Growth in Other Business Segments: Despite the EV losses, Xiaomi's overall financial performance in the first half of 2024 was strong, with a 29.6% increase in revenue and a 51.3% increase in adjusted net profit compared to the previous year.
4. EV Market Challenges: The profitability of electric vehicles remains a significant global challenge, with few companies managing to turn a profit in this space.

Deep Analysis

Xiaomi's foray into the EV market is part of a broader trend of tech companies venturing into new industries, seeking to leverage their technological expertise and customer bases. The company has been known for its ecosystem strategy, selling a wide range of connected devices, often at thin margins, to lock customers into its broader ecosystem of services.

Selling EVs at a loss fits into this strategy. Xiaomi views EVs not just as cars but as another product within its ecosystem, one that can help it attract more customers and integrate its various connected products and services. The EV market, especially in China, is fiercely competitive, with numerous players fighting for market share, including established brands like Tesla and domestic competitors like BYD, NIO, and Xpeng. Xiaomi’s low-pricing strategy is designed to quickly capture a significant portion of this market, even at the cost of short-term profitability.

Economies of scale are critical in this business. As Xiaomi ramps up production, it hopes to reduce costs and eventually turn a profit. This strategy is reminiscent of Xiaomi's approach to the smartphone market, where it initially sold devices at cost or at a loss to capture market share before optimizing production and achieving profitability.

Another key aspect of Xiaomi's strategy is leveraging its brand loyalty. Xiaomi has a strong, tech-savvy customer base, particularly in China. By offering affordable EVs that integrate with Xiaomi's ecosystem of products, the company aims to convert these customers into EV buyers, strengthening its foothold in this new market.

Xiaomi's long-term vision extends beyond hardware sales. The company is focusing increasingly on software, internet services, and AIoT (Artificial Intelligence of Things). Its EVs could become a platform for offering additional services, such as in-car apps, software updates, and smart home integrations, providing a new revenue stream that could eventually offset the losses on hardware sales.

Did You Know?

• Rapid Retail Expansion: Xiaomi is not only ramping up EV production but also rapidly expanding its retail footprint. The company currently operates over 100 Xiaomi Auto stores across China and plans to increase that number to 220 by the end of the year, covering 59 cities.

• Manufacturing Capabilities: Xiaomi's EV factory, located in Beijing's Economic-Technological Development Area, was completed in June 2023. The factory is capable of producing 15,000 vehicles annually and includes six key workshops for stamping, body, paint, final assembly, die-casting, and batteries. Under full production, Xiaomi plans to roll out one vehicle every 76 seconds.

• The EV Profitability Challenge: Globally, only a few EV manufacturers, including Tesla and BYD, have managed to achieve profitability. Even Tesla saw a 45% year-on-year decline in its net profit for Q2 2024, highlighting the financial difficulties that the EV industry faces.

Xiaomi’s entry into the EV market is ambitious and risky, but the company is confident that its ecosystem approach, combined with aggressive pricing and strong brand loyalty, will eventually pay off. As Xiaomi continues to scale production and refine its EV offerings, the coming years will determine whether this gamble will position the tech giant as a leader in the next generation of mobility.