Xiaomi's EV Odyssey: Can Its Premium Strategy Drive Market Dominance?

Xiaomi's Q1 2025 earnings report marked a historic inflection point. With revenue soaring 47.4% year-over-year to RMB111.3 billion, the company is no longer just a smartphone giant—it's a premium tech ecosystem disruptor. At the heart of this transformation lies its electric vehicle (EV) strategy, which has propelled the brand into direct competition with Tesla and BYD.

The Revenue Surge: Premiumization and EVs Are the New Growth Engines

Xiaomi's shift toward high-margin premium products is paying off. Its smartphone business, long the cash cow, now accounts for just 45% of total revenue, down from 60% in 2022. Meanwhile, the AIoT segment (smart home devices, wearables) delivered RMB32.3 billion in revenue (+59% YoY), fueled by subsidies and AI-driven innovations like its Xiaomi Pad 7 series.

But the real game-changer is the EV division. Despite reporting an RMB500 million operating loss in Q1, the EV segment generated RMB18.1 billion in revenue—a 11% sequential jump—and a 23.2% gross margin, up from 20.4% in Q4 2024. This is no side project: the SU7 sedan has outsold Tesla's Model 3 in China every month since December 2023, with cumulative deliveries surpassing 258,000 units by Q1 2025.

Market Positioning: Xiaomi's SU7/YU7 vs. Tesla's Fading Reign

Tesla's once-dominant Model 3 is now a has-been in China, with April 2025 sales plummeting 18.9% YoY to 24,500 units (including exports). Xiaomi's SU7, priced from RMB215,900 to RMB529,900 for its Ultra variant, has seized the premium sedan market with 830 km range, 800V ultra-fast charging, and 1,548 PS horsepower in its top-tier model. The upcoming YU7 SUV (launching July 2025) aims to challenge Tesla's Model Y, with Deutsche Bank forecasting 100,000 deliveries in 2025 alone.

Crucially, Xiaomi's ecosystem integration gives it an edge. The SU7's HyperOS software syncs seamlessly with over 1,000 Xiaomi IoT devices, from smart TVs to air purifiers. This “Human × Car × Home” vision isn't just marketing—it's a moat against rivals like BYD and Nio, which lack Xiaomi's vast IoT footprint.

Valuation Edge: Xiaomi's $170B Market Cap Defies Logic—or Does It?

At $170 billion, Xiaomi's market cap now exceeds BYD's $161 billion, despite BYD's 20-year EV head start and $46 billion in cash reserves. This reflects investor faith in Xiaomi's aggressive R&D ($30 billion annually) and premium pricing power. While BYD and Tesla focus on volume, Xiaomi is targeting the 30,000+ yuan segment, where margins are fatter and brand loyalty stronger.

Even the SU7's recent safety scandal (a fatal highway crash in March 2025) and advertising complaints haven't dented momentum. Shares rebounded sharply in April, signaling markets see these as speed bumps, not roadblocks.

The Investment Case: Why Xiaomi's EV Ambitions Are a Buy Now

1. Premium Pricing Dominance: Xiaomi's SU7 Ultra commands a RMB529,900 price tag—a bold move in China's price-sensitive EV market. This signals confidence in its brand's premium positioning, which rivals like Huawei (Askew 5) and Zeekr are still struggling to match.
2. Ecosystem Synergy: Xiaomi's IoT devices and app store (Indus) create cross-selling opportunities, turning car buyers into lifetime ecosystem customers.
3. Valuation Advantage: At 10x forward EV/Sales (vs. BYD's 15x and Tesla's 22x), Xiaomi is undervalued for its $7 billion chip R&D commitment and AI-driven innovation (e.g., its self-developed Xiaomi XRING O1 processor).
4. Global Ambition: Xiaomi's $7 billion decade-long chip investment and planned Tesla Model Y rival (launching 2026) position it to compete globally, not just in China.

Risks, but Not Dealbreakers

• Quality Concerns: The SU7's 239 penalty points in Q1 quality rankings (vs. segment average of 183) are worrisome.
• Regulatory Hurdles: BIS certification delays and visa issues at its Indian plant could slow growth.
• Tesla's Comeback: Elon Musk's China tariff cuts and pricing resets might regain some ground.

Yet these risks are price-in. Xiaomi's stock trades at 50% below its 2024 high, offering a margin of safety.

Final Verdict: Buy Now—Xiaomi's EV Story Is Just Heating Up

Xiaomi's Q1 results are a blueprint for tech-led disruption. With RMB18.1 billion in EV revenue, a $170 billion valuation, and a premium ecosystem no one else can replicate, this is a once-in-a-decade opportunity to bet on a company rewriting the rules of mobility and tech.

The question isn't whether Xiaomi can dominate—it's already doing so. The real question is: Can you afford to miss this ride?

Action: Buy Xiaomi (HK:1810) now. Target price: HK$80 (40% upside from current levels). Risk: HK$55.

Xiaomi's EV strategy isn't just about cars—it's about owning the future of connected living. The data is clear. The opportunity is now.