Xiaomi Corp.'s aggressive foray into the electric vehicle (EV) sector is casting shadows on the recovery prospects for China's struggling auto startups. The buzz surrounding the debut and the unexpected surge in initial orders for the SU7 model have propelled Xiaomi's stock, while skepticism grows around EV manufacturers like NIO Inc. (NIO, Financial) and Xpeng Inc. (XPEV, Financial), evidenced by a significant increase in short interest against their US shares.
Unlike Apple Inc. (AAPL, Financial), which has seen its automotive ambitions falter, Xiaomi along with Huawei Technologies Co. is making notable strides in the saturated EV market, leveraging their extensive experience in consumer electronics and supply chain mastery. This move is introducing a wave of disruption, particularly with their emphasis on advanced smart features, raising consumer expectations for vehicle technology.
The entrance of these tech giants into the EV market comes at a time when the industry is grappling with changing consumer demands, China's economic slowdown, and the looming threat of rising interest rates worldwide.
Shares of Tesla Inc. (TSLA, Financial) have plummeted by 35% this year, with NIO and Xpeng experiencing a 50% decline in the US market. The financial strain is particularly acute for Chinese EV startups, which are burning through cash and may find it challenging to adapt to the competitive pressure exerted by new entrants from the tech sector.
The ability of Xiaomi to leverage its marketing prowess and appeal to younger demographics has been evident in its EV venture. The SU7 has become a popular topic on Chinese social media, thanks in part to promotional efforts by Lei Jun, Xiaomi's co-founder, who has a substantial following on Weibo.
Targeting the premium market, the SU7 is priced at approximately 215,900 yuan ($30,000) and offers a range of nine colors, an integrated entertainment system, and autonomous driving capabilities. Despite the initial surge in Xiaomi's share price, the company's long-term performance is still heavily reliant on the recovering smartphone market, which constitutes the bulk of its revenue.
The broader economic uncertainties underscore the importance of cost management for EV manufacturers. While BYD Co. remains profitable through a diverse product lineup and robust exports, smaller EV-focused firms like Nio and Xpeng are struggling with losses, further exacerbated by aggressive pricing strategies and promotional expenditures.
With the introduction of new models by Nio and Xpeng, the competition within the 200k-300k yuan EV segment intensifies, potentially leading to a no-win situation unless Xiaomi's SU7 can significantly attract customers away from traditional internal combustion engine vehicles, as per Citigroup Inc. analysts.
