Deutsche Bank strongly bullish on Xiaomi: After the automotive business successfully goes "from zero to one," it will experience exponential growth!
Deutsche Bank believes that new products, niche markets, stores, and production capacity will bring exponential growth to Xiaomi's automotive business. It is expected that by 2027, the gross margin of Xiaomi's electric vehicle business will reach 25%, contributing 45.5% and 42% to total gross profit and pre-tax profit, respectively, with sales reaching 1 million units, making it the largest business segment of the group. Deutsche Bank has given Xiaomi its first "Buy" rating and raised its target price to HKD 43
With the first SUV model about to be launched, will the automotive business continue to drive Xiaomi's growth in the future?
On December 13, Deutsche Bank analysts Bin Wang, Laura Li, and Edison Yu released a research report stating that new products, market segmentation, stores, and production capacity are expected to bring exponential growth to Xiaomi's automotive business, with the potential to enter the larger segments of pure electric and hybrid SUVs in the next two years.
The report gives Xiaomi a "Buy" rating for the first time and raises its target price to HKD 43, which implies about a 37% upside potential based on last Friday's closing price.
Deutsche Bank expects Xiaomi's total net profit to grow at a compound annual growth rate of 40%, increasing from CNY 20 billion in 2024 to CNY 54.7 billion in 2027, with total revenue reaching CNY 917 billion at a 17% compound annual growth rate by 2027.
Xiaomi's electric vehicles will become the largest business segment, with the SUV market size surpassing that of sedans
Regarding new products and market segmentation, Xiaomi previously stated that it plans to launch the "YU7" pure electric SUV by mid-2025. The report estimates that by 2027, annual sales of this SUV will reach 400,000 units.
The report also indicates that Xiaomi will continue to launch new models in the coming years, with a full-size/large SUV expected to be introduced in 2026, followed by two large plug-in hybrid SUVs in 2027. The electric SUV market size will surpass that of electric sedans, with annual sales reaching 350,000 units, which is 40% higher than the expected annual sales of 250,000 units for the Xiaomi SU7.
The report also states that Xiaomi's brand recognition, large customer base, and excellent online marketing capabilities established in its main business—consumer electronics—provide advantages for the company to enter the automotive market.
Regarding stores, the report expects that as Xiaomi actively expands its offline distribution channels, the number of stores will increase from 60 in the first quarter of this year to 200 in the fourth quarter.
In terms of production capacity, the report estimates that the capacity of the Beijing factory will increase from 15,500 vehicles in September 2024 to 24,400 vehicles in November, implying an annualized capacity of 290,000 vehicles. The newly built Beijing No. 2 factory is expected to start production in mid-2025, with total capacity jumping from 300,000 vehicles in 2025 to 1 million vehicles in 2027.
However, due to initially low sales and high R&D expenses, Deutsche Bank expects Xiaomi's electric vehicle business to incur losses in 2024, but to achieve its first profit in 2026. It is anticipated that with the improvement of product structure and the introduction of high-priced products, there will be a continuous increase in average selling price (ASP) and profitability between 2024 and 2027.
By 2027, the gross margin of Xiaomi's electric vehicle business is expected to reach 25%, contributing 45.5% and 42% to total gross profit and pre-tax profit, respectively, with sales reaching 1 million units, making it the largest business segment of the group.
