SU7, which has no shortage of orders, has not yet been able to redefine Xiaomi

Snow Leopard Finance Club

2024-06-07 08:48Posted in Beijing, creators in the field of science and technology

SU7, which has no shortage of orders, has not yet been able to redefine Xiaomi

The consumer market is hot, and the capital market is calm

Author丨Wang Yajun

Cover source丨Xiaomi Auto

"Isn't it time to sell NIO and XPeng shares?"

After entering April, Lin Chao (pseudonym), a researcher at the institution, was frequently asked this question by investors.

They are worried that the Xiaomi SU7 will take away orders from these two companies. Lei Jun revealed in a live broadcast on May 18 that Xiaomi SU7 "sales far exceeded expectations" and had "a tidal wave of traffic".

But this splashing wealth is still close to igniting the capital market.

A Song of Ice and Fire

"The last 28 days have been like a dream, I know it's done, but I can't believe it. Is this true? In the last week of April, Lei Jun described the sales situation of Xiaomi cars at the 2024 Zhongguancun Forum Annual Meeting.

A month ago, on March 28, after 1,000 days of "trembling and walking on thin ice", Lei Jun launched Xiaomi's first mass-produced model, the Xiaomi SU7, to the market. 27 minutes after its launch, the Xiaomi SU7 reached 50,000 in large quantities.

As a comparison, it took 25 days for the new Wenjie M7 to make AITO "come back to life" before reaching the achievement of more than 50,000 in large quantities. For the whole of 2023, NIO and XPeng sold 160,000 and 141,600 vehicles, respectively. (For details, see Snow Leopard Finance Club Lei Jun sold cars at a loss, and dried up 1/3 of NIO Xiaopeng's sales in 2023 in 27 minutes?) ）

On May 23, Lei Jun posted on Weibo that at least 10,000 Xiaomi SU7s will be delivered in June - if this goal is achieved, Xiaomi will become the fastest new car maker to deliver tens of thousands in a single month.

Guojin Securities said in a research report that before the launch of Xiaomi SU7, public opinion and the market were overly concerned about the price, but ignored the brand power brought by the extremely high popularity of Xiaomi cars, and finally formed a situation that exceeded expectations.

Source: Xiaomi Auto's official Weibo

The day after the release of Xiaomi SU7, Lin Chao came to a Xiaomi store in Xujiahui, Shanghai for field research, but there was no clerk to receive him, and all the sales staff took customers to test drive. "They told me that there were so many people that they didn't even have time to reply to the customer's WeChat."

At the Xiaomi Group's 14th anniversary event held in April, Lei Jun said that "Xiaomi SU7 is 3 to 5 times more successful than expected". A few days later, he said on Weibo that "the order has indeed far exceeded our most optimistic expectations."

However, the fire of SU7 has not yet heated up the secondary market.

On the second trading day after Xiaomi's car press conference (April 2), Xiaomi's Hong Kong stock price closed up 8.97% to HK$16.28. Lin Chao believes that the optimism brought by the number of orders after the release of Xiaomi SU7 is a catalyst for the stock price to rise.

However, the effect of the catalyst lasted only one day.

On April 3, Xiaomi's share price turned downward, closing down 4.42% to HK$15.56. In the following 15 trading days, the company's stock price has been hovering at 15~16 Hong Kong dollars.

It took nearly 20 days for Xiaomi's stock price to rise again.

From April 26 to May 17, Xiaomi resumed its upward trend, rising from HK$17 to HK$19.94. On May 16, it once rose to 20.35 yuan, a new high since November 25, 2021.

However, considering the technical bull market in Hong Kong stocks that began in late April, Xiaomi's share price has not performed well during this period. A technical bull market is one that is not based on improving fundamentals, but is more driven by technical indicator breakouts, market sentiment swings, and other factors, and usually lacks a lasting basis for growth.

During the same period (April 22 to May 17), the Hang Seng Tech Index rose by 23%. The other three technology Internet companies Tencent Holdings, Meituan, and Kuaishou, which were included in the Hong Kong Stock Connect together with Xiaomi, rose by 25%, 24%, and 29% respectively in the same period.

