to what extent can his electric car endanger the company?

Particularly known for its smartphones, the Chinese firm Xiaomi now wants to carve out a place for itself in the electric car market. But if the giant has just lifted the veil on its SU7 in order to compete with Tesla, nothing has been won yet. The path should be strewn with pitfalls to get there and we explain to you why Tesla can sleep soundly… at first.

Although Tesla experienced very difficult times and was even on the verge of bankruptcy before the launch of the Model 3, everything seems to be going well for the manufacturer. Certainly, the latter has just been overtaken by its Chinese rival BYD, but it is still enjoying great success with its Model Y, which still dominates sales of electric cars.

An ambitious project

The firm also broke its sales record in 2023 with no less than 1,808,581 cars delivered around the world. We are then very far from 245,240 deliveries recorded in 2018 ! And suffice to say that this success story gives ideas to many companies, which also want to have the right to the same story. We think, for example, of Xpeng or Nio, but also of companies specializing in tech like Huawei and Xiaomi.

The latter has just lifted the veil on its first electric car, the SU7. And it goes without saying that it already has a ready-made rival, which is none other than the Tesla Model S. Because obviously, the Chinese tech giant also dreams of success like that of the company ‘Elon Musk. But nothing is won yet, and the road would have to be very long to achieve the same result. Especially that not everything is rosy at Xiaomi.

In any case, this is what account X (formerly Twitter) explains. Alojoh, specializing in economics. The latter focused in particular on the situation of the Chinese company, whose headquarters is based in Beijing. And this is not necessarily in good shape, or at least, not to the point of making society a leader in electric cars For now. Because in recent months, its sales of high-tech products have been declining overall, as have its turnover.

In December 2021, Xiaomi had earned no less than 50.9 billion dollars. Revenues which fell sharply, dropping to only $37.4 billion last September. A constant decline, which obviously does not bode very well, even if the margin is up slightly. It goes from 17.1% at the end of 2021 to 22.7% in the third quarter of 2023. The figures for the end of 2023 have not yet been revealed at this time.

Declining sales for Xiaomi

If we know Xiaomi, it is above all for its smartphones. And it’s quite logical, since these products represent 57% of company sales. The latter also markets items such as electric scooters as well as Internet services, among others, but which represent a minimal part of its turnover. And overall, all these activities are in decline, even the sale of phones which fell by 23% between September 2022 and September 2023.

Globally, its profits remain quite low, much more than its competitors, which means that the firm has difficulty remaining profitable. However, to design and market vehicles, you still have to be solid. Because it requires a lot of financial resources, in addition to competent teams, which also costs a lot of money. And manufacturers know this well, especially those specializing in electric cars.

The Tesla counterexample

According to the graph published on cash flow (cash flow) falling considerably in recent years. This is particularly the case of Rivian, which has lost, in total, 17.6 billion dollars since its creation, as well as Nio with losses of 8.6 billion. There is only one real exception: Tesla. If the firm was at more than $10 billion in deficit at its lowest, it announced today 9.8 billion in profits cumulatively since its creation.

For Tesla, it took around 11 years from its creation before it made money with its electric cars. Other startups (like VinFast, Lucid, Polestar, Fisker, Xpeng, Farady and Nio) are still losing money, years after launching their first electric car. This is in particular a reason which could explain Apple’s reluctance to launch its own electric car.

We can therefore wonder if Xiaomi will succeed in its bet on the electric car. It is true that its new SU7 is very promising, and that other cars offering very long ranges are also on the program. But producing a high-performance electric car is one thing. And selling it in millions of copies for profit is another.

Can Xiaomi take inspiration from the success of Elon Musk’s company to match it? In any case, this is what his boss Lei Jun, who already expressed his admiration for the brand in 2013, wants. The challenge facing the company is now to be able to flood the market with its cars, without cutting corners, which could be possible, given the price of his first car. An exercise on which some have broken their teeth, to the point of going bankrupt, like Lordstown Motors or even Aiways. Will Xiaomi succeed in not taking this path?

Let us also remember that Tesla came close to bankruptcy on several occasions, and in particular during the production of the Model 3 as explained by Numerama at the time. Which does not prevent the American company from now being the leader in electric cars, neck and neck with the Chinese BYD.

Nuances to bring

However, some nuances must be brought to this dark picture. If electric cars were to really threaten Xiaomi in the years to come, we imagine that the Chinese government or certain investors would come to lend a hand to the company. The smartphone market should regain momentum in 2024, which should allow Xiaomi to put a little butter in its spinach.

Finally, Xiaomi’s current cash flow is sufficient to see a few years come, and to be able to change the sails in the event of danger for the company.