"The Strongest" Xiaomi, Lacks "Surprise"

Recently, Xiaomi Group released its 2024 performance report, and Lei Jun excitedly proclaimed on Weibo, "The strongest annual report ever." This statement is not an exaggeration, as Xiaomi's performance last year was indeed "blossoming in multiple areas."

2024 results, net profit increased by 272 billion yuan, up 41.3% from 2023 net profit of 2057.06 billion yuan, representing a 35.04% growth rate.

Mi smartphones reached shipment of 169 million units, consistently ranking third globally for 18 consecutive quarters; IoT business also achieved explosive growth, breaking the trillion-yuan scale for the first time.

The most eye-catching aspect is the automotive business. Previously, the official projection for Xiaomi's automotive deliveries in 2025 was over 300,000 units. Following the release of the financial report, Lei Jun directly raised the delivery expectation to 350,000 units.

Even though Xiaomi delivered its "best-ever" performance, the reactions from institutions and the market were somewhat "muted." The stock price didn't show a significant increase, and even JPMorgan downgraded Xiaomi to Neutral.

And this is related to the rapid growth of Xiaomi in the secondary market over the past year. By looking at the stock price of Xiaomi as of March 19, 2023, its PE estimate has reached 50 times. It's comparable to many domestic peers and offshore giants, such as Alibaba Group. In other words, the bright spots in the financial report are already being realized by market expectations.

In 2024, especially after the launch of the new energy vehicle business, Xiaomi's reputation in China further strengthened. The most typical characteristic was the rise in stock prices and founder Lei Jun almost becoming the representative entrepreneur following Jack Ma. In reality, the phased success of the car manufacturing business has indeed influenced the historical mission of the main brand to "rise high," particularly in the smartphone sector.

As for the previous content, it can be translated into English as: 小米's imagination is still a unique part of its business model, as evidenced by its "The Little MI Method", while the "Great Wall MI" brand movement is still a unique part of the "MI ecosystem".

And this part, Xiaomi is still exploring.

The Threefold Code of the "Strongest Financial Report"

Xiaomi Group President Lu Weibing stated that the rapid growth in performance for 2024 is mainly attributed to the synergistic effects of three growth curves: personal devices, home devices, and travel devices.

Xiaomi's traditional business "no loss", allowing its automotive business to thrive on a stable ecosystem, enabling its automotive business to surge to full force. This symbiotic effect has released the "multiplier effect", helping Xiaomi to complete a phase of self-overcoming.

Smartphones further move towards high-endization. In the past year, Xiaomi smartphone revenue increased by 21.8% to 1,918 billion yuan, mainly due to an increase in smartphone shipment and ASP (average selling price).

Xiaomi's high-end smartphone sales account for 23.3% of the overall smartphone market, up 3.0% from last year. In the 4K-5K price segment, Xiaomi's smartphone market share ranks first, at 24.3%, up 0.2% from last year.

It is worth mentioning that the ASP of Xiaomi smartphones has increased from around 1000 yuan in 2020 to approximately 1200 yuan now. Although the average selling price has only increased by 200 yuan, with an annual sales volume of 200 million units, this is no small figure.

Moreover, starting from the fourth quarter of 2023, Xiaomi's smartphone shipments have increased for five consecutive quarters, indicating that Xiaomi's strategy is solid and not merely focused on "price-driven volume."

Next, IoT broke through the trillion-yuan scale in the household consumer products business for the first time, with a year-on-year growth of 30%. Among them, the shipment volume of air conditioners, refrigerators, and washing machines all set new historical records, and the income from smart household appliances increased by 56.4% year-on-year.

The "national subsidy" bonus is a strong boost; although policy tailwinds are not common, Xiaomi's home appliances have seized this opportunity well. In the air conditioning market, Xiaomi has risen to fourth place, and Lu Weibing stated that they aim to break into the top three this year.

In the past, the white electric market was dominated by traditional brands, with Xiaomi quietly ruling the market for many years, with little chance of breaking through. However, with the policy windfall, Xiaomi's home appliances have not only reversed the price advantage, but also emphasized the value of home networking.

