Source: Wall Street News
Xiaomi said that the gross margin of electric vehicles is about 5% to 10%, and it is expected that the revenue and gross profit of the automobile business will be announced separately in the second quarter.
May 23$XIAOMI-W (01810.HK)$The first quarter earnings report was announced. Xiaomi's revenue for the first quarter was 75.51 billion yuan, up 27% year on year. The smartphone business continued to pick up, and adjusted net profit doubled year on year.
At the automobile press conference after the financial report was released, with regard to the much-publicized automobile business, Xiaomi stated that the gross margin of electric vehicles was between 5% and 10%, and it is expected that the revenue and gross profit of the automobile business will be announced separately in the second quarter.
On the AI side, Xiaomi said that in terms of AI models, Xiaomi focuses on end-side AI models and cooperates with GM Big Model to launch AI-based functions and applications. However, it believes that AI phones are more of a kind of packaging for AI functions; it cannot be said that it is a new category, nor can it be said that it will greatly promote the mobile phone market.
The following is a transcript of the call analyst Q&A session:
Question 1: In terms of the ecological synergy of human-vehicle integration, how can the automobile and mobile phone businesses empower each other?
On the one hand, there is collaboration at the product, technology, and supply chain levels. By combining its experience, technology, and supply chain advantages in the consumer electronics field with the automotive business, Xiaomi has begun to achieve synergy effects.
On the other hand, there is the expansion at the user level. Xiaomi cars have attracted iPhone users (51.9%), BBA users (29%), and a large number of female users (40%-50%). This shows that Xiaomi's appeal among new user groups may not have been achieved before, but now SU7 has reached SU7.
The third is ecological user stickiness: Xiaomi's ecological closed-loop strategy will increase user stickiness, increase the cost of users leaving the Xiaomi ecosystem, and compare it with the user stickiness of iOS and Android systems.
Question 2: How does the increase in component prices affect the gross profit margin of mobile phones? What cost reduction and efficiency measures will the company take to maintain gross profit margin?
The rise in core components actually began in the third quarter, and there was a big increase in the fourth quarter. Facing the rise in raw material costs, Xiaomi first increased strategic reserves and made strategic reserves to cope with rising costs by accurately predicting price fluctuations of core components such as memory.
The second is the scale effect: the scale gap between Xiaomi and rivals Apple and Samsung has narrowed, and the scale effect has been used to reduce costs and increase gross profit margins.
The third point is to optimize the product structure through high-end technology to cope with rising costs and improve gross profit margin. Fourth, the increase in the gross margin of IoT products will help offset the possible decline in the gross margin of mobile phones.
Q3: Plans for future new retail expansion?
In terms of new retail, it will expand further in the next three years. Xiaomi plans to add 10,000 new stores in China between 2024-2026, bringing the total number of stores to 20,000. The second is to upgrade stores to improve the quality of stores, including better locations and larger areas to meet the development needs of high-end and large appliances.
In terms of automobile retail construction, it is planned to add car display stores in more than 50 cities to reduce the inconvenience of users experiencing Xiaomi cars. Finally, overseas market expansion: Xiaomi Home will be transformed to meet new retail requirements, and plans to open 10,000 Xiaomi Homes in overseas markets within five years.
Furthermore, Xiaomi believes that the logic and practice of new retail should be replicated overseas, and even if its per capita GDP reaches 50,000 US dollars, it still has a per capita share of 23,000 US dollars. We think it is all universal.
Q4: What is the reason for the 40% year-over-year increase in overseas revenue?
The increase in the number of users is the main driving force for revenue growth. The number of overseas users has increased by 50 million to nearly 500 million, and monetization capacity has increased accordingly.
There are three driving forces behind the increase in monetization capacity. One is the increase in pre-installed revenue and the addition of new customers to the platform; the second is overall revenue from performance advertising and search advertising; and the third is structural impact, increasing the proportion of high-end users and hierarchical partner stratification, which has contributed to revenue growth.
Question 5: IoT gross margin sustainability and overseas expansion plans
The increase in IoT gross margin is due to Xiaomi's strategy of leading industrial capacity. Xiaomi proposed an industrial capacity leading strategy to optimize the IoT business through self-development and enhancement of industrial capabilities, and the operating effects released by this strategy are only the beginning.
In terms of gross margin sustainability, Xiaomi does not have a uniform gross margin target. Instead, it is set according to the market conditions of each category and evaluated through category benchmarking companies.
