"Luxury cars worth millions" sold at half price, Lei Jun puts pressure on BBA

Author | Zhou Zhiyu

Editor | Zhang Xiaoling

On February 27th, the launch event for the Xiaomi 15 Ultra and SU7 Ultra was packed. On stage, the financial data and product parameters displayed on the large screen behind Lei Jun complemented each other.

This launch event was not only a showcase of technology but also a report card on high-end transformation. Xiaomi's ambition is now clear: to enter the ultra-high-end market with a "gold standard car" priced at 529,900 yuan and a flagship imaging smartphone starting at 6,499 yuan.

Behind this gamble is Xiaomi's tumultuous story over the past five years in its journey towards high-end products. From the confusion of "parameter involution" to the awakening of "experience first," from skepticism in the capital market to a market value exceeding 1 trillion Hong Kong dollars. Now, it needs a new valuation narrative to change the market's inherent perception of it.

Xiaomi is transforming from a consumer electronics company into a "technology chain leader"—using ecology as a bond and innovation as a lever to pry open a collective breakthrough in the Chinese supply chain. Now, as it races towards the ultra-high-end market, it represents a significant adventure for Chinese high-end manufacturing to leap to greater heights.

As Lei Jun said, "This is an era of tremendous change, and I believe that the two Ultras will mark the beginning of a series of profound transformations."

Declaration of War

The two Ultra products showcase Lei Jun's unprecedented ambition, marking Xiaomi's full-scale assault from "high-end exploration" to the "ultra-high-end market."

In the past year, Xiaomi has established its footing in the high-end market through car manufacturing. It has built a "second growth curve" through this venture, addressing female users' biases against Xiaomi and reshaping its image in the high-end market; over the past year, Lei Jun has frequently mentioned the proportion of female users in the Xiaomi SU7 during various launch events, shifting from a monotonous focus on technological leadership to an experience-first approach.

Now, the SU7 Ultra has entered the million-level market with the posture of a "performance monster," charging into the ultra-high-end market.

The ambition of the SU7 Ultra is evident in its specifications: 0-100 km/h acceleration in 1.98 seconds, a top speed of 350 km/h, a maximum downforce of 285 kg, and an astonishing maximum power of 1548 PS. Lei Jun candidly stated, "Its performance rivals that of Porsche, its technology closely follows Tesla, and its luxury is comparable to BBA."

Recently, the SU7 Ultra set a lap record at the Shanghai International Circuit, surpassing Porsche with a time of 2 minutes and 9.944 seconds, becoming the fastest production car at the track. Even Porsche's official account shared and praised it, commending Chinese manufacturing and honoring all dreamers and explorers.

In terms of pricing strategy, the Xiaomi SU7 Ultra is priced at "only" 529,900 yuan, directly entering the territory of BBA (Mercedes-Benz, BMW, Audi) and Tesla Model S Plaid, competing head-to-head with these million-level luxury cars in performance. In terms of pricing strategy, Lei Jun has consistently grasped the hearts of consumers. This also suggests that Xiaomi's sales planning is evidently conservative.

According to Xiaomi's expectations for the SU7 Ultra, its sales target for this year is set at 10,000 units. Lei Jun responded to this goal by stating that the team is very confident and has a 90% certainty regarding the annual sales target Tianfeng Securities analyst Kong Rong believes that the SU7 Ultra is expected to exceed the company's guidance (10,000 units) driven by the layout of the racing industry culture and product strength.

Of course, Xiaomi's SU7 Ultra also launched a Nürburgring limited edition, priced at 814,900 yuan. Lei Jun stated that this car is "almost identical" to the one on the Nürburgring.

This "jump pricing" is a gamble on brand perception. Xiaomi attempts to reconstruct consumers' understanding of "Xiaomi = cost performance" with the symbolic meaning of a "gold standard car." Data shows that the Xiaomi SU7 Ultra broke through 6,900 units in pre-orders within 10 minutes of its launch, once again shocking the automotive industry.

The Xiaomi 15 Ultra has also further evolved. It is equipped with a new 1-inch "Night God" main camera, a Leica 200-megapixel "Night God" telephoto lens, and debuts the Leica ultra-pure optical system, featuring a 2K full-depth four micro-curved screen, satellite communication capabilities, a 6000mAh Jinsha River battery, and the Snapdragon 8 Gen 2 platform... the specifications remain robust.

Of course, regarding pricing, Lu Weibing still stated that they have withstood the pressure, increasing the quantity without raising the price, maintaining a starting price of 6,499 yuan. However, he also mentioned that the next generation must raise the price, otherwise "it won't hold up."

Lu Weibing also pointed out that Xiaomi's high-end strategy over the past five years has moved from stabilizing the 4,000-6,000 yuan price range to challenging the deep water zone above 6,000 yuan; from the Chinese market to the global market; and in the next five years, they aim to achieve a comprehensive breakthrough in the ultra-high-end market above 6,000 yuan.