Lu Weibing said, "Currently, over 70% of Xiaomi air conditioner users are connected to the internet. Some brands are only a few percent, which is almost a tenfold difference compared to us. Many technologies, such as 'wind avoidance' and 'wind following,' cannot be realized without internet connectivity. Our technology is significantly ahead."

Seizing this wave of policy opportunities, Xiaomi's smart terminals have further penetrated households, with the Mi Home App's monthly active users exceeding 100 million, marking Xiaomi's evolution from a "hardware manufacturer" to an "ecosystem operator." This shift holds more strategic value than short-term growth.

Finally, Xiaomi Auto emerged as a "dark horse," completing the final piece of the "human-car-home ecosystem." An automotive blogger surveyed 100 users who made a large deposit for the Xiaomi SU7 and found that 66% of them were Xiaomi smartphone users.

Earlier, the army had also publicly stated that Xiaomi would become the most compatible with Apple ecosystem for cars, seamless integration of car systems and Mi home ecosystem.

In addition, although the automotive business has not yet become profitable, the annual gross margin is 18.5%, and the gross margin in the fourth quarter has improved to 20.4%. The loss per vehicle has narrowed from 6.2 billion yuan to 700 million yuan, indicating that the scale effect of Xiaomi's automotive business has begun to appear. Based on the current gross margin, the automotive business is expected to approach break-even in the second half of 2025.

Driven by the strong performance of its three core businesses, Xiaomi's internet services revenue and advertising business have both seen growth. Notably, these two segments can be considered Xiaomi's "cash cows." For instance, the gross profit margin of internet services reaches as high as 76.6%.

"Ecological Synergy"破解"超高端"

During the financial report conference interview, Lu Wei Bing stated, "Xiaomi's ecosystem strategy of people, cars, and home is just beginning to close its loop, and the synergistic effects are already starting to manifest; even greater synergies will occur in the future."

Firstly, the addition of the automotive business has had a stimulating effect on Xiaomi's existing business ecosystem. Lu Weibing has pointed out that after the automotive business was added, Xiaomi made significant progress in its offline layout in the new retail sector.

The location of Xiaomi stores has gradually moved to prime spots in shopping districts, thanks to the high traffic generated by Xiaomi's range of products. This has led property owners to offer better locations, providing additional sales opportunities for Xiaomi's smartphones and IoT products.

Two points: Xiaomi's high-end strategy over the past five years has also laid the groundwork for the brand potential of Xiaomi Auto, and with the implementation of the "person-car-home ecosystem", it further drives Xiaomi's development from "high-end" to "ultra-high-end".

Xiaomi has been focusing on "high-end" since 2020, but the results have not been very obvious. For example, although the average price of its smartphones has increased, the gross margin not only failed to rise but actually narrowed, from 16.6% in the third quarter of 2023 to 12.6% in 2024.

This also reflects that even though Xiaomi has increased its investment and innovation in smartphones, it is still very difficult to reverse the perception of "value for money," and it cannot possess the high pricing power like Apple, Huawei, and other high-end brands.

Therefore, to build a "brand belief" among consumers and make it a key part of its "high-endization", Xiaomi chooses to fully utilize its ecological advantages, creating a differentiated business moat.

The key to high-end positioning lies in whether one can create a unique and singular core value that consumers recognize and perceive, similar to Apple's one-of-a-kind iOS ecosystem and Huawei's technical strength in self-developed chips. Xiaomi's "full ecosystem of people, vehicles, and homes" is a concrete representation of brand value.

Lu Weibing once stated that Xiaomi's high-end strategy would be implemented in three phases: achieving a breakthrough from high-end to ultra-high-end in smartphones, expanding the product categories from phones and cars to a full ecosystem, and further extending the high-end strategy from the Chinese market to the global market.

This also demonstrates Xiaomi's phased expansion from its mobile phone business to its automotive business and then to global operations. Besides boosting the momentum of the Xiaomi brand, it can also gradually ingrain the concept of Xiaomi's extreme cost-effectiveness in the minds of consumers. When "cost-effectiveness" is no longer seen as synonymous with "cheap" by consumers, Xiaomi's high-end strategy will have been half successful.

It can be seen that Xiaomi's "upscaling" does not mean completely abandoning the mindset of "cost performance," but rather leveraging supply chain authority to further empower the full range of the "people, vehicle, and home ecosystem," and then adopting an open approach to attract more consumers.

