Xiaomi share price outlook: SU7 launch brings new risks

Xiaomi share price has rebounded recently as investors cheer the company’s entry into the electric vehicle industry. The stock, which bottomed at H$11.86 in February, has rebounded by over 26% to the current H$14.95.

Xiaomi EV challenges

Xiaomi has become one of the fastest-growing companies in the smartphone industry. Often seen as China’s answer to Apple, it has become a dominant player in one of the top industries globally. It is the third-biggest company in the smartphone industry after Apple and Samsung.

Over the years, the firm has expanded its business to other areas like Internet of Things (IoT) and internet services.

Now, it has made the biggest business decision in years as it launched its SU7 vehicle in China as it seeks to battle firms like Tesla, BYD, Nio, and Xpeng. The vehicle has a starting price of 219,000 yuan, making it cheaper than Tesla Model 3 and other peers.

Analysts at Bloomberg believe that Xiami has room to sell between 30k and 50k vehicles in the first year. It will then grow its units to over 100k in 2025. 

Investors are loving the popularity of the new vehicle as evidenced by Xiaomi’s stock performance. They also believe that the company will use its expertise in competing with Apple to grow its market share in the EV industry.

However, I am a bit pessimistic about the new move because of the overall costs involved and the fact that the market is highly saturated. China now has over 100 EV manufacturers, with the biggest ones being BYD, Li Auto, Xpeng, and Nio. 

Foreign brands like Volkswagen and Hyundai have a big presence in the Chinese market. Most importantly, all these companies have made plans to boost their production in 2024. For example, Nio made over 30k vehicles in Q1 and it hopes to make over 20,000 vehicles per month.

Further, Xiaomi will likely contend with the ongoing price wars, which will affect its gross and profit margins in the EV industry.

The other major concern for the Xiaomi stock price is that smartphone sales are slowing as people are staying longer with their devices.

This trend was evidenced in its performance in 2023. Total sales dropped by 3.2% to RMB 270 billion. While the company has over 641.2 million monthly active users (MAU), this ecosystem growth will continue slowing in the coming years.

Therefore, Xiaomi is facing dual risks. Its core smartphone business, which accounts for 58% of total sales is slowing. It has now entered the highly-expensive EV industry, which is going through a major downturn, as evidenced by the recent Fisker woes.

Xiaomi share price forecast

Xiaomi chart by TradingView

The daily chart shows that the Xiaomi stock price has staged a slow recovery in the past few weeks as the anticipation for the SU7 launch rose. The 25-day and 50-day moving averages have made a bullish crossover.

Additionally, the stock has jumped above the crucial resistance at H$14.56, its highest swing in June 2022. It also seems to be forming a bullish flag pattern, which is a sign of a bullish continuation.

However, the stock remains below the middle line of Andrew’s pitchfork tool. Therefore, there is a possibility that Xiaomi will rebound and retest last November’s high of H$17. However, I believe that its gains will be limited as the EV business hits its profits.

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