Breaking down XIAOMI-W's 2023 financial report: Three dimensions of confidence in car manufacturing

Building cars is a very costly business. Looking at the current new forces in car manufacturing, most of them are operating at a loss. The industry competition is fierce, with companies like Weimar and HiPhi being eliminated. After the announcement of XIAOMI-W (01810) SU7, major manufacturers have been lowering their prices, leading to intensified price competition. XIAOMI-W's entry undoubtedly accelerates the industry reshuffle.

In fact, XIAOMI-W has a long-term strategic vision, establishing a "people-car-home full ecosystem". Imagine a scenario where products like watches, phones, home appliances, and even travel tools are all under the XIAOMI-W brand. In the era of AI, with the closer integration of all things and stronger user stickiness, what kind of ecosystem market will this create? On March 28th, the company's SU7 will officially take the stage, and the "people-car-home full ecosystem" will gradually take shape.

Recently, XIAOMI-W released its 2023 financial report, achieving a revenue of 270.97 billion RMB for the full year, with gross profit and adjusted net profit of 57.476 billion RMB and 19.273 billion RMB respectively, representing a year-on-year increase of 20.8% and 126.3%. The gross profit margin and adjusted net profit margin were 21.21% and 7.11% respectively. As of the end of 2023, the company had a cash balance (short-term and long-term bank deposits + cash equivalents) as high as 104.723 billion RMB.

Observing from the Zhitong Finance APP, XIAOMI-W's confidence in car manufacturing mainly stems from three dimensions: first, the strong XIAOMI-W ecosystem, with multiple businesses leading the industry and maintaining healthy growth; second, strong cash flow capabilities, with various businesses such as smartphones, home appliances, and the internet continuously bringing in substantial profits and ample cash flow; and third, the solid foundation laid in the field of car manufacturing, with years of continuous investment now bearing fruit.

First, let's look at the first dimension, the strong XIAOMI-W ecosystem

Starting from smartphones, XIAOMI-W has built a product ecosystem over 14 years, including products like TVs, laptops, tablets, wearables (smart bands and watches), headphones, home appliances, and routers. At the same time, it has constructed the XIAOMI-W ecosystem chain with the XIAOMI-W brand at its core, incubating industry leaders like Huami. The product ecosystem and ecosystem chain of XIAOMI-W have created a solid moat for the company's business.

The strength of the XIAOMI-W ecosystem can be seen through its product performance. Smartphones are XIAOMI-W's core product. In the past few years, the smartphone industry has been weak but showing signs of recovery. According to Canalys data, the global smartphone market shipment volume grew by 7.5% year-on-year in Q4 2023, ending seven consecutive quarters of year-on-year decline. XIAOMI-W's global smartphone market share for the full year was 12.8%, ranking steadily in the global top three for the 14th consecutive quarter.

Compared to competitors like OPPO and VIVO, the ubiquitous XIAOMI-W ecosystem products have won XIAOMI-W a large number of users, creating traffic entry points and providing support for XIAOMI-W's smartphones to resist the industry downturn Under the "Redmi + XIAOMI-W" dual-brand strategy, Xiaomi-W has gained wide user recognition through a high cost-effective product strategy, showing strong resilience in the industry in the past few years. In Q4 of 2023, the shipment volume increased by as much as 23.9%, far exceeding the industry average.

In addition, Xiaomi-W's mobile phones have implemented a high-end strategy, with the average selling price (ASP) increasing by over 19% year-on-year in 2023. In October of the same year, Xiaomi released the high-end intelligent flagship phone Xiaomi 14 series, equipped with Xiaomi-W's powerful OS and AI technology. The dual-brand strategy has also adopted a global market approach. According to Canalys data, in 2023, the company's smartphone shipment volume ranked top three in 51 countries and regions globally, and top five in 65 countries and regions. Xiaomi-W's smartphone business generated a global revenue of 157.46 billion RMB in 2023, accounting for 58.1% of the total revenue.

LoT, consumer products, and internet services are also core products of Xiaomi-W's ecosystem. In 2023, their respective revenue scales were 80.11 billion RMB and 30.11 billion RMB, with revenue shares of 29.6% and 11.1% respectively. Both showed varying degrees of growth year-on-year, with internet services reaching a historical high. With the support of Xiaomi-W's ecosystem, the company's various non-mobile products have solidified their leading position in the industry. For example, in 2023, according to AVC Cloud data, Xiaomi-W's TV global shipment volume remained in the top five, and according to Canalys data, the tablet products' shipment volume in mainland China rose to third place.

Xiaomi-W's ecosystem caters to multiple user needs. As of 2023, the number of IoT devices connected to the company's AIoT platform (excluding smartphones, tablets, and laptops) reached 740 million units, with 14.5 million users having five or more devices connected to their AIoT platform, both maintaining double-digit growth. With the backdrop of the Internet of Everything, the user base continues to grow steadily. The monthly active users of the Mi Home app reached 85.8 million, and the global monthly active users of smart TVs reached 66 million, providing a performance boost to the internet business.

