From the debut of Xiaomi's first car to today, the company's share price has soared by at least HK$1 trillion.

On March 18, Xiaomi released its strongest annual report to date, boasting total revenue of 365.9 billion yuan, a year-on-year increase of 35%. In Q4, revenue surpassed 100 billion yuan for the first time in a single quarter, reaching 109 billion yuan, up 48.8% year-on-year. This marks the fastest quarterly growth since Q2 2021. Adjusted net profit for the full year stood at 27.2 billion yuan, an increase of 41.3%.

Both Xiaomi's traditional mobile phone business and its nascent automotive venture are thriving. Revenue from Xiaomi's mobile phone and smart hardware business amounted to 333.2 billion yuan, a year-on-year increase of 22.9%. In its first year, the automotive business delivered 136,800 vehicles, generating revenue of 32.1 billion yuan.

Spurred by these robust performances, Xiaomi's share price hit an all-time high of HK$59 per share the following day.

Xiaomi's share price has historically been heavily influenced by its automotive business. In the six years since its listing, Xiaomi's market capitalization has rarely exceeded HK$600 billion, hovering between HK$200-300 billion. Consequently, Lei Jun has faced persistent scrutiny from investors.

However, as the share price approaches HK$1.5 trillion, questions about Xiaomi's potential overvaluation have resurfaced.

Brokerages are divided on whether Xiaomi can sustain its high valuation in the future. JPMorgan believes that while Xiaomi's fundamentals are strong, the substantial increase in its share price has fully reflected the market's optimism about its accelerated growth in the electric vehicle business, increased market share in smartphones and IoT, and new ventures such as smart glasses, robots, and AI.

Conversely, Goldman Sachs and other brokerages remain optimistic about Xiaomi.

Currently, Xiaomi's PE ratio reached nearly 60 on the day after the financial report was released, which is relatively high among domestic internet and technology companies. Alibaba's share price has risen over the past year, with a current PE ratio of 31. Tencent's share price has recovered significantly this year, with a PE ratio of 39. Even compared to other automotive companies, Xiaomi's PE ratio is high, with NIO at 26, Xpeng reporting losses, and BYD's PE ratio not specified but with a market capitalization of HK$1.2 trillion. If Xiaomi's market value increase is solely attributed to its automotive business, it is comparable to BYD's level.

Is Xiaomi truly worth this much?

▌1. "Lei Jun's Conviction" Fuels Xiaomi's Rise

Lei Jun has enjoyed a bountiful harvest over the past year.

In addition to the automotive business becoming a standout success, the mobile phone business has also achieved solid growth. Financial report data reveals that revenue from the mobile phone × AIoT segment totaled 333.2 billion yuan, a year-on-year increase of 22.9%. Revenue from the smartphone business amounted to 191.8 billion yuan, up 21.8% year-on-year, with global smartphone shipments remaining in the top three globally.

Revenue from the IoT and consumer products business surpassed 100 billion yuan for the first time, reaching 104.1 billion yuan, a year-on-year increase of 30.0%. Revenue from internet services stood at 34.1 billion yuan, up 13.3% year-on-year.

Revenue from the innovative business segment, including smart electric vehicles, was 32.8 billion yuan, of which smart electric vehicle revenue accounted for 32.1 billion yuan. The Xiaomi SU7 series delivered 136,854 units in its inaugural year.

Against the backdrop of slowing growth in the smartphone industry, Xiaomi shipped 168.5 million smartphones, a year-on-year increase of 15.7%, with an average selling price (ASP) of 1,138.2 yuan, up 5.2%.

These figures are considered impressive within the industry.

Particularly noteworthy, Xiaomi's air conditioners and washing machines became popular internet sensations in 2024, achieving strong sales and positive word-of-mouth through continuous outreach.

Moreover, Lei Jun has emerged as a superstar internet celebrity entrepreneur over the past year. Rough estimates suggest that Lei Jun trended on Weibo more than 60 times last year, averaging 5-6 times per month.

Lei Jun excels not only in selling products but also in captivating the public's attention. Recently, Lei Jun and Haier's CEO Zhou Yunjie appeared together, directly propelling Zhou to trending topics on Weibo.

Driven by Lei Jun, many auto company CEOs debuted as internet celebrity entrepreneurs in 2024, such as Wei Jianjun from Great Wall Motors, Li Bin and He Xiaopeng from NIO, among others.

If the high quality of Xiaomi's mobile phones and automotive products forms the foundation for Xiaomi's recent popularity, then Lei Jun's personal charisma and the recognition of his charisma by consumers and various industry circles constitute the "market sentiment" behind Xiaomi's best-selling products and rising share price.

Since the beginning of this year, jokes about "a billionaire boss personally receiving car-buying customers" have circulated, reflecting car owners' high level of identification with Xiaomi and Lei Jun.

During the launch and delivery of the SU7, Lei Jun frequently appeared on social media, sharing progress, responding to questions, and even personally welcoming the first batch of car owners. This high level of engagement and transparency significantly bolstered consumers' trust in Xiaomi's automotive business.

Many entrepreneurs emulate Lei Jun, but his IP was not built overnight.

During the Xiaomi mobile phone era, Lei Jun was not only renowned as a model worker entrepreneur but was also close to netizens. For instance, in 2015, when Xiaomi held a press conference in the Indian market, Lei Jun exclaimed a classic line in heavily accented English: "Are you OK?" This was subsequently turned into a viral meme video.

During a new product press conference, Lei Jun declared, "Life and death are taken lightly, if you don't agree, just do it," which quickly became an internet buzzword and frequently circulated among young people.

