Xiaomi plans Europe foray in 2027 after EV sales gain pace
President Lu Weibing shed more light on the company's expansion plans after reporting a 31% rise in quarterly revenue, riding the successful launch of its second EV over the summer. That helped counter slowing demand for smartphones.
Xiaomi has previously described ambitions to go global, though it's never specified a target market. While Europe is a common destination for Chinese EV makers seeking to tap a more lucrative arena, considering they can often sell their cars with higher margins there, they do face punitive tariffs.
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Were Xiaomi to export its EVs to Europe, it would likely be subject to tariffs of up to 48%, including a base 10% import duty and additional countervailing levies of around 35% to 38%. Those measures were imposed by the European Union in response to what it deems unfair state subsidies provided to Chinese EV makers, which the bloc argues distorts market competition and threatens local manufacturers.
Chinese EV makers also face tariffs of 100% if they want to sell their cars in the US. That's effectively shut them entirely out of the market.
Regardless, strong demand for the YU7 sport utility vehicle, which co-founder Lei Jun released at the end of June, is propelling Xiaomi's $10 billion gamble on the increasingly crowded EV arena. The company aims to become one of the world's top five carmakers within 15 to 20 years, despite a production crunch that's testing its ability to scale up. Wait times for the SUV have stretched to more than a year.
'The business model we have developed in China can also apply in overseas market when we get into Europe,' Lu told analysts on a call. 'We're doing the research and preparation. So far we have not got the specific product plan yet.'
Revenue climbed to 116 billion yuan ($16.2 billion) in the June quarter, just edging past average analyst estimates. The tech giant delivered 81,302 cars, taking the total to more than 157,000 in the first half — on track to surpass 2024's haul. But smartphones — its original and largest business — slid 2.1% and missed the average projection by about 5%.
While Xiaomi doesn't expect smartphones to see much growth this year, the company's goal is to increase its market share in China by 1% every year, Lu told reporters on a post-earnings call Tuesday. It expects growth of about 5 to 6 percentage points in shipments this year to 175 million devices, executives said.
Losses from the EV division narrowed to about 300 million yuan during the period. Lei said at an investor meeting in June that the automaking venture is expected to turn profitable in the second half of this year.
Xiaomi has gained some $120 billion of market value over the past year, galvanized by its drive into EVs that's gained momentum against much larger and more experienced rivals. The company seems to have shaken off a fatal accident involving one of its SU7 sedans in March, which had its Autopilot turned on. The crash prompted regulators to rein in the deployment of advanced driver assistance technology nationwide.
The Chinese government also intervened in June to try to stop a long-running price war that has squeezed margins all along the auto supply chain. Xiaomi has avoided getting embroiled in the discounting thanks in large part to demand for its vehicles remaining very high. Xiaomi's overall net income roughly doubled to 11.9 billion yuan, helped by fair value gains on financial instruments.
Still, the stock is now trading at more expensive valuations than BYD as well as global smartphone rival Samsung Electronics Co.
What Bloomberg Intelligence Says
Xiaomi's robust 3.2 percentage point EV gross margin sequential growth in 2Q reflects improving economies of scale and a favorable product-mix shift, helping together with solid internet-of-things growth to offset smartphone headwinds. The ramp-up of Xiaomi's second EV factory and a rising sales mix of the YU7 SUV could boost margin, supporting breakeven in the EV segment by end-2025 and potentially driving a 2025-26 profit beat.
Xiaomi is grappling with a slowdown in its core business and sluggish consumer spending. Along with rivals Apple Inc. and Huawei Technologies Co., it's been offering steep discounts over the big June shopping festival in an attempt to lure shoppers, pressuring margins.
AI and chip design is another arena where Xiaomi is ramping up resources. The Beijing-based firm unveiled a 3-nanometer chip called the Xring O1 chip, designed to power devices including the Tablet 7 Ultra. Lei said the company would invest $7 billion this decade into semiconductors.
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