Author | Wen Yehao

Editor | Wu Xianzhi

On November 18, Beijing time, Xiaomi Group released its financial report for the third quarter of 2024.

The financial report shows that Xiaomi's revenue in the third quarter of 2024 was 92.5 billion yuan, an increase of 30.5% year-on-year; net profit in the third quarter was 5.35 billion yuan, an increase of 9.7% year-on-year; adjusted net profit was 6.3 billion yuan, an increase of 4.4% year-on-year. Amid challenging industry conditions, Xiaomi has proven its resilience.

Among them, Xiaomi Automobile, as its "hot topic" in recent years, is naturally the focus of this quarter's financial report.

The financial report shows that in the third quarter of 2024, Xiaomi's smart electric vehicles and related innovative businesses generated revenue of 9.7 billion yuan, of which approximately 9.5 billion yuan came from the smart electric vehicle sector and 200 million yuan from other related businesses; the adjusted net loss for innovative businesses, including smart electric vehicles, was 1.5 billion yuan - although revenue has approached 10 billion yuan, Xiaomi Automobile is still in a stage of high investment.

For Xiaomi, with its complex business structure, Xiaomi Automobile only accounts for 10.5% of its revenue, and mobile phones and IoT businesses remain the pillars.

This year, with inventory pressures easing, high-end trends emerging, and Xiaomi Automobile landing smoothly, Xiaomi has emerged from its recent downturn and regained its growth logic, no longer confined to the single narrative of "cost-effectiveness".

And among these, in addition to the steady growth of the domestic market, overseas markets are also continuously replenishing momentum for Xiaomi - from smartphones to IoT matrices, to future automobiles, Xiaomi seems to be actively telling its own story of globalization. Challenges also follow.

Mobile phone going overseas: victory through trading price for volume, and the loss of voice in high-end markets

As the demand for phone replacements accumulated over the past three years is gradually released, the domestic smartphone market has gradually emerged from the winter season since the fourth quarter of last year, with sales steadily recovering. Against this background, Xiaomi, which once fell out of the top five in domestic market share, has maintained year-on-year growth in domestic shipments for several consecutive quarters.

The financial report shows that in the third quarter of 2024, Xiaomi's smartphone business revenue was 47.5 billion yuan, an increase of 13.9% year-on-year; shipments in the domestic market increased by 1.2% year-on-year to 14.7 million units, ranking fourth.

However, even so, Xiaomi's current situation in the domestic high-end battle remains severe.

Taking the domestic mobile phone manufacturers' flagship battle at the end of October as an example, compared to vivo's emphasis on imaging, OPPO's "Apple-like" feel, and Honor's strong AI capabilities, Xiaomi's Mi 15 series appears somewhat "moderate," lacking a standout feature. And Xiaomi's traditional cost-effective approach has been invalidated with the Mi 15 leading the industry price increase trend by a 500 yuan hike.

Compared to the fiercely competitive domestic market, Xiaomi's performance in the global market is more stable.

Canalys data shows that in the third quarter of 2024, Xiaomi achieved the feat of ranking among the top three globally for 17 consecutive quarters with a market share of 13.8%. And the financial report shows that Xiaomi's global smartphone shipments this quarter were 43.1 million units, an increase of 3.1% year-on-year, continuing the growth momentum.

However, looking at Xiaomi's overseas expansion path, its cost-effective approach still dominates. This model of trading price for volume is both Xiaomi's mature overseas expansion engine and an invisible shackle for its breakthrough into the high-end global market.

The financial report shows that in the third quarter of 2024, Xiaomi's smartphone gross profit was 5.55 billion yuan, a year-on-year decrease of 19.9%; gross margin was 11.7%, a year-on-year decrease of 4.9%; and although ASP increased by 10.6% from 997 yuan in the same period last year to 1102.2 yuan in the third quarter of this year, it is still within the multi-year range of 1000 yuan and is difficult to increase further.

Behind this, in addition to the rising costs of the mobile phone supply chain, the use of a "price lever" to drive the overseas market, resulting in a tug-of-war between low prices and high-end products, is also a major reason - constantly sacrificing profit margins while pursuing market share.

In fact, Xiaomi has not tried to break through the shackles of the price range. The Xiaomi 13 series once entered the European market with a pricing almost double that of the domestic market, but the results were not satisfactory.

Frequent setbacks in overseas high-end markets are often not due to technology or product capabilities but are hampered by channels. The mainstream purchasing method for mobile phones in European and American markets is not the full-price purchase common in China but the carrier-dominated contract phone model, which acts like an invisible wall, blocking out the "cost-effectiveness" of domestic brands.

Taking the North American market as an example, on the basis of a normal tariff package, signing a two-year monthly tariff package with a few dollars added can "get for free" the previous generation of iPhone or Samsung Galaxy models during some promotional activities. Even if domestic brands are cheaper by $100-200 in pricing, it is difficult to compete with nearly "free" Apple and Samsung.

Taking Transsion, an important competitor of Xiaomi in overseas markets, as an example, it mainly targets feature phones and low- to mid-range models and has also attempted to reach higher levels, such as by launching folding screen models like the Phantom V Fold and Zero Flip that cover the high-end market.

However, limited by sales channels, they are more often pushed to emerging markets such as Africa, Latin America, and India - even so, folding screens can escape Apple but not Samsung. And recently, there have been reports that Transsion has stopped developing folding screen products.

For operators in high-end regional markets, domestic brands such as Xiaomi and Transsion are not "preferred customers," and they have almost no say in cooperation, having to endure extreme price pressures. Therefore, even if domestic brands are cheaper, it is difficult to find a suitable competitive position in the contract phone-dominated ecosystem, which has a particularly significant impact on Xiaomi, which highlights cost-effectiveness.