Callbacks followed. From May 20 to June 5, Xiaomi fell by more than 10%, more than the Hang Seng Tech Index over the same period.

The capital market's attitude towards Xiaomi Auto has been relatively calm.

On March 30, 2021, Lei Jun officially announced that he would start building cars, and he was willing to "bet all his reputation on life" for this. On the first trading day after the official announcement of the car, Xiaomi's stock price turned green during the session, closing up only slightly by 0.59%.

After that, there was new news about Xiaomi's car manufacturing in the market from time to time, but the secondary market was often uneventful. (For details, see Snow Leopard Finance Society's stock price fell by 60% in the past two years, has Xiaomi's valuation logic changed?) ）

Valuation divergence

After the National Day last year, private equity fund manager Liu Ling (pseudonym) opened a position in Xiaomi in the range of 13~14 Hong Kong dollars. The decision brought considerable gains to his fund: in May this year, Xiaomi's share price rose to HK$20.35 at one point.

However, more than half a year after building a position, he still has a tricky idea of how to value Xiaomi's car business.

Xiaomi has already started announcing monthly deliveries of cars. In April and May, 7,058 and 8,630 were delivered, respectively.

But this set of data alone is not enough for Liu Liang to value Xiaomi's car business, because "there is still a lack of financial data such as revenue".

In order to better track the Xiaomi stock, he tried to put forward a valuation for Xiaomi Auto by comparing it side-by-side with the new car companies that have been listed.

After ruling out the ideal of achieving annual profitability and a small market capitalization, Liu chose the latter between NIO and Xpeng. Compared with NIO, Xpeng and Xiaomi Auto are closer in terms of market positioning and model prices.

As of the last trading day of May, XPeng's U.S. stock market capitalization was $7.851 billion. Liu believes that the valuation of Xiaomi's auto business should be higher than that of Xpeng Motors, reaching $10 billion. The basis for his judgment is that "Xiaomi will achieve a better gross profit margin than Xpeng with fewer sales."

In 2023, Xpeng delivered a total of 142,000 vehicles, with a gross profit margin of 1.5%. Before May 1, Xiaomi had 88,000 large orders, and this year's car sales target is more than 100,000 units (sprint to 120,000 units), and the gross profit margin target is 5%~10%.

Liu's valuation of Xiaomi Auto is close to that of Goldman Sachs. In a research report released in May, Goldman Sachs valued Xiaomi's automotive business at US$9.8 billion (about 70 billion yuan).

Morgan Stanley is more optimistic. Since the beginning of this year, the bank has raised the valuation of Xiaomi Auto twice to 120 billion yuan, giving the auto business a price-to-sales ratio of 2.5 times.

The price-to-sales ratio (PS) is calculated by dividing the total market capitalization by sales and is often used to value a business or business that is still losing money.

Among the research reports released by 18 domestic and foreign institutions collected by Snow Leopard Finance Agency, 8 institutions gave Xiaomi Auto a price-to-sales ratio of 0.75~2.5 times.

Zhang Lei (pseudonym), who works as an auto analyst at a brokerage firm, believes that sales volume is the biggest variable affecting the valuation of Xiaomi's auto business this year, and the ramp-up of production capacity determines whether Xiaomi can convert its orders into real sales. "If you wait too long, you can lose users."

According to the Xiaomi Auto App, the current Xiaomi car delivery cycle is still about 30 weeks. In contrast, Xiaomi SU7 benchmarks Tesla Model 3, and the delivery cycle in China is 3~6 weeks.

Xiaomi is also aware of the problem. Lu Weibing, president of Xiaomi Group, said on the earnings call, "The biggest problem we encountered was delivery." He revealed that in order to increase production capacity, Xiaomi will change from "single shift" to "double shift" from June to sprint to a new goal of delivering more than 10,000 vehicles in a single month.