At the press conference, whether it was about smartphones, smart home products, or cars, Lei Jun and other Xiaomi executives continuously emphasized Xiaomi's service awareness. This is also a concrete manifestation of Xiaomi's effort to break away from the sole focus on parameters and strive to establish itself in the high-end market.

Kong Rong also stated that the ultra-flagship concept is an important means to promote the sales of volume versions as the smartphone market transitions from an incremental market to a stock market. She is optimistic about the high-end value reassessment of Xiaomi and the related business logic under the dual Ultra launch, achieving both volume and profit growth.

Through the dual Ultra launch, Xiaomi is attempting to establish recognition with extreme single products and then strengthen users' understanding of Xiaomi's "people, cars, and home" interconnectivity through ecological linkage, forming an experiential closed loop.

Counterattack

Recently, Xiaomi Group President Lu Weibing, when discussing Xiaomi's market value surpassing 1 trillion, admitted that the market had "seriously underestimated" Xiaomi's market value for a long time. He recalled that when the Xiaomi SU7 was launched on March 28 last year, Xiaomi's stock price was only a little over ten yuan.

However, in less than a year, Xiaomi's stock price has increased by over 259%, with a market value reaching 1.3 trillion Hong Kong dollars. Lei Jun has led Xiaomi to achieve a counterattack. This is rooted in the change in institutional attitudes towards Xiaomi.

If we look back at the institutional holdings data since Xiaomi's listing seven years ago, we can see that Xiaomi's stock price has been closely related to institutional attitudes towards Xiaomi for a long time.

In the early days after its listing, the institutional holding ratio reached as high as 27.9% in the fourth quarter of 2018, but by the end of the first quarter of 2021, this figure had plummeted to 14.89%, a decrease of 3.5 percentage points quarter-on-quarter Once relying on the meticulously crafted Xiaomi 10, Xiaomi's first foray into the high-end market was a success. In addition, in September 2020, Xiaomi was included in the Hong Kong Stock Connect, and fund institutions including Penghua and Ruiyuan also bought Xiaomi through active products, causing Xiaomi's stock to surge over 40% in three months.

At the beginning of 2021, Xiaomi was suddenly included in the U.S. sensitive list, and the Xiaomi 11 series models lost favor in the market, which hindered Xiaomi's newly launched "high-end strategy." The honeymoon period between institutions and Xiaomi also came to an end.

In early 2021, Lei Jun expressed that he no longer needed to worry about the stock price as it rose above HKD 34. However, as institutions withdrew, Xiaomi's stock price reached a peak of HKD 35.9 per share on January 15, 2021. It wasn't until this January's round of value reassessment that Xiaomi broke through the pressure level.

At that time, institutions represented by UBS lowered Xiaomi's target price and rating. Some analysts admitted that investors were only willing to invest in Xiaomi at around 30 times PE, believing that Xiaomi's performance growth was insufficient to support a higher valuation.

When announcing the car manufacturing plan in 2021, Lei Jun called it "the last entrepreneurship of his life," but the market response was lukewarm. It can be seen that after the official announcement of car manufacturing, public funds were not convinced by Lei Jun's grand ambitions. By the end of the first quarter of 2023, institutional holdings in Xiaomi had dropped to a low of 13.25%, and even though it gradually increased afterward, it only reached 15.72% by the third quarter of 2024.

Early doubts focused on three points: financial pressure, insufficient technological accumulation, and intense industry competition. JP Morgan analysts also bluntly stated in March 2023 that due to intensified competition in the Chinese electric vehicle sector and weak market demand, Xiaomi's efforts in electric vehicles had unclear prospects. Fund managers from Guangfa Liu Bin and Zhongou Qian Yafengyun only increased their positions by the end of 2023.

The popularity of the Xiaomi SU7 after its release did not dispel investors' concerns. Several institutional analysts told Wall Street News that over the past two years, the competition in the automotive market has been fierce, and institutions are very concerned about car companies burning money to gain scale. When investing in tech stocks, investors need to see "certainty."

Lei Jun certainly knows how to provide "certainty" to investors. In the smartphone sector, in the third quarter of last year, as Xiaomi's high-end smartphone market broke through, its high-end smartphone shipment ratio reached 20.1%, pushing the average selling price (ASP) of smartphones up 10.6% year-on-year to RMB 1,102.2; in the automotive sector, after achieving the target of 100,000 units in November last year, Lei Jun immediately set the annual sales target at 130,000 units, and the final result was 135,000 units; during the New Year's Day live broadcast this year, Lei Jun directly set the delivery target at 300,000 units.

Investors' attitudes towards Xiaomi have also changed significantly since the third quarter of last year. Goldman Sachs analyst Timothy Zhao recently gave a delivery expectation of 360,000 units this year, far exceeding Lei Jun's initial target. Even UBS directly provided a valuation list, believing that Xiaomi still has significant room for valuation improvement compared to Tesla.

