Behind Xiaomi Motors' "strongest performance in history", Xiaomi's mobile phone business gross margin has hit a record low. On one hand, there is the rapid advancement in the automotive sector, and on the other, there is the slow progress of premiumization and the declining gross margin of the mobile phone business. Xiaomi seems to be neglecting one area while focusing on another.

After delivering its "strongest performance in history", Xiaomi Group's share price hit a "52-week high" of HK$29.85 per share on November 22, with a total market capitalization exceeding HK$740 billion. By the end of the trading day, gains had narrowed slightly. However, throughout 2024, Xiaomi Group's share price increased by over 83%.

Benefiting from Xiaomi Group's strong share price performance, Xiaomi Group founder Lei Jun's wealth has also risen. According to the Bloomberg Billionaires Index, Lei Jun's net worth reached $24.9 billion, making him the seventh richest person in China. NetEase founder Ding Lei and Midea Group's He Xiangjian rank ahead of him, while Geely Auto's Li Shufu and Shein founder Xu Yangtian follow behind. Throughout 2024, Lei Jun's net worth increased by $10.5 billion, the largest net increase among China's richest individuals.

Behind Xiaomi's surging share price and Lei Jun's rising wealth in 2024 is Xiaomi Motors' "perfect" debut performance. In 2024, Xiaomi Motors has achieved the offline production of its 100,000th vehicle and is aiming to deliver 130,000 vehicles throughout the year. Based on Xiaomi SU7's delivery volume in October, achieving this goal seems feasible.

As a "new force in automaking," Xiaomi Motors is expected to become the second automaker to achieve profitability after AITO. The second new model, the Xiaomi SU7 Ultra, is Coming soon and will be officially released in March 2025.

However, behind Xiaomi Motors' "strongest performance in history," Xiaomi's overall gross margin has declined sequentially. According to "Digital Intelligence Research Society," the decline in the gross margin of the mobile phone business has led to a decline in Xiaomi Group's gross margin for the entire third quarter.

On one hand, there is Xiaomi Motors' rapid advancement, and on the other, there is the declining gross margin of the mobile phone business. Xiaomi Group seems to be neglecting one area while focusing on another.

Still Selling Cars at a Loss

Currently, it is common for automakers to "sell cars at a loss."

Huawei Intelligent Automobile Solutions BU Chairman Yu Chengdong stated that each AITO R7 sold this year incurs a loss of approximately RMB 30,000. According to third-quarter reports, "new forces in automaking" NIO's net profit per vehicle was -RMB 104,000, XPeng lost RMB 45,300 per vehicle sold, and Lixiang ONE had a net profit of RMB 13,200 per vehicle sold.

Regarding Xiaomi Motors, in the third quarter of 2024, it generated revenue of RMB 9.5 billion from electric vehicles and RMB 200 million from other related businesses, with a gross margin of 17.1% for smart electric vehicles and other innovative businesses.

In terms of deliveries, 39,790 SU7s were delivered in the third quarter. After adjustments, Xiaomi's innovative businesses, including smart electric vehicles, still had a net loss of RMB 1.5 billion, equivalent to a net loss of approximately RMB 37,000 per vehicle.

Regarding the cause of the losses, Lu Weibing attributed it to industry norms, stating, "Xiaomi Motors is still in its early stages and not large enough in scale. With self-built factories and self-developed core technologies, there are significant upfront investments and costs to be shared."

After the financial report was released, the hashtag #XiaomiMotorsLoses30000PerCar# trended on social media. Some netizens questioned, "Xiaomi loses money on every car sold, so why are they still selling so hard?"

Most other "new forces in automaking" are also incurring losses. NIO and XPeng have been selling cars for years and are still losing money, while Xiaomi is only in its first year of selling cars and is already facing "unfair treatment." In fact, after the second-quarter report in 2024, the revelation that "the SU7 loses over RMB 60,000 on each sale" also sparked heated public discussion. Xu Jiye, the head of Geely's public relations department, even posted on social media, "Xiaomi loses RMB 60,000 on each car. Why are you still selling so many if you're losing that much? This used to be called dumping."

