Investment Research Team
Xiaomi’s SU7 smart electric car has garnered significant attention from consumers, with a strong initial week of orders. However, challenges have emerged, including extended delivery times, production capacities, and the sustainability of loss-making sales.
If previous consumer frenzies over particular products are indicative, the spotlight on the SU7 could swiftly turn unfavorably for Xiaomi. Regardless, Lei Jun, founder of Xiaomi, faces a challenging journey towards success in the EV market.
Amidst the fiercely competitive Chinese EV market, Xiaomi SU7 achieved remarkable success in its first week. The company’s strategic marketing initiatives leading up to the EV launch garnered significant consumer interest, resulting in nearly 100,000 pre-orders – an achievement unparalleled in China’s EV industry in the past few years.
Official records indicate that upon opening for pre-orders, the SU7 garnered over 10,000 orders in just four minutes, 50,000 within 27 minutes, and exceeded 88,898 orders within 24 hours, surpassing market expectations.
Xiaomi SU7’s customer base primarily comprises individuals aged 25 to 35, with males accounting for up to 70%. These consumers exhibit sensitivity to online information but possess limited knowledge of the automotive sector. Their decision to opt for the Xiaomi SU7 is driven by a combination of brand trust and the appealing design of the vehicle.
Within the initial 72 hours of Xiaomi SU7’s launch, the cancellation rate soared to 40%, while approximately 35% to 40% of orders were later confirmed.
On Wednesday, Xiaomi founder Lei Jun disclosed that over 40,000 orders had been locked out of the 100,000 pre-orders received for the SU7, aligning with earlier predictions.
Some cancellations may stem from the prolonged delivery period. According to a recent Goldman Sachs research report, the average delivery timeline for the SU7 has extended from 5 to 8 weeks to 18 to 21 weeks.
Additionally, data indicates that the Max version’s longest waiting period has reached 29 to 32 weeks. In essence, customers may need to wait until the year’s end to receive their vehicles.
Consumers prioritize the car’s actual delivery capability, posing a significant challenge for Xiaomi to scale up production capacity and delivery – an issue reminiscent of past challenges faced by rival Tesla.
The struggle with production capacity is a common issue faced by many electric vehicle (EV) manufacturers, potentially leading to a decline in sales if cars cannot be delivered on time.
According to reports, Xiaomi recently urged suppliers to boost production capacity to 10,000 vehicles per month, focusing on scaling up production for high-end model versions.
Another supplier disclosed that Xiaomi requested an expansion in component production capacity, elevating its initial target from about 7,000 vehicles per month to approximately 12,000 vehicles per month.
Xiaomi has planned and constructed a vehicle manufacturing plant in two phases within the Beijing Economic-Technological Development Area. The first phase, spanning approximately 720,000 square meters, boasts an annual production capacity of 150,000 vehicles and was completed in June 2023. The second phase is slated to begin construction in 2024 and conclude in 2025.
"The factory features six core workshops, including stamping, body, painting, final assembly, die casting, and battery workshops," said Lei Jun earlier in his public speeches. "At full capacity, a Xiaomi SU7 is produced every 76 seconds."
Industry experts believe that Xiaomi’s ability to navigate the challenges of production capacity in the upcoming months will determine if its current strong sales performance can last.
"Xiaomi loses money on every car sold," Lei Jun told reporters after last week’s unveiling event.
Priced at 215,900 yuan, the SU7 positions itself 30,000 yuan below the Tesla Model 3, making loss-making inevitable at such competitive pricing.
As the Chinese EV market plunges into cutthroat competition, profit margins have drastically shrunk, with profitability achievable only through mass production.
While Xiaomi’s scale enables it to absorb EV segment losses in the short run, failure to achieve mass production within three years could jeopardize its market standing.
Moreover, Xiaomi can explore cost-saving avenues, particularly in battery procurement. Xiaomi vehicles currently uses batteries from two Chinese EV battery makers, CATL and BYD. As Xiaomi scales up, it could gain leverage to negotiate more favorable terms with key suppliers, potentially lowering its vehicle costs.
Lastly, Xiaomi is targeting the global market, where it could still have an edge against competitors.
Already, Xiaomi’s aggressive pricing with the SU7 has triggered a wave of price reductions among other Chinese EV manufacturers. Models priced between 200,000 and 300,000 yuan, including offerings from Huawei’s WAIC World, Xpeng, and NIO, have all slashed prices in the past week.
Related News:
