Xiaomi success means more trouble for China EV stocks
Xiaomi’s roaring entry into the electric vehicle market is dimming the recovery outlook for China’s beaten-down auto startups.
The hype around the launch and better-than-expected initial orders for the SU7 have helped a rally in Xiaomi shares gain momentum. Investors have meanwhile ramped up bets on further declines in EV makers NIO and Xpeng, with short interest on their US listings at about 86 percent and 36 percent of total shares outstanding, respectively.
In stark contrast to Apple’s failed car dreams, Xiaomi and Huawei are demonstrating early success in transferring their smartphone prowess into the crowded EV market, where rampant price competition a toll.
“The entry of Xiaomi and Huawei is a significant disruption, particularly by the leverage of their expertise in consumer technology and supply chain management,” said Bing Yuan, fund manager at Edmond de Rothschild Asset Management. “Their focus on smart functionalities set a high bar for what consumers expect in terms of vehicle capabilities.”
In addition to the new competition, the broader EV industry is suffering from shifting consumer preferences, China’s slowing economy and concerns of higher interest rates in the US and elsewhere.
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Chinese startups are seen as more vulnerable to the negative impact of industry-wide price cuts than more established traditional automakers like BYD. They may also need to make major adjustments to compete with the new entrants from the smartphone industry.
“The disruption is beyond the product itself — rather, it stems from the effective combination of successful marketing, branding, and, to a greater extent, established ecosystem,” Morgan Stanley analysts including Tim Hsiao wrote in a note. “Competing with tech veterans appears to be an uphill but inevitable battle for automakers.”
The marketing capabilities and strong appeal among young consumers that Xiaomi have developed are well utilized in its EV business. The SU7 has been a hot topic on Chinese social media with a push from Lei Jun, the company’s billionaire co-founder, who boasts 23 million followers on Weibo.
Xiaomi has said it is targeting the premium segment especially. With a base price of 215,900 yuan (around $30,000), the SU7 series comes in nine different color and features a connected entertainment system as well as autonomous driving.
Enthusiasm for the launch has helped push Xiaomi’s Hong Kong-listed shares up 36 percent from a February low, but it still has much to prove in terms of customer satisfaction and delivery ability. (Bloomberg)