Lu Weibing once stated that the "Person-Car-Home ecosystem" collaboration encompasses aspects like supply chain and users. Taking smart cars as an example, they represent a major fusion of the traditional automotive industry and consumer electronics. Xiaomi possesses extensive experience, technology, and even supply chain resources within consumer electronics that can be leveraged for synergy.

By organizing the business layers through the "people-carrier-house ecosystem" framework, Xiaomi can empower each business module to collaborate and assist each other, while the automotive business serves as a key support for the mobile and IoT product circles, and the car-hailing ecosystem is its key driver in expanding its market share.

Finally, making a push for the "ultra-premium" segment could help Xiaomi seek greater growth opportunities. For instance, in the automotive business, its gross profit margin has exceeded the 15% composite gross profit margin of the "smartphone × AIoT" business. As Xiaomi's market share in the automobile sector continues to grow, there is still significant headroom for profit potential.

Mi's Next Key Move

However, the imaginative potential of the "Human-Vehicle-Home Ecosystem" has already been fully reflected in Xiaomi's stock price during the first quarter. This is why, despite Lei Jun raising Xiaomi Auto's sales target to 350,000 units in 2025, the capital market's reaction remains subdued. The multiplier effect brought about by the "Human-Vehicle-Home" concept is already within market expectations.

Moreover, regarding Xiaomi's "strongest performance in history," the market does have its concerns. On one hand, the success of the Xiaomi SU7 can be attributed to the advantages of being a latecomer, allowing it to quickly identify and accurately target niche markets.

However, it cannot be ignored that other competitors in the automotive industry are also actively catching up. If Xiaomi Auto wants to become a leader in the industry, it still needs to "catch up" in research and development and production capacity. Whether its next product can become a hit remains to be seen by the capital market.

IoT market is highly competitive, Huawei, HUAWEI, Xiaomi are aggressively expanding their smart home market; Huawei, Honor, Apple are aggressively expanding their high-end market; Xiaomi are aggressively expanding their mid-range market.

The two points point towards the same issue. Besides "Person-Car-Family" ecosystem closed-loop water management of Xiaomi, its products can bring to consumers unique competitive advantages to make them willing to buy.

Currently, the market is most concerned about Xiaomi's progress in AI development. In fact, Xiaomi can be considered one of the earliest brands in China to invest in the AI field, but in terms of AI large models and AI applications, it is a case of "starting early but arriving late."

For example, Xiaomi's self-developed Pengphoenix OS has been criticized by many users for issues such as lagging system interfaces and applications crashing; while in the area of AI applications, including AI writing, AI conversation translation, and AI real-time subtitles, users also believe these features lack distinctive qualities.

During Xiaomi's annual year-end livestream last year, Lu Weibing showcased the Super Xiao Ai feature on Xiaomi phones, which even suffered a mishap. While using the image navigation function, he repeatedly said "Hey" twice, but the Xiaomi phone didn't respond. Later, the screen went completely black.

Despite completing "The Pet Cownie-Pup Couple Ecological Coexistence Project," which set a stage for human car companion ecology, this AI ecosystem lacks clear weaknesses yet lies the groundwork for its next great battle.

In the "Human-Vehicle-Home Ecosystem," AI is not only key to enhancing user experience but also the core technology that elevates the ecosystem's upper limits. Through AI, multiple scenarios like humans, vehicles, and homes can be more efficiently interconnected and integrated, forming a super-intelligent ecosystem centered around the user and proactively serving their needs.

At the financial report meeting, Lu Weibing stated that this year, one-fourth of the research and development budget will be invested in AI technology, approximately 7 billion to 8 billion yuan. Among these, AI, OS, and chips have been listed as core technologies of Xiaomi.

Here is the translation: "Microsite has accelerated in the AI field, but results should be directed by outcomes." 或 "By incorporating AI technology into the ecosystem of 'People Carrying Homes', they can produce products that truly enhance user experience and create a marketable "new story".

Therefore, Xiaomi's "strongest financial report ever" is merely a halftime score. As Sun Tzu said in The Art of War, "Victorious soldiers first win and then seek battle." Xiaomi has already proven its ability to win battles, but to become the true "ecological king," it still needs to demonstrate its value in the deep waters of technology.