Therefore, Xiaomi also stated in its earnings call that in overseas markets, Xiaomi will focus on Europe, Southeast Asia, the Middle East, Latin America, and Africa. Although promoting high-end products in these markets may encounter some pressure, it will further explore its feasibility. This means that in the face of hurdles in the globalization of mobile phones, Xiaomi may still need to find the best path to balance growth and profit.

IoT going overseas requires transitioning from a single point to an ecosystem

From "AI+IoT," "All in IoT" to "Mobile+AIoT," and then to the current "Mobile×AIoT," Xiaomi's positioning and packaging of its IoT business have undergone several iterations, reflecting the gradual clarification of its strategic position from wavering.

Currently, as the "Mobile×AIoT" model stabilizes, the IoT and consumer products business, as Xiaomi's second largest revenue contributor, provides continuous traction. Although it no longer enjoys the high growth of its early days, it proves the irreplaceable value of the IoT matrix in Xiaomi's layout - moving from a "traffic story" to "ecological stability."

The financial report shows that in the third quarter of 2024, Xiaomi's IoT and consumer products business revenue was 26.1 billion yuan, an increase of 26.3% year-on-year, accounting for 28.2% of revenue.

In the past, Xiaomi's IoT business was more based on "hit products," but as its business has gradually expanded in recent years, the hit effect of a single category has been overshadowed by the overall momentum of the IoT ecosystem - in the third quarter of this year, Xiaomi's smart major appliances, tablets, wearable products, and other business lines all achieved substantial year-on-year growth.

Among them, smart major appliances such as refrigerators and air conditioners are still centered on the domestic market, while small appliances, tablets, smartwatches, and other products are gradually expanding overseas - as a representative of mobile phones going overseas, Xiaomi is trying to replicate its past successful experience in the IoT field.

In the third quarter of 2024, Xiaomi's tablet products, represented by the Redmi Pad series, quickly broke through the circle, with global tablet shipments increasing by 58.4% year-on-year, successfully ranking among the top five; global shipments of wearable products such as TWS earphones and smartwatches also increased by over 50% year-on-year. This means that Xiaomi IoT has gradually accumulated momentum in overseas markets.

Going overseas with high-end smartphones is a narrow track with few shortcuts and direct confrontation, but IoT is a fertile ground with numerous categories and cracks - from rice cookers to air purifiers, from smartwatches to smart speakers, the multi-category nature of IoT gives its high-end products natural flexibility, with each product having the potential to become an entry point for high-end breakthroughs.

Taking rice cookers as an example, there was a time when domestic users were enthusiastic about rushing to Japan to buy rice cookers, which triggered large-scale discussions, and now this situation has long been reversed - more and more domestic enterprises are selling rice cookers to Japan. Xiaomi is one of them. It is reported that when Xiaomi officially entered the Japanese market in 2019, its first batch of products included Mi Home rice cookers.

Compared to other regions, the consumption logic of the Japanese market is relatively special, with users having a high acceptance of single-function products and extremely high requirements for space utilization and energy efficiency. Xiaomi's IoT product line naturally fits this demand. Taking Xiaomi's 1.6-liter smart single-person rice cooker as an example, compared to Japanese domestic brand rice cookers that often cost tens of thousands of yen, the compact and exquisite Xiaomi rice cooker is more affordable and popular among single people in Japan.

The financial report shows that in the third quarter of 2024, Xiaomi's IoT and consumer products business had a gross margin of 20.8%, an increase of 17.8% year-on-year.

This means that, compared to the difficult-to-develop high-end smartphone market, Xiaomi has a large number of small categories and small scenarios in the IoT field that fit the high-end market - without competing with giants in the same track, it can penetrate upwards through differentiated innovation, thereby capturing more profits.

In addition, another core of IoT going overseas at a high end lies in the "ecological effect." When users purchase IoT products, they often seek the smart experience brought by multi-device coordination. To this end, Xiaomi, which has continuously invested in offline stores, is also conducting regional pilots overseas to promote Xiaomi Homes globally.

Compared to single-point development, the matrix integration achieved through the product ecosystem may be the biggest opportunity on Xiaomi's IoT globalization path. And in this regard, there is still much Xiaomi needs to do.

End

If smartphones are the beginning of Xiaomi's overseas expansion, IoT is the key piece that connects the past and the future, then Xiaomi Automobile will undoubtedly be the third and most challenging step in this global chess game.

Lei Jun once boldly stated that Xiaomi Automobile plans to enter the European market by 2030, with the long-term goal of becoming one of the world's top five automotive brands. And in the latest earnings call, Lu Weibing, Xiaomi Group's co-founder and president, also emphasized that Xiaomi has completed the basic layout for globalization, and the future overseas expansion of its automotive business will be the key to demonstrating the full-chain ecological advantages of "people, cars, and homes.""All of this points to a clear signal: Xiaomi Automobile going overseas is imminent.

Data shows that Xiaomi's SU7 model has currently delivered over 100,000 units cumulatively, and it is expected to deliver 130,000 units throughout the year; and orders for the SU7 Ultra production version, with a pre-sale price of up to 814,900 yuan, are still on the rise. Although this means that Xiaomi Automobile has survived the domestic market test, there is still a long way to go before realizing its ambition of globalization.

Judging from the experiences of players like NIO, XPeng, and Li Auto, the success of a single model is more of a stepping stone than a moat, and the rapid iteration and delivery capabilities of subsequent models are also critical factors determining the fate of the enterprise.

At this stage, Xiaomi Automobile's production capacity has not yet fully covered domestic market demand, and short-term overseas expansion is not realistic. However, as future production capacity increases and models are updated and iterated, whether Xiaomi Automobile's ambition to go overseas can be realized will become an important focus on Xiaomi's globalization path.