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"This is the best quarterly report in Xiaomi's history! Thank you for your support!"

On the evening of August 21, Lei Jun wrote this sentence on his personal Weibo. Attached with it were two data from Xiaomi Group's second quarter 2024 financial report:

During the period, the company achieved revenue of 88.9 billion yuan, a year-on-year increase of 32%, setting a new record for a single quarter; adjusted net profit reached 6.2 billion yuan, a year-on-year increase of 20.1%.

Usually, when the management of listed companies talks about financial reports,They all more or less adhere to the principle of "reporting good news but not bad news", but the second quarter that just passed was "no worries to report" for Lei Jun.

In terms of mobile phone business, revenue reached 46.5 billion yuan during the period, a year-on-year increase of 27.1%; IoT business revenue reached 26.8 billion yuan during the period, a year-on-year increase of 20.3%; Internet revenue reached 8.3 billion yuan, a year-on-year increase of 11%.

The only thing that dragged down the overall profit performance was the newly included automotive business in the financial report. This quarter, Xiaomi disclosed the revenue of its automotive business for the first time, with revenue of 6.4 billion yuan and an adjusted net loss of 1.8 billion yuan. In the conference call after the release of the financial report, a media asked a question, "According to the 27,307 units delivered in the second quarter announced in the financial report, Xiaomi lost more than 60,000 yuan on average for each SU7 sold."

Of course, considering that SU7 is Xiaomi's pioneering work in the automotive industry and the series of amortization expenses brought about by the self-built factory, the loss is normal.

In addition to the generally positive performance of various businesses, there is another number that is particularly worthy of attention:As of June 30, 2024, Xiaomi's cash reserves were RMB 141 billion, an increase of RMB 38 billion compared to the second quarter of 2021 when Xiaomi announced its car manufacturing plan.

Although Lei Jun has repeatedly expressed concern that "making cars is very expensive", Xiaomi seems to have more and more ammunition in its hands.

Three-way concurrency

Compared with the highly anticipated automotive business,What is more worthy of attention at the moment for Xiaomi is the operating performance of its traditional lines.

In terms of shipments, smartphone shipments reached 42.2 million units, up 28.1% year-on-year. The shipments have outperformed the market. According to Canalys, global mobile phone shipments increased by 12% year-on-year in the second quarter of this year.

But it is worth noting that Xiaomi's ASP (average selling price per unit) this quarter still showed a slight decline, from 1,112.2 yuan in the same period last year to 1,103.5 yuan, and the gross profit margin also dropped from 13.3% to 12.1%.

Regarding this issue, Xiaomi Group President Lu Weibing said in a conference call after the release of the financial report:Several of Xiaomi's smartphone products entered a price adjustment cycle in the second quarter. In addition, the 618 promotion season and the rising costs of components such as memory and screens also lowered gross profit margin performance.

In addition to the above reasons, another important reason for the decline in Xiaomi's gross profit margin may be that the shipment of a large number of mid- and low-end models has lowered the gross profit margin level, especially considering that in the overseas markets that Xiaomi focused on this quarter, Latin America and Africa generally have weak purchasing power, and the ASP of mobile phones in these regions is often negatively correlated with sales.

However, another set of figures was also mentioned in Xiaomi's financial report, namely, in the Chinese mainland market, Xiaomi mobile phone price range of 3,000 yuan to 4,000 yuan increased by 5.4 percentage points year-on-year, the price range of 4,000 yuan to 5,000 yuan increased by 3.5 percentage points year-on-year, and the price range of 5,000 yuan to 6,000 yuan increased by 2.3 percentage points.

Overall,Xiaomi’s efforts to develop high-end smartphones have yielded some results, but there is still a long way to go before the “harvest period” of enhancing brand value and supporting brand premium can be reached.

In terms of IoT business, Xiaomi has achieved great success this quarter.

Tablet revenue increased by 67.6% year-on-year in the second quarter; shipments reached 2.144 million units, up 106% year-on-year, much higher than the 18% year-on-year growth rate of global tablets in the same period. Wearable revenue increased by 31% year-on-year, with TWS headset shipments ranking first in mainland China.

In the large home appliance business, Xiaomi has even managed to "drag the market" this quarter.The financial report shows that during the period, shipments of air conditioners, refrigerators and washing machines increased by 40%, 25% and 30% year-on-year respectively.

Comparing with the data of the domestic market in the same period, according to the statistics of Aowei Cloud Network, in the domestic market from April to May this year, the year-on-year growth rates of air conditioners, refrigerators, and washing machines were 5.7%, 5.0%, and 10.3%, respectively.

This quarter, Xiaomi readjusted the definition of its business in its financial report.The original three business departments of smartphones, IoT and lifestyle consumption, and Internet services were adjusted to "smartphones × AIoT" and "smart electric vehicles and other innovative businesses."

After the division, "smartphone × AIoT" now contributes 92.8% of Xiaomi Group's revenue and almost all of its profits. It is worth mentioning that if the 1.8 billion yuan loss brought by automobiles is deducted, the profit of Xiaomi's traditional business line this quarter will reach 8 billion yuan, an increase of 118% compared with the same period last year.

That is to say, although the losses in the automotive business will continue in the short term, Xiaomi's traditional business still builds a solid moat for the company.

Making cars still requires controlling the supply chain

In April this year, Citi issued a report saying that Xiaomi will deliver 55,000 to 70,000 vehicles this year, and each SU7 will lose an average of 6,800 yuan.

