Xiaomi rides fan base to EV profitability faster than Tesla

[BEIJING] Xiaomi parlayed its popularity with an existing customer base to rake in orders for its push into electric cars, reaching profitability in less than half the time it took Tesla.

The consumer electronics giant on Tuesday (Nov 18) reported a 700 million yuan (S$128.3 million) profit for its EV and artificial intelligence division in the quarter ended Sep 30 – roughly 19 months after launching its SU7 electric sedan.

Comparable EV makers were slower to reach the milestone. Tesla first achieved quarterly profitability in 2013, just over five years after it started delivering the original Roadster in 2008. Li Auto, another Chinese automaker, took about two years to break even on a quarterly basis, though it mainly sells extended-range EVs.

Xpeng and Nio are still racking up losses, but have targeted to break even in 2025, about eight years after their first cars were unveiled.

“Xiaomi entered the market with several structural advantages that most pure-play EV startups did not have,” said bill Russo, founder of Shanghai-based consultancy Automobility. “It leveraged an enormous existing user base, a strong brand with high trust, and a fully integrated ecosystem strategy that creates very low customer acquisition costs.”

The quick march to profitability is another win for Xiaomi founder and chairman Lei Jun, who has succeeded where Apple has failed. The US-based tech giant spent a decade and US$10 billion trying to make a car before giving up last year.

With a goal of becoming one of the world’s top five carmakers, Xiaomi is ramping up production to try and compete with the likes of Tesla and BYD in China and eventually overseas. It aims to start selling EVs in Europe in 2027.

Xiaomi’s approach has been ruthlessly efficient. It started with a single model, a tightly managed supply chain and a software-centric architecture that allowed it to monetise beyond the car, Russo said.

Most of its peers spent years burning cash developing multiple model lines before reaching volume, while Xiaomi effectively treated the SU7 as a scaled consumer electronics launch – front-loaded with demand generation and engineered to reach breakeven quickly, Russo said.

Xiaomi launched its second model in June – the YU7 sport utility vehicle – which garnered more than 289,000 orders within hours.

Xiaomi also benefited from China’s mature EV supply chain, which allowed newcomers to reach scale without soaking up lots of capital, unlike early entrants who had to build much of the chain themselves, according to Russo.

However, Xiaomi’s EV outlook is clouded along with the rest of the industry as Chinese authorities scale back a tax break for EVs and hybrids next year, and uncertainty over whether a trade-in subsidy will be extended. Demand will likely be impacted, as already seen in October when auto sales fell compared to a year earlier.

Xiaomi offered a rebate of up to 15,000 yuan to make up for the loss in tax break to customers who place orders for an EV before the end of November and take delivery in 2026, discounting that will eat into the company’s margins.

Company president Lu Weibing warned in earnings calls on Tuesday that Xiaomi’s EV gross margin is expected to shrink in 2026. Bloomberg Intelligence analysts Joanna Chen and Jason Zhao said the forecast underscored a more challenging outlook for the sector and domestic competition will intensify as demand growth slows.

EV makers will become increasingly dependent on exports to drive volume and earnings growth, with BYD, Geely, Xpeng and Leapmotor setting the pace, according to Chen. But Xiaomi does not plan to start overseas expansion until 2027, adding further doubts for its EV business next year. BLOOMBERG