Drawing parallels with Apple, Tesla, and BYD, Morgan Stanley elaborates on the valuation logic for Xiaomi to double in five years

With strong drives from core businesses such as electric vehicles and smartphones, can Xiaomi replicate the success of tech giants like Apple?

According to the latest news from Chasing Wind Trading Desk, Morgan Stanley pointed out in its latest report that Xiaomi's market value is expected to reach RMB 2.5 trillion by 2030, with its stock price likely to exceed HKD 100. This figure implies that Xiaomi's stock price has nearly 100% upside potential in the next five years.

Morgan Stanley provided a reference framework for Xiaomi's valuation by comparing it to Apple, Tesla, and BYD—highlighting that soaring sales lead to significant valuation expansion.

The report predicts rapid growth for Xiaomi's electric vehicle business over the next two years (with a sales CAGR exceeding 100%) by comparing it to Tesla and BYD, with the price-to-sales ratio expected to reach 2 to 3 times by 2026. Additionally, with its "smartphone + AIoT + internet services" model, Xiaomi is expected to replicate Apple's success, with Morgan Stanley forecasting a price-to-earnings ratio of 20-25 times for this business by 2025.

Dual Engines Driving Long-Term Growth

Morgan Stanley believes that Xiaomi's long-term growth will be driven by two core engines: the electric vehicle business and traditional business (smartphones + AIoT + internet services). Morgan Stanley forecasts that,

Xiaomi's electric vehicle business revenue will rapidly grow from RMB 33 billion in 2024 to RMB 233 billion in 2027, and further expand to RMB 462 billion by 2030; at the same time, the electric vehicle business profit is expected to reach RMB 20 billion in 2027 and RMB 46 billion in 2030, compared to a loss of RMB 6.2 billion in 2024.

Traditional business, benefiting from market share gains, product structure improvements, and overseas expansion, is expected to see revenue increase from RMB 333 billion in 2024 to RMB 451 billion in 2027, reaching RMB 600 billion by 2030, with profit rising from RMB 33.4 billion in 2024 to RMB 41 billion in 2027, and reaching RMB 70 billion in 2030.

Especially in the electric vehicle sector, the launch of the SU7 Ultra marks a milestone for Xiaomi's business. Morgan Stanley noted that for the past fifteen years, Xiaomi's most attractive selling point has been its cost-effective products. In the next decade, Xiaomi's success in the electric vehicle sector will accelerate the enhancement of its brand value and gradually gain more market share in the high-end or luxury product segments.

Morgan Stanley has raised its average selling price forecasts for Xiaomi's electric vehicles in 2025 and 2026 from RMB 245,000 and RMB 250,000 to RMB 250,000 and RMB 255,000, respectively, while also raising gross margin forecasts from 20.2% and 21.9% to 20.7% and 22.2%.

Morgan Stanley expects that driven by these two growth engines, by 2030, Xiaomi's total revenue will exceed RMB 1 trillion, with net profit expected to surpass RMB 100 billion.

Reference Valuation Evolution of BYD, Tesla, and Apple

Investors are concerned about how to value Xiaomi, and Morgan Stanley believes that BYD, Tesla, and Apple are the best reference points.

BYD's electric vehicle sales grew by about 70% in 2020 and about 150% in 2021, with the price-to-sales ratio (P/S) rising from 1 time in 2020 to 3-4 times in 2021. The price-to-earnings ratio (P/E) fluctuated more significantly, increasing from 20-30 times in 2018-19 to over 70 times in 2021.

Tesla's price-to-sales ratio also experienced similar changes, rising from 2-4 times in 2017-19 to 10-18 times in 2020-2022, as electric vehicle sales growth accelerated from 20-40% to 80-100%. Subsequently, the growth rate slowed to 20-40%, and the price-to-sales ratio also declined to 4-8 times.

By comparing Tesla and BYD, Morgan Stanley expects Xiaomi's electric vehicle sales to grow rapidly in the next two years, with the business's price-to-sales ratio expected to reach 2-3 times by 2026. Specifically, Xiaomi's deliveries are expected to increase significantly from 137,000 units in 2024 to 370,000 units in 2025, and further climb to 750,000 units in 2026, indicating a compound annual growth rate (CAGR) of over 100%.

As for Xiaomi's traditional business, Apple is the best reference.

The report pointed out that from 2017 to 2020, Apple's price-to-sales ratio increased from 3 times to 6-7 times, while smartphone shipments grew from -5% to +15%. However, from 2021 to 2025, the correlation between valuation and smartphone shipments decreased, with the price-to-sales ratio remaining in a relatively stable range of 5-9 times, due to the increased contribution of service revenue, which has higher profit margins and returns, maintaining the valuation at a high level.

Morgan Stanley believes that Xiaomi, through the "smartphone + AIoT + internet services" model, is likely to replicate Apple's success, predicting that the business's price-to-earnings ratio will reach 20-25 times by 2025.

Considering the growth performance of electric vehicles, smartphones, and AIoT businesses, Morgan Stanley raised Xiaomi's target price for the year to HKD 62:

Under the baseline scenario, it is expected that Xiaomi's market value will reach RMB 1.2-1.6 trillion in the next 6-12 months, corresponding to a stock price of HKD 50-67;

In an optimistic scenario, Xiaomi's electric vehicle business will achieve better-than-expected growth, with its price-to-sales ratio expected to reach 3.5-4 times, and the target price may reach HKD 75-85, corresponding to a target market value of RMB 1.7-2 trillion.

In a pessimistic scenario, Xiaomi's electric vehicle business growth will fall short of expectations, with its price-to-sales ratio possibly remaining at 1-1.5 times, and the target price may drop to HKD 25-40, corresponding to a target market value of RMB 62.5-95 billion.

Morgan Stanley analysts believe that the valuation premium of Xiaomi's electric vehicle business is reasonable compared to other electric vehicle companies (such as XPeng, Nio, Li Auto, and BYD), as the company is expected to achieve stronger growth by 2025. Meanwhile, Xiaomi's non-electric vehicle business is slightly discounted compared to technology hardware companies like Sunny Optical and AAC Technologies, making the valuation reasonable