Xiaomi officially responded on social media immediately, saying that Citi may have underestimated the hot sales of Xiaomi SU7.

Facts show that Citigroup indeed underestimated Xiaomi's delivery capabilities. This quarter's financial report shows that with the car factory starting double-shift production and the production line maintenance optimization in July, Xiaomi's deliveries exceeded 10,000 units for two consecutive months in the second quarter, and it is expected to achieve the annual delivery target of 100,000 vehicles by November.

Citi also underestimated Xiaomi's average loss per vehicle.

Of course, if we simply allocate the losses of the automobile business to individual cars, this method is a bit too simple and crude.

First of all, as the first generation of Xiaomi cars, Xiaomi SU7 bears high technical pre-research costs.According to the financial report, Xiaomi Group's R&D expenses in the second quarter of this year reached 5.5 billion yuan, a year-on-year increase of 20.7%. Although Xiaomi did not clearly list the allocation of R&D expenses, at present, most of the expenses are from the automotive business department. These quarterly accumulated R&D costs will take a long time to digest.

Another point that cannot be ignored is thatXiaomi cars are produced in its own factories, which involves including depreciation and amortization of factory equipment in cost accounting.Considering that the automobile industry is a typical industry that relies on scale to reduce costs, even if Xiaomi achieves its sprint target of 120,000 vehicles this year, the cost of each vehicle will still be huge.

However, as a company that is well versed in supply chain management, Xiaomi SU7's gross profit margin performance is still good. The financial report shows that the gross profit margin of "smart electric vehicles and other entrepreneurial businesses" during the period was 14.7%.

Just a simple horizontal comparison,Among the "new forces in car manufacturing", NIO's gross profit margin in the first quarter was 4.9%, Xpeng's gross profit margin in the first quarter was 12.9%, and Ideal's gross profit margin in the first quarter was 20.6%. As a new player in the automotive industry, Xiaomi SU7's gross profit margin is already quite impressive.

Going further, Tesla, which also uses the "self-built factory" model, currently has a gross profit margin of 18%. Compared with Tesla, whose factory has been completed long ago and some equipment has been depreciated, Xiaomi, whose first phase of the factory was completed last year and whose second phase is under construction, has to account for additional civil engineering costs in its expenses.

It can be predicted that as the scale of Xiaomi’s automobile shipments grows in the future, the gross profit margin will most likely continue to increase and the losses will be further narrowed.

It should be said that Xiaomi, which was well versed in supply chain in the mobile phone industry in the past, has replicated its successful experience in the automotive industry.

Does Xiaomi still need to be stable at present?

In fact, considering Xiaomi Group’s current profitability, Lei Jun is definitely not “burning a lot of money” when it comes to making cars.

On the contrary, despite the fact that Xiaomi SU7 was well received in the market, Lei Jun still pursued a strategy of steady operation, and even tightened up some areas that used to "burn money".

for exampleXiaomi's overseas investment.In March 2021, after Lei Jun announced that Xiaomi had started making cars, he conducted several rounds of all-round layouts that year. For example, in the field of automotive chips, he invested in Yutai Microelectronics, Black Sesame Intelligence and Yuntu Semiconductor within three months, and in the field of autonomous driving, he invested in Hesai Technology and Momenta, etc.

However, investment in the smart electric vehicle industry came to an abrupt halt at the end of 2023. According to Xiaomi’s previous financial report,As of December 31, 2023, the Group has invested in approximately 430 companies with a total book value of RMB 67.1 billion. By June 30, 2024, the number of companies invested by Xiaomi remained 430, but the total book value decreased slightly to RMB 65.4 billion.

Admittedly, in the context of adjustments to the group's main business, tightening investment to reduce unstable factors is completely in line with industry practice. However, for Xiaomi, which has the richest ecological chain in the industry, such stability is indeed somewhat puzzling.

Xiaomi’s AI strategy is equally robust.

When Xiaomi released its first quarter financial report this year, it included "AI smartphones" in the company's "core observation" range, and stated that the group will focus on large-scale end-side models in 2024 and focus on lightweighting large models.

Now that two-thirds of the year 2024 has passed, Xiaomi's large language model MiLM has not yet been officially launched.

It should be noted that Xiaomi is one of the earliest manufacturers in China to promote the concept of AIoT. It is also one of the first mobile phone manufacturers to participate in the research and development of large models. Its technical reserves in AI are definitely not weak.In fact, as early as August last year, Xiaomi AI Lab had already run models with 1.3 billion and 6 billion parameters respectively.

But at present, Xiaomi's AI applications are still focused on specific functions in scenarios, such as AI document question and answer, image processing, or the car wake-up function on Xiaomi SU7. Even the production and manufacturing links in Xiaomi factories use more AI technology than mobile phones.

In a conference call after the release of the financial report, Lu Weibing mentioned that the V6/V6S motor used in Xiaomi SU7 was developed by an AI simulation system.

It is difficult to judge whether Xiaomi’s conservative strategy on AI is correct. After all, judging from market feedback, Xiaomi’s smartphones have been gaining momentum in the first half of this year, both in the domestic and foreign markets.

Perhaps at this stage, compared to the illusory "end-side AI", consumers are still more inclined to practical applications that can solve pain points.But for Xiaomi, which has the ideal of "becoming the coolest company in the eyes of users", it may still need to make bolder attempts in AI.