Xiaomi's automobile business boosts net profit growth, financial report shows revenue decline

According to news on May 25, Xiaomi Group’s latest financial report showed that the company’s revenue continued to decline in the first quarter of 2023, but the progress of its car-making business may slightly exceed expectations. Xiaomi's first-quarter revenue fell to 59.477 billion yuan, a year-on-year decrease of 18.9%. This is the fifth consecutive quarter of year-on-year revenue decline. However, thanks to the decline in sales, promotion and administrative expenses, Xiaomi achieved a net profit of 4.216 billion yuan, turning a loss into a profit year-on-year; adjusted net profit increased by 13.1% year-on-year.

It is understood that Xiaomi Group President Lu Weibing said in a financial report conference call that their car manufacturing business will proceed according to the original plan, and the schedule may slightly exceed expectations. In addition, Xiaomi Auto will also conduct winter testing and summer testing as planned this year.

The financial report also shows that Xiaomi spent 1.1 billion yuan on innovative businesses including smart electric vehicles in the first quarter, accounting for 26.8% of R&D expenses in the same period (a total of 4.1 billion yuan).

A research report from Zhongtai International Securities pointed out that Xiaomi has invested a lot in new business, and it is expected that related R&D and operational investment will reach 7.5 billion to 8 billion yuan in 2023. They still insist on Xiaomi's short-term goal of achieving formal mass production in the first half of 2024, and the long-term goal is to enter the top five in the world within 15 to 20 years.

In addition, Xiaomi’s main business, smartphones, was affected by the decline in shipments and average selling prices, with revenue falling 23.6% year-on-year to 34.985 billion yuan. Compared with the same period last year, revenue from the Internet of Things, consumer products, Internet services and other businesses fell by 13.6%, 1.2% and 21.3% respectively.

The financial report shows that the proportion of mobile phone business in total revenue has dropped to less than 60% for two consecutive quarters, and smartphone shipments fell by 21.1% year-on-year to 30.4 million units. The impact of inventory clearance in overseas markets caused the average selling price to fall by 3.1% year-on-year to 1,151.6 yuan. However, due to the decline in memory and display panel prices, the gross profit margin of the mobile phone business increased by 3.1 percentage points month-on-month during the reporting period, reaching 11.2%.

After Xiaomi proposed the business strategy of “pursuing the dual goals of scale and profit” at its Investor Day in February this year, its sales costs and expenses have been significantly reduced. Sales costs and promotion expenses, which are equal to R&D expenses, decreased by 21.0% and 21.9% year-on-year, reaching 4.1 billion yuan respectively. Administrative expenses decreased by 8.8% year-on-year.

In addition, Xiaomi also revealed that they will designate 2023 as the "store integration year" of the new retail operation strategy, and will focus more on improving the operational efficiency of offline stores.

To sum up, although Xiaomi Group still faces the challenge of declining revenue scale, the progress of its car-making business may slightly exceed expectations, bringing new growth momentum to the company in the future.

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