In fact, behind Xiaomi Motors' ability to halve its per-vehicle loss in one quarter is the rapid growth in SU7 shipments and deliveries. The more vehicles shipped and delivered, the lower the net loss per vehicle will be. Based on the full-year delivery target of 130,000 vehicles, Xiaomi SU7 is expected to achieve breakeven or slight profitability in the first quarter of 2025.

Furthermore, Xiaomi's newly released SU7 Ultra, priced at up to RMB 814,900, currently has growing orders. With the launch of the SU7 Ultra in March next year, Xiaomi Motors' profitability is expected to improve rapidly.

However, just as Xiaomi SU7's production capacity continues to increase and its per-vehicle losses continue to narrow, media reports have exposed that more than 70 Xiaomi SU7 owners in Beijing and Tianjin experienced scraping and collision accidents due to automatic parking system failures at specific times.

After the incident, Xiaomi officially acknowledged that it was a system bug that caused the malfunction, and Xiaomi will bear all repair costs. According to "Digital Intelligence Research Society," reports of faults related to the Xiaomi SU7 have been widespread since its launch. Some owners encountered brake failures within a month of taking delivery, while others in Fujian and Xiamen experienced issues with the car not starting on their first drive. Still, others reported that their vehicles did not respond in time and rear-ended a Tesla while driving on the highway with the NOA autonomous driving function enabled. Due to the frequent faults, there have also been reports in the media about Xiaomi SU7 owners serving as guinea pigs.

Mobile Phone Gross Margin Hits Record Low

The net loss per vehicle has dropped from over RMB 60,000 to over RMB 30,000, and Xiaomi Motors is still advancing rapidly.

Moreover, the "strongest performance in history" is due to the inclusion of innovative businesses such as Xiaomi Motors in the third quarter of 2024 compared to the same period in 2023. Excluding the RMB 9.697 billion in revenue from automobiles, Xiaomi's mobile phone, IoT, and internet business revenues amounted to RMB 82.809 billion, representing a year-on-year increase of 16.94%.

For comparison, in the third quarter of 2021, Xiaomi Group's revenue was RMB 87.9 billion, still exceeding the combined revenue of its mobile phone, IoT, and internet businesses in the third quarter of this year. Therefore, looking solely at Xiaomi Group's traditional businesses, it is not the "strongest in history."

Furthermore, Xiaomi Group's third-quarter report revealed some issues with its mobile phone business, which serves as its core. Due to rising prices of core components and intensified industry competition, the gross margin of the mobile phone business has declined significantly. In the third quarter of 2023, Xiaomi's smartphone business had a gross margin of 16.6%, which further dropped to 11.7% in the third quarter of 2024, hitting a record low.

Lu Weibing stated that Xiaomi's mobile phone business gross margin hit its lowest point in the third quarter but will rebound in the fourth quarter. Lu Weibing's confidence stems from Xiaomi's strength.

Amid signs of a recovery in the consumer electronics industry, Xiaomi's mobile phones have also experienced a slight increase in prices and sales. In the third quarter of 2024, Xiaomi shipped 43.1 million smartphones globally, representing a year-on-year increase of 3.1%. In terms of global market share, Xiaomi ranked third with a 13.8% share.

In its third year of premiumization, Xiaomi's average selling price for smartphones increased from RMB 997 in the third quarter of 2023 to RMB 1,102.2 in the third quarter of 2024, marking a significant year-on-year increase but remaining virtually unchanged from the previous quarter's RMB 1,103.5.

Theoretically, as Xiaomi's premiumization process deepens, its gross margin should improve significantly. However, due to rising prices of core components and increased competition, Xiaomi's mobile phone gross margin has declined. In the view of "Digital Intelligence Research Society," the decline in Xiaomi's mobile phone gross margin indicates that the majority of Xiaomi's 43.1 million quarterly smartphone shipments are likely low- to mid-range models focused on volume, and the brand momentum for premiumization has not yet been significantly unleashed.

From this perspective, Xiaomi's mobile phones are still largely the same as they were years ago, with little change.

Without the innovative business drivers of smart electric vehicles, Xiaomi Group's third-quarter report might not have been as impressive.