Lei Jun's personal charisma has become an inseparable part of the Xiaomi brand. His "internet celebrity" status is not merely a tool to attract attention but also a bridge connecting Xiaomi with consumers. This trust and connection make consumers willing to choose Xiaomi's products, whether it's a smartphone or a brand-new electric vehicle.

▌2. Dominant Lei Jun, Willing to Lose 6 Billion Yuan in Auto Manufacturing

In the past year, Xiaomi Automobile has emerged as a dark horse among new auto manufacturers.

In 2024, Xiaomi Automobile delivered 136,854 units of the SU7 series, ranking 14th in electric vehicle sales and seventh among new auto manufacturers, trailing NIO, Li Auto, Xpeng, Zero Run, ZEEKR, and BYD. According to Tianyancha information, Lei Jun has invested in NIO and Xpeng.

However, considering that Xiaomi Group's market capitalization has surged from around HK$300 billion to the current HK$1.5 trillion since the official debut of Xiaomi Automobile, the automotive business has contributed approximately HK$1.2 trillion to Xiaomi's market capitalization, a value comparable to that of BYD, the undisputed leader in new energy vehicles.

In contrast, the market capitalizations of Li Auto, NIO, and Xpeng, converted to Hong Kong dollars, are HK$210 billion, HK$84 billion, and HK$180 billion, respectively. The combined market capitalization of these three companies is less than half that of Xiaomi Automobile. Nevertheless, Li Auto sold 500,000 units in 2024, NIO sold 220,000 units, and Xpeng sold 190,000 units, each outperforming Xiaomi.

Xiaomi Automobile's sales in the past year were primarily constrained by production capacity.

From its launch in March to the rollout of 100,000 vehicles in November, Xiaomi took a total of 230 days, considered efficient and rapid in the new energy vehicle industry. Even so, Lei Jun was urged by netizens to "hurry up and go to the factory to tighten screws."

The financial report mentions that production capacity will be expanded to achieve a sales target of 350,000 units in 2025. Based on the current sales ranking, an annual sales volume of 350,000 units could rank in the top 8.

Meanwhile, sources indicate that Xiaomi will expand the scale of its second electric vehicle production plant under construction in Beijing.

However, even a new auto manufacturer as successful as Lei Jun's has encountered common issues in auto manufacturing, such as large initial investments, long return periods, and the tendency to incur losses.

In 2024, Xiaomi's innovative business, primarily the smart automobile business, incurred an adjusted loss of 6.2 billion yuan, with an adjusted loss of 700 million yuan in Q4. It's evident that the loss is narrowing significantly as sales increase.

▌3. What Kind of Company is Xiaomi, Exactly?

As Xiaomi's automotive business begins to emerge as the core driver of Xiaomi's performance and share price growth, we may need to re-evaluate Xiaomi.

Xiaomi's positioning has evolved several times since its inception. Neither Xiaomi's self-perceived corporate direction nor the labels given to it by the market have remained static.

The nature of Xiaomi's company is not only related to market and product positioning but also to the market valuation accorded to it.

When Xiaomi first listed, its share price remained low at around HK$200-300 billion. At that time, the market positioned Xiaomi as a hardware company. The PE ratio of hardware companies is generally around 10. In contrast, Lei Jun preferred Xiaomi to be valued as an internet company, with a PE ratio of around 20 for internet enterprises at that time.

Today's Xiaomi clearly does not fit neatly into either category and is not even valued as an automotive company. It is more akin to a technology company. Xiaomi's market capitalization now stands at around HK$1.5 trillion, making it the third-largest giant in China after Alibaba and Tencent.

However, if we break down Xiaomi's revenue distribution, there is a mismatch between hardware revenue and internet business profits.

In 2024, Xiaomi's total revenue was 365.9 billion yuan, of which mobile phone × AIoT accounted for 333.2 billion yuan, or 91%, and automotive accounted for 32.8 billion yuan, or 9%. Within mobile phone × AIoT, smartphones accounted for 191.8 billion yuan, IoT and consumer products accounted for 104.1 billion yuan, and internet services accounted for 34.1 billion yuan.

The internet business has consistently been Xiaomi's core profit source.

The financial report discloses revenue, gross profit, and expense ratio, allowing for a rough estimate of the net profit of different businesses. Xiaomi's overall expense ratio is 15%, and the expense ratio for mobile phone × AIoT is 12.6%. Assuming that the expense ratios for mobile phones, AIoT, and internet businesses are consistent for rough estimation, the net profit of mobile phones is approximately 13.8 billion yuan, AIoT is approximately 6.7 billion yuan, and internet services have a net profit of more than 18 billion yuan.

Generally speaking, the marketing and R&D expense ratios of internet services are lower than those of the mobile phone business. Additionally, Lei Jun mentioned long ago that the comprehensive net profit of hardware does not exceed 5%, which directly limits the profit margin of Xiaomi's hardware business.

For Xiaomi, it is now challenging to represent the overall capital market valuation with a single business.

Just like Alibaba is no longer solely an e-commerce business, especially with Alibaba's investments and achievements in the field of AI, Alibaba is now half e-commerce and half AI.

Xiaomi's business spans mobile phones, smart hardware, daily necessities, home appliances, automobiles, and other sectors. Even if we estimate Xiaomi's market value at around HK$600 billion based on a hardware PE ratio of 10 and an internet PE ratio of 20, the question arises: is Xiaomi's automotive business worth HK$1 trillion?