Three years ago, Chinese smartphone manufacturer Xiaomi(OTC: XIACF) garnered attention from the electric vehicle (EV) industry when it announced its plan to enter the EV market. In March 2024, the company realized its goal when it launched its SU7 Series on the Chinese market.
But interest in Xiaomi really accelerated after the company recently received some high praise from Ford(NYSE: F) CEO Jim Farley during his appearance on the "The Fully Charged Podcast." Let's take a closer look at Farley's review of the SU7 and how EV investors should approach Xiaomi stock.
Xiaomi is "an industry juggernaut"
On his recent podcast appearance, Farley made reference to the EV that Apple had been developing, but he promptly changed gears and brought attention to Xiaomi and its EV. Farley characterized Xiaomi as "an industry juggernaut," adding that it's "a consumer brand that is much stronger than car companies."
His accolades weren't limited to observations from a distance of how the company is faring, either. Farley heaped additional praise on the company, citing anecdotal evidence of Xiaomi's SU7. Having one of the SU7s delivered to him from China, Farley has logged some hours behind the wheel after driving it for the past six months and said, " I don't want to give it up."
Farley's comments regarding Xiaomi are especially noteworthy when considering his admission on Ford's second-quarter 2024 conference call that his company's "EV journey has been humbling."
Apple is apparently no longer be on the road toward developing an EV as it shut down the program, Project Titan, in February.
EVs still play a minor role in Xiaomi's financials
Xiaomi is in the process of ramping up its EV production after it launched its SU7 Series in March 2024. Reporting deliveries of its SU7 Series of 27,307 vehicles, Xiaomi sees strong customer demand for its EVs, projecting that it would meet its goal of delivering 100,000 vehicles of the SU7 Series by November 2024. Additionally, management is working to achieve an updated 2024 deliveries goal of 120,000 vehicles of the Xiaomi SU7 Series.
It's important to recognize, however, that for all of the excitement surrounding Xiaomi's EVs, they still play a minor role in the company's operations. The company divides its business into two operating segments: smartphones and AIoT -- the Artificial Intelligence of Things -- which includes smartphones as well as other connected devices and services, and a second segment that includes EVs and other advanced initiatives.
In Q2 2024, Xiaomi reported revenue of 88.9 billion yuan ($12.4 billion) the EV and other new initiatives segment only accounted for 6.4 billion yuan ($893 million). In addition, the EV and other new initiatives segment had a slimmer profit margin, representing a gross margin of 15.4% compared to the smartphone and AIoT segment that had a 21.1% gross margin.
Is now the time for EV investors to drive Xiaomi stock into their portfolios?
Undoubtedly, Farley's comments about Xiaomi's SU7 Series has EV investors sitting up and taking notice. While Apple failed to bring its dreams of an EV to fruition, Xiaomi hasn't merely succeeded in bringing a vehicle to market -- it's delivered a high-quality product. To conclude, however, that Xiaomi will see its EV offerings emerge as prominent contributors to its bottom line seems premature at this point, yet something to keep an eye on nonetheless.
For those who are uninterested in watching Xiaomi from the side of the road and who are eager to gain immediate exposure to the EV market in China, Nio and Li Auto are options wroth further investigation. For a more conservative approach, however, investors may want to consider an electric car exchange-traded fund.
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
