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Xiaomi’s EV Bet: A High-Voltage Opportunity or a Risky Ride?

Last week’s launch sent their shares jolting upwards, with yesterday’s session opening with a bullish gap, despite a near 9% decline on the day from the opening value.

This surge has propelled Xiaomi’s market capitalization by around $4 billion to $406.45 billion Hong Kong Dollars or HKD (roughly $52.79 billion USD), placing them neck-and-neck with established auto giants like General Motors ($52.09 billion) and Ford ($52.82 billion).

Over one year, the share price of the company has gone up more than 33%. Investors might now be wondering if it is time to invest in the Chinese company, or if it is too risky a move. Let’s take a look at a few things investors should take into account.

Who is Xiaomi?

Xiaomi, a name synonymous with cutting-edge technology, has carved its niche as a major player in the global tech scene since its founding in 2010. Listed on the prestigious Hong Kong Stock Exchange, Xiaomi has become a household name, especially for its high-quality smartphones.

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But Xiaomi’s reach extends far beyond just phones. They’ve built a reputation for innovative smart home products, creating a connected ecosystem with their Internet of Things (IoT) platform at its core. Smart TVs, robotic vacuums, and intelligent kitchen appliances are just a few examples of how Xiaomi is transforming everyday living with technology. Their product portfolio also encompasses wearables and other lifestyle products, catering to a diverse range of consumer needs.

Xiaomi’s success is evident not just in its brand recognition but also in its financial performance. 2023 saw a significant increase in adjusted net profit, exceeding market expectations and solidifying their position as a powerhouse in the tech industry. The company’s focus has now shifted towards even more ambitious ventures, with a particular emphasis on the development of smart electric vehicles, a move that signals their commitment to staying at the forefront of technological innovation.

Xiaomi Up Over 33% In One Year, Despite Modest 2024 Gains

Xioami’s shares are up 5% since January and more than 33% over one year, but they are still around 55% lower than their highest level ever reached, 35.90 HKD in January 2021.

Xiaomi’s stock price experienced a rollercoaster ride yesterday, opening a whopping 15% higher than Friday’s closing price of HKD 14.94. This surge pushed the share price to its highest level since January 2022, reaching a peak of HKD 17.34. However, investor enthusiasm quickly waned, and the stock plunged throughout the day, ultimately closing nearly 9% lower.

Daily Xiaomi Chart – Source: TradingView
Daily Xiaomi Chart – Source: TradingView

Xiaomi Enters Competitive EV Market: Can They Leverage Brand Strength to Succeed?

Xiaomi’s leap into the electric vehicle (EV) market has generated plenty of buzz, capitalizing on the rising consumer demand for electric cars and the demand for its new car is so strong that buyers are facing waiting times of 4 to 7 months, potentially a record for a first-ever vehicle from a new manufacturer. However, the road ahead for Xiaomi won’t be a smooth electric highway.

As a newcomer, Xiaomi finds itself in a fiercely competitive industry dominated by established specialized EV automakers like Tesla (TSLA) in the United States and BYD (002594), Li Auto (2015), NIO (NIO) and even Xpeng (XPEV) in the Chinese market. These firms boast not only brand recognition but also years of experience in navigating the complexities of auto manufacturing, supply chain management, and building robust dealer networks. Many of these companies have for instance delivered fewer cars than expected, or lowered their forecasts

Despite facing an uphill battle, Xiaomi possesses some distinct advantages. Their established brand loyalty and reputation for tech innovation could be a game-changer. They could disrupt the market by offering feature-rich vehicles that seamlessly integrate with their existing ecosystem of devices. This alignment falls in line with their “Human x Car x Home” strategy, leveraging their relatively new HyperOS operating system. However, the success of these tactics hinges on their ability to overcome the inherent challenges of entering a complex industry.

Moreover, the competitive landscape is further intensified by established players resorting to price cuts. This comes as the growth of new energy vehicles in China, the world’s largest auto market, shows signs of slowing down, explains CNBC. This pressure to maintain market share puts additional strain on newcomers like Xiaomi. The newspaper also declared that Xpeng and Nio have announced on Monday subsidies of 20,000 yuan ($2,800) and 10,000 yuan respectively.

But Xiaomi is already competing on price, as it has set its price 30,000 yuan below the Model 3 from Tesla (215,900 yuan ($30,408) vs 245,900 yuan respectively). It’s important to note that this new project is likely to trigger wide losses for the company, as the standard version of the Xiaomi is already set to be sold at a loss in China.

Final Word

Only time will tell how Xiaomi’s electric vehicle story unfolds. Investors and consumers alike will be watching closely to see if they can translate their tech expertise and strong brand into success on the road. Their ability to navigate the complexities of the auto industry, adapt to a rapidly evolving market, and offer compelling features that resonate with consumers will be crucial in determining their long-term position. However, one thing is certain: Xiaomi’s entry adds another exciting chapter to the ever-evolving electric vehicle landscape, potentially accelerating innovation and consumer choice in this critical sector.

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This article was originally posted on FX Empire

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