(Bloomberg) — Xiaomi’s breakneck entry into the electric vehicle market is dimming prospects for recovery for the battered Chinese auto startup.
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Launch hype and higher-than-expected initial orders for SU7 fueled the rise in Xiaomi stock. Meanwhile, investors are betting on further declines in EV makers NIO and Xpeng, with short interest in their US listings at about 86% and 36% of their outstanding shares, respectively.
In stark contrast to Apple, which failed in its automotive dreams, Xiaomi and Huawei have seen early success in moving their smartphone capabilities into the crowded EV market, which has been hit by fierce price competition. Contains.
“The entry of Xiaomi and Huawei will bring significant disruption, especially by leveraging their expertise in consumer technology and supply chain management,” said Bin Yuan, fund manager at Edmond de Rothschild Asset Management. said. “They are focusing on smart features and setting a high bar for what consumers expect in terms of vehicle functionality.”
In addition to new competition, the broader EV industry is struggling with concerns about changing consumer tastes, a slowing Chinese economy and rising interest rates in the United States and elsewhere.
Tesla's stock price has fallen 35% since the beginning of the year, and Nio and Xiaopeng have halved in U.S. trading.
Capital-guzzling Chinese startups are seen as more vulnerable to industry-wide price cuts than established traditional automakers like BYD. It may also require significant adjustments to compete with new entrants from the smartphone industry.
Morgan Stanley analysts, including Tim Hsiao, said in a note that “this disruption goes beyond the product itself, but rather the successful marketing, branding, and effectiveness of a largely established ecosystem. It arises from a combination of “For automakers, competing with technology veterans appears to be a difficult but inevitable battle.”
The marketing skills and strong appeal to young consumers that Xiaomi has cultivated over the years are being utilized in the EV business. SU7 has become a hot topic on Chinese social media thanks to the backing of the company's billionaire co-founder Lei Jun, who boasts 23 million followers on Weibo.
Xiaomi said it is specifically targeting the premium segment. The SU7 series has a base price of 215,900 yuan (approximately $30,000), comes in nine colors, and features a connected entertainment system and autonomous driving.
Enthusiasm for the launch has pushed Xiaomi's Hong Kong-listed stock up 32% from its February lows, but it still has much to prove in terms of customer satisfaction and delivery capabilities. And the company's overall performance is likely to continue to be influenced by the slowly recovering demand for smartphones, which account for about 60% of sales.
As the macro outlook remains uncertain, cost will be key not only to the success of individual EV models, but ultimately to the financial health of the automaker itself. BYD has maintained profits thanks to a wide range of products and strong exports, but Nio and Xpeng, which are pure small EVs focused on China, are posting losses.
Both Nio and Xpeng have recently launched new campaigns, and promotional spending to boost sales will further increase revenue pressure from price cuts. Both companies produce vehicles that are seen as direct competitors to Xiaomi's products.
Citigroup analysts, including Jeff Chan, said that “unless strong SU7 capabilities gradually attract displacement from internal combustion engines and partially alleviate the negative effects of model oversupply, the 200,000 “Everyone could be a loser within the ~300,000 yuan BEV segment.” Note.
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