In terms of overseas expansion, focus on product compliance, product-consumer compatibility, and channel issues. Xiaomi's new retail, Xiaomi Home, Xiaomi website, and e-commerce platforms are efficient sales channels that help IoT products grow overseas.
Question 6: How to get more orders on the demand side?
The biggest obstacle to the number of locks on Xiaomi phones is the delivery cycle issue. The long delivery cycle of Xiaomi cars (over 30 weeks) is the biggest obstacle for users to place orders. Therefore, Xiaomi's most important job now is to increase output and shorten the delivery cycle.
At present, the production capacity of the Xiaomi car factory has been fully accelerated. It is already preparing to produce in double shifts in June to ensure delivery of more than 10,000 vehicles in the same month to meet users' demand for early delivery. The output is expected to be nearly double what it was. The management's goal is to sprint to the 120,000 vehicle delivery target for the full year of 2024.
Question 7: What is the price strategy of the mobile phone business during the 618 period and its impact on sales volume, price and gross margin?
The 2024 618 promotion campaign started early, and the market competition was fierce. Xiaomi is at the top of the rankings, and the overall performance is in line with expectations.
At the end of last year, Xiaomi faced the challenges of changes in the industrial environment. In particular, the high-end market performance of the Xiaomi 14 received attention. However, the sales volume of the Xiaomi 14 has increased significantly compared to the Xiaomi 13, which indicates that Xiaomi has not been greatly affected by the competitive environment. Xiaomi's business performance is not expected to be affected by the 618 promotion.
Question 8: What is the reason for the increase in inventory levels?
Xiaomi has made strategic preparations to cope with rising raw material prices. The automotive business went on sale in early April, and 5,000 Founder's Edition (original edition) units were produced, increasing inventory.
Second, with the arrival of the peak season for air conditioners, Xiaomi is also stocking up, hoping to achieve big sales in the second quarter. In addition, in order to prepare for the 618 promotion, Xiaomi has also stocked the goods accordingly.
Question 9: What is the reason for the rapid growth in the Middle East region and progress in the AI big model?
In terms of overseas market growth, management of overseas markets has been strengthened through personnel and strategic adjustments, and execution has been improved. Second, many strategic adjustments, personnel adjustments, and strategic adjustments have been made. When these two are combined, overseas markets will gain strength faster and faster.
Although the Middle East region has achieved significant growth, there are still high-potential markets. For example, Saudi Arabia's market share is only in single digits. Xiaomi is confident that it will increase to 20-30%, and Africa should also achieve 20%. Overall, overseas markets have great potential for growth.
In terms of AI models, Xiaomi focuses on end-side AI models and collaborates with GM Big Model to launch AI-based functions and applications. AI phones are more of a kind of packaging for AI functions. Not to mention that it is a new category, nor will it greatly promote the mobile phone market.
The company focuses on the development of end-side AI, incorporating the best AI models into the user experience through cooperation and investment with different companies. The application of AI is not limited to mobile phones, but also includes scenarios such as intelligent car driving and smart homes. AI will be used to improve enterprise efficiency and integrate AI technology into intelligent manufacturing.
Q10: Overseas IoT channel strategies, particularly in the North American and Japanese markets?
Channel Strategy: On the other hand, Xiaomi insists on self-operated channels, cooperates closely with e-commerce platforms, and cooperates with social channels. Xiaomi adheres to its product principles, which is to provide the ultimate cost performance ratio without sacrificing product competitiveness.
In the Japanese market, the focus is on online channels, avoiding the high cost of offline channels in order to improve cost performance.
In every country, Xiaomi partners with localized e-commerce platforms to cover a wider range of markets. Xiaomi has deep cooperation with some large partners, such as the European media market.
Question 11: What is the gross margin target for the electric vehicle business?
The gross margin of electric vehicles is about 5% to 10%, and it will take some time for the gross margin to run out, about 4, 5, or 6 months.
Second, gross margin is related to scale. The larger the scale, the higher the gross margin is likely to be. The company has set a target delivery volume for 2024, rising from 76,000 units to 100,000 units, and possibly even 120,000 units.
The availability of components also affects costs and gross profit margins. The company needs to consider the availability of components in the next few years and the compatibility between different models.
The company currently has no clear gross margin target, which may be related to future changes in the product portfolio, not just the impact of a single product; plans to improve gross margin by increasing delivery volume.
Xiaomi will start separately announcing the revenue and gross profit of the automobile business in the second quarter to improve information transparency.
editor/tolk