It can be seen that in the recent trading positions of Xiaomi Group, foreign banks including HSBC and Citibank are the main buyers. These foreign institutions, which were once not optimistic about Xiaomi, have become important drivers of Xiaomi's stock price rise in the past month From the institutional holding data, it can be seen that the proportion of institutional holdings in Xiaomi has risen from 15.72% in the third quarter of last year to 18.02% at the end of the fourth quarter, with the latest data also maintaining above 18%, at a high level. This means that Xiaomi needs to provide a more grand narrative to attract more institutional investors for deeper binding; otherwise, today's stock price volatility will take a long time to digest.

Sprint

With Xiaomi's market value recently surpassing HKD 1.3 trillion, overtaking Meituan to become the third-largest technology company in Hong Kong stocks, the capital market's perception of Xiaomi has undergone a qualitative change. Behind this is a reconstruction of capital narrative logic: Xiaomi is transitioning from a "mobile hardware manufacturer" to a "technology ecosystem giant."

Seven years ago, when submitting its IPO application in Hong Kong, Lei Jun stated in an open letter that "Xiaomi is not merely a hardware company, but an innovation-driven internet company."

However, for a long time, the external perception of it was still limited to mobile phones and hardware manufacturers. As for Lei Jun's story about the internet ecosystem, it was naturally not believed.

Now, following the phased achievements in car manufacturing over the past year, investors' valuation system for Xiaomi has also changed. Whenever there is phased progress in SU 7 sales, investors will also grant a certain valuation uplift.

However, from the price-to-sales ratios of car manufacturers like BYD and Seres, it can be seen that investors still maintain a conventional level of price-to-sales ratios in the vehicle manufacturing industry, remaining below 2. After excluding data from mobile phones and AIoT businesses, Xiaomi's automotive price-to-sales ratio is already far above this level.

Entering the ultra-high-end market is one of the important levers for Xiaomi to break through upwards. This means Xiaomi can shed the "low-price performance" label and win more consumer favor with quality-price ratio.

With the data integration of mobile phones, cars, and smart home devices, Xiaomi has initially gained the "Apple-style" ecological premium capability. Investors' views on it are undergoing a stark change; Morgan Stanley analysts believe that in the long run, the combination of "mobile phones + electric vehicles + artificial intelligence IoT" will make Xiaomi more competitive than its peers.

Lei Jun also insists that although Xiaomi is a latecomer in car manufacturing, it is already at a leading level in terms of intelligence.

The data he disclosed at the press conference reveals some clues. Lei Jun stated that Xiaomi's total computing power for intelligent driving has reached 10.68 EFLOPS, with high-quality scene clips accumulating over 10 million Clips. This has allowed Xiaomi to establish itself as a leading team in the intelligent driving field in recent years.

Lei Jun revealed that Xiaomi insists on technology-driven development, with an expected R&D investment of 105 billion yuan over five years from 2021 to 2025. By 2025, it is expected to reach 30 billion yuan, with AI and related businesses accounting for one-quarter.

Intelligent driving is a glimpse into Xiaomi's AI capabilities, showing the potential for Xiaomi in the ecological closed loop. With this, Xiaomi's strategic clarity has far exceeded the past: upgrading to high-end enhances brand premium, and car manufacturing broadens growth boundaries, forming a "flywheel effect."

Guohai Securities analyst Chen Mengzhu pointed out that as Xiaomi Group enters more consumer goods industries and invests in AI, Xiaomi Group may have a greater possibility of triggering rigid AI C-end application scenarios compared to its peers. Optimistic about Xiaomi's subsequent overseas expansion and high-end development The transition of attitudes in the capital market from hesitation to determination reflects a revaluation of Lei Jun and Xiaomi.

According to Wall Street Insights, after this year's Spring Festival, Lei Jun held a high-end strategy seminar within Xiaomi. At the meeting, Lei Jun pointed out that high-end positioning is a test and proof of Xiaomi's strength, capability, and values.

Insiders at Xiaomi stated that the company's goal is to showcase the research and development achievements of Xiaomi's hardcore technology, its exploration of human-computer interaction, and its global ambitions through high-end exploration.

This also means that Xiaomi needs to achieve more in AI and overseas markets in the future. The high-end positioning of the past five years was merely the first battle; there is still a tough fight ahead.

Standing at the new starting point of a trillion-dollar market value, Lei Jun may recall the three-hour speech he gave in 2023. At that time, he said, "High-end is the only way for Xiaomi, and it is a life-and-death battle."

Looking back now, the key to winning this battle is no longer the success or failure of a particular product, but whether it can solidify ultra-high-end positioning as an organizational capability—just as Apple took ten years to turn the "Pro" series into a premium symbol, Xiaomi needs not only the stunning SU7 Ultra but also to continuously lead the industry forward through technology and product innovation