Liu Cheng began to calculate the performance of Xiaomi cars next year. "At the end of the year, the market is likely to take into account the expected sales of new cars next year, and the valuation of the automotive business and the company's share price may reach a new level."

Reinvent the logic of valuation

After 3 months at the earliest, Xiaomi Auto will release more financial data to the market. In the Q1 earnings call, Xiaomi's management said that it is expected to announce the revenue and gross margin of the automotive business separately from Q2.

Earnings in the automotive business will drive a shift in valuation patterns to price-to-earnings (PE). The price-to-earnings ratio is derived by dividing the total market capitalization by net profit and is often used to value a business or business with stable earnings.

In a research report, Goldman Sachs predicts that Xiaomi Auto will break even in 2028. Lei Jun revealed at the Xiaomi Investor Day held at the end of April that the automobile business is still losing money, and the annual sales volume can reach 300,000~400,000 units to achieve breakeven.

Annual sales of 300,000 units will not only allow the company to generate significant revenue, but also increase its bargaining power over the supply chain. Among the new EV manufacturers, there is no company that can achieve annual sales of 300,000 units, except for Ideal.

In the medium to long term, the automotive business is expected to reshape Xiaomi Group's valuation system.

It is not Xiaomi's initiative for mobile phone manufacturers to build cars across borders. Back in 2014, Apple launched Project Titan, a self-driving car research and development project. This was seen as Apple's bold attempt to enter and disrupt the traditional automotive industry, but the plan was abandoned in February of this year.

Although Huawei has officially announced that it will not make cars, it has cooperated with a number of automobile companies. In the automotive business, Huawei has adopted a standardized component model, HI mode (Huawei Inside) mode, and smart car mode.

Among these crossover players, only Xiaomi has publicly expressed its desire to be among the top five in the world in both mobile phones and automobiles.

According to IDC, a data research institution, as of Q1 2024, Xiaomi's mobile phone has a global market share of 14.1%, ranking third. In terms of automotive business, Lei Jun has repeatedly emphasized that he is committed to becoming one of the world's top five automakers in the next 15 to 20 years.

Liu believes that if the annual sales of Xiaomi cars can reach 500,000 units, the valuation of the business can reach 200 billion Hong Kong dollars, about half of the current market value of Xiaomi's Hong Kong stock market.

However, the increase in the valuation of Xiaomi in the automobile business is not a simple sum of the valuations of several business segments.

Lei Jun once said in the prospectus that Xiaomi is not a simple hardware company, but an innovation-driven Internet company. However, due to the relatively low proportion of Internet business revenue, the secondary market is more inclined to regard Xiaomi as the former.

The integration of the automotive business with the company's ecosystem may help Xiaomi increase its software service revenue.

In Lei Jun's vision, the car is the last piece of the puzzle in Xiaomi's ecological chain, which can help the company create a full-link ecology from personal devices to smart homes, smart offices, and then to smart travel.

In October last year, Xiaomi launched the surging OS system and announced that the group's strategy was upgraded from "mobile phone ×AIoT" to "people, cars, and home ecology". Xiaomi's smart cockpit is equipped with a surging OS system, which can realize the interconnection between the car machine and mobile phones and Mijia smart devices, which is the basic layout of Xiaomi's "people, cars and home ecology" strategy.

In Liu's view, Xiaomi cars can obtain high-margin software revenue by launching paid intelligent driving functions and in-car entertainment systems, "This is a story similar to FSD to Tesla."

According to Royal Bank of Canada analyst Tom Narayan, the valuation of Tesla's FSD business is about $235.375 billion, accounting for 22% of Tesla's total valuation. BofA Securities believes that the gross profit margin of Tesla's FSD business may exceed 70%, which is close to Xiaomi's Internet service business with the highest gross profit margin.

The software and hardware revenue brought by the automotive business and the addition of Xiaomi's ecological puzzle may push the capital market to redefine Xiaomi. Of course, the premise is that Lei Jun wants to keep Xiaomi cars selling a sizable one.

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