Xiaomi-W continues to increase its investment in the ecosystem. As of 2023, Xiaomi-W's long-term investments amounted to 60.564 billion RMB, an increase of 4.18 billion RMB year-on-year, with a compound annual growth rate of up to 24% over the past five years. Long-term investments and preferred stock investments accounted for 15.292 billion RMB and 34.444 billion RMB respectively, representing 25.2% and 56.9% of the total. In October of last year, the company announced a strategic upgrade to a "people-car-home full ecosystem," with smart cars joining its ecosystem

The second dimension, strong cash flow capability

Profitability leads to healthy cash flow. According to the Zhitong Finance APP, XIAOMI-W implements a business strategy of "emphasizing both scale and profit", maintaining a leading position in various businesses globally while focusing on capacity improvement, optimizing operational efficiency comprehensively, and significantly improving profitability. In 2023, the company achieved a gross profit margin of 21.21%, an increase of 4.22 percentage points year-on-year, an expense ratio of 9.56%, remaining stable, and a shareholder net profit margin of 6.48%, an increase of 5.56 percentage points year-on-year.

XIAOMI-W has achieved decent profit margins in all core businesses. In 2023, the gross profit margin for smartphones was 14.6%, for LoT and consumer products was 16.33%, and for internet services was 74.18%, with year-on-year increases of 5.65, 1.92, and 2.34 percentage points respectively. Due to the significant improvement in profitability, the company achieved a net cash flow from operating activities of up to 41.3 billion yuan in 2023, accounting for 15.24% of its revenue.

It is worth mentioning that in 2023, the company increased its investment in the car-making business, including an investment of 6.7 billion yuan in innovative businesses such as smart electric vehicles. Despite this, it still maintained a strong level of profitability and cash flow, demonstrating the effective implementation of the "emphasizing both scale and profit" strategy.

By the end of 2023, XIAOMI-W had cash and cash equivalents, short-term deposits, long-term deposits, and short-term investments amounting to 33.631 billion yuan, 52.798 billion yuan, 18.294 billion yuan, and 20.696 billion yuan respectively, totaling as high as 125.42 billion yuan, a year-on-year increase of 49.1%, accounting for 38.7% of total assets. More importantly, the company's cash flow is healthy, with a net cash balance of 97.56 billion yuan after deducting short and long-term borrowings.

Having nearly a hundred billion in net cash puts XIAOMI-W at a top position even among car companies. Most new energy vehicle companies are operating at a loss, and brands with high levels of borrowing have little net cash. XIAOMI-W's cash level even surpasses that of traditional car companies by far. Moreover, the company's various core businesses can continue to generate cash flow, providing blood supply for new businesses. However, entering the car-making industry involves crossing boundaries, with business ecology and cash flow serving as support, while development still relies on internal strength.

Lastly, the third dimension, solid foundation in the car-making field

In fact, everything is ready, only the east wind is needed. XIAOMI-W has accumulated nearly four years of experience in the car-making field, having established factories, research and development teams, and sales channels. Once the SU7 is launched, it can be fully operational, relying on high cost-performance products and a highly sticky fan base, with the hope of competing in the target "price range" and gaining market share According to the Zhitong Finance and Economics APP, XIAOMI-W announced its entry into the automotive industry in March 2021. In September of the same year, Lei Jun revealed the core members of the automotive team, including CFO Lin Shiwei, co-founders Liu De and Hong Feng, and SVP Lu Weibing, totaling 17 people. They also established multiple automotive technology companies to fully engage in the automotive business.

The competitiveness of new energy vehicles mainly focuses on three aspects: powertrain, battery, and intelligence. Lei Jun elaborated on five core technologies at the XIAOMI-W automotive technology conference, namely electric drive, battery, large-scale die-casting, intelligent driving, and intelligent cockpit. The 100-degree ultra-large battery, integrated die-casting, cutting-edge intelligent driving capabilities, and sports car-inspired design have been well received by users. Lei Jun expressed confidence in the automotive business by stating "the first battle is the decisive battle."

In November 2023, the Ministry of Industry and Information Technology released the latest batch of "Road Motor Vehicle Production Enterprises and Products Announcement," which included two "XIAOMI-W" pure electric sedans. XIAOMI-W's vehicles have passed inspection and approval by relevant departments. To expand the market for the upcoming SU7, Lei Jun announced two batches of urban delivery centers in March this year, with the first batch in 29 cities and the second batch adding 10 cities. It is expected that XIAOMI-W's sales network will continue to expand.

If XIAOMI-W's SU7 can achieve the planned delivery volume, the company's "people-vehicle-home full ecosystem" will be fully integrated into people's daily lives, becoming the mainstream of the entire AI era. What Apple dares not do, XIAOMI-W has succeeded in doing, making it one of Lei Jun's greatest entrepreneurial achievements. However, the price of SU7 has not been disclosed, and competitors in the market are lowering prices in response. If the market delivery volume falls short of expectations, it will have a certain impact on the company's cash flow and performance.

In summary, XIAOMI-W possesses a strong XIAOMI-W ecosystem, robust cash flow capabilities, and a solid foundation in car manufacturing. With the new strategy of "people-vehicle-home full ecosystem," the company's automotive business is expected to bring unexpected surprises to the market. We look forward to the listing and pricing range of the SU7