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Will EVs get Xiaomi’s share price back on track?

Xiaomi’s [1810.HK] share price briefly accelerated in mid-February after rumours surfaced that the tech company was planning to launch an electric vehicle (EV) in China. The boost shook Xiaomi’s share price from the slump it had been experiencing for much of the year, and saw the stock close above $30 for the first time in almost a month on 19 February.

According to TechRadar, reports had surfaced that Xiaomi's founder and CEO Lei Jun was set to lead the development of the firm’s first electric car. Primarily known for its smartphones, Xiaomi is also an investor in XPeng — a Chinese EV manufacturer — which saw record-breaking deliveries in January.

Senior management have since quashed this speculation. In a statement, they said that —having analysed the EV market — the firm will hold off for the time being. This resulted in Xiaomi’s share price resuming its downward spiral.

 

What’s happening with Xiaomi’s share price?

Xiaomi’s share price has gained circa 181% over the past 12 months, but since the start of 2021, it has been on a downward trend, slumping over 21%. In December, the company suffered a 12% hit following issues over its Hong Kong placement. While it managed to claw back these losses, Xiaomi’s share price performance in 2021 leaves something to be desired.

181%

Xiaomi's share price growth over the past 12 months

  

Why should investors care?

China’s EV market is the second biggest on the planet, and it is growing. According to the China Association of Automobile Manufacturers, 1.37 million EVs were sold in the country in 2020, up 11% from the same period last year. By 2025, EV sales could hit 6 million units, according to S&P Global Platts.

The market is also increasingly congested. Xiaomi would not only be competing with established EV manufacturers like Tesla [TSLA], Nio [NIO] and Li Auto [LI], but traditional car makers like General Motors [GM] and Ford [F].

Xiaomi’s share price may stand to gain more if the company focuses on its core businesses.

In the third quarter of last year, Xiaomi became the third biggest smartphone manufacturer by market share globally, according to Canalyst. In the quarter, it shipped 47.1 million units, to give Xiaomi a 13.1% market share. Its 41% annual increase in units shipped was the highest growth rate of any of the top five smartphone companies globally.

“Xiaomi executed with aggression to seize shipments from Huawei. There was symmetry in Q3, as Xiaomi added 14.5 million units and Huawei lost 15.1 million. In Europe, a key battleground, Huawei’s shipments fell 25%, while Xiaomi’s grew 88%” - Mo Jia, an analyst at Canalyst UK

 

In that quarter, Xiaomi’s smartphone revenue came in at RMB47.6bn, a 47.5% year-over-year increase, breaking records in terms of both revenue and shipments, as well as representing well over half of the company’s RMB72bn overall revenue.

“Xiaomi executed with aggression to seize shipments from Huawei. There was symmetry in Q3, as Xiaomi added 14.5 million units and Huawei lost 15.1 million. In Europe, a key battleground, Huawei’s shipments fell 25%, while Xiaomi’s grew 88%,” said Mo Jia, an analyst at Canalyst UK.

 

Where next?

Xiaomi's goal is to be the leader in low-cost technology beyond smartphones, offering a range of decent products at affordable price points. According to Wired, during last year's Cyber Weekend, the firm accounted for 10% of the search results for “fitness tracker” in the UK.

However, while electric vehicles have piqued investor attention, it is a hotly contested market. Xiaomi’s share price fortunes might instead rely upon whether the company’s main revenue drivers — namely smartphones — keep accelerating.

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