TMTPost -- Xiaomi Corporation’s management remain upbeat on profitability of their big bets on  electric vehicles (EVs) despite a billion-yuan loss in just three months.

Credit：Xiaomi

“Auomaking is tough, but success is certainly very cool. Hope everyone understand that Xiaomi Auto is still at an investment phase, ” Xiaomi cofounder and CEO Lei Jun said in a post at Chinese microblogging social media Webo. Lei called for understanding of Xiaomi’s heavy investments in its EV unit in response to reports about a huge loss in the past quarter due to EV business. Chinese news media outlets noted Xiaomi lost more than RMB60,000 per EV sold, based on latest financial reports of Xiaomi. The company disclosed its smart EV and other new initiative segment booked an adjusted net loss of RMB1.8 billion in the quarter ended June 30, and it has delivered  27,307 SU7 Series vehicles that period.

In a media call following the earnings report, Xiaomi's President Lu Weibing explained there are two main reasons for the loss of EV business. The first is that Xiaomi’s auto unit is still relatively small. It is very hard for the unit to turn a profit since the automobile industry is a typical manufacturing sector that its profitability relies on economies of scale. The second reason is that Xiaomi has had disproportionate input into its first EV model SU7. Lu pointed out CEO Lei has said many times that Xiaomi has input out-sized resources in its first EV model, ten times of that traditional automakers invest in a model. It will take some time to absorb such input, Lu added.

The April to June period is Xiaomi’s first quarter to report sales of its EV business since the company launched its first EV model SU7 in March and began delivery a month later. Revenue from smart EV and other new initiative reached RMB6.4 billion, including RMB6.2 billion from EV. The gross margin of the segment logged 15.4%. Lu called the margin a decent one in the eye of many investors, analysts and professionals in the news media, considering a very low margin that several automakers have delivered for along time.

In the financial report for the second quarter, Xiaomi said its EV factory has been continuously ramping up, with double-shift operations started in June 2024 and optimization and maintenance of the production line in July 2024. The company reconfirmed its expectation that it can achieve the goal of delivering 100,000 vehicles by November, a month ahead of schedule, and added it will strive to reach a new target of delivering 120,000 vehicles for the entire year of 2024. Lu told in the media call that he is confident the company will reach its target of delivering 120,000 electric vehicles by the end of the year.

Xiaomi is prioritizing growth of the EV business over margins for now, and its auto unit will take time to stem losses, Xiaomi Chief Financial Officer (CFO) Alain Lam said in an interview with Bloomberg. “We’re more focused on our growth than profitability at this point,” said Lam, a former Credit Suisse banker who orchestrated some of Xiaomi’s biggest bets.

According to Lam, the value-for-money philosophy that Xiaomi used to climb into the upper echelons of the global phone business will also apply to its EVs. “We do believe scale will bring profit in the future. Right now at this point I only have one SKU, it’s far away from what we call profitability,” he said. “We need to continue to invest in this business.”