Summary of Key Points
Over the past three years, Xiaomi has experienced a rollercoaster ride in its stock price: it rose from HK$12 to HK$60 (a fivefold increase) before plummeting to HK$28 (a 50% decrease). Its financial performance soared for two years but then declined sharply in the first quarter of this year. The underlying reasons are as follows: The success of the Xiaomi SU7 brought short-term popularity (a surge in casual fans and brand expansion), but it did not change Xiaomi's business model, which is characterized by low profits and intense competition. Additionally, the inherently challenging nature of the automotive industry, combined with the instability of its casual fan base, led to a decline in popularity and performance.
Detailed Analysis
1. Why Did the SU7 Become So Popular?
The success of the SU7 was not solely Xiaomi's achievement; it was a result of a combination of favorable circumstances.
- Lack of Corporate Idols: After Jack Ma, society was in need of new business idols. Tencent's Pony Ma is too low-key, Baidu's Robin Li has limited influence, and the founders of Meituan and Pinduoduo are not considered particularly "cool." Lei Jun's approachable image and good reputation made the SU7 his breakout product, filling this gap (the fact that it gained 25 million followers on Douyin is evidence of its popularity).
- Product Meeting Consumer Needs: At that time, most domestic new energy vehicles focused on practicality (such as the Li Auto L series and BYD's Dynasty series), but young people wanted a "cool" dream car. The SU7 met this need, making it an internet-famous vehicle in their eyes.
These two factors combined to push Xiaomi to the forefront of attention; even though other new energy vehicles were of comparable quality, they did not benefit from this wave of public interest.
2. Stock Price Rose Fivefold, but Xiaomi's Profitability Didn't Improve
A fivefold increase in stock price does not necessarily mean that Xiaomi has become stronger. Take Apple's iPhone as a contrast: the iPhone transformed Apple from an ordinary digital company into a platform that generates substantial profits (thanks to the iOS ecosystem). However, the SU7 did not achieve the same success:
- The Mobile Phone Business Remains the Same: The mobile phone market is highly competitive and has thin margins. Although Xiaomi's mobile phone prices increased after the SU7's success, its profit margin declined (from 12% in the fourth quarter of 2025 to 8.3%). Moreover, Xiaomi lacks pricing power when raw material costs rise (in contrast, Apple's profit margin increased by 2.8% during the same period).
- The Automotive Business Is Even More Challenging: The automotive industry is even more difficult than the mobile phone market. Apart from companies like BYD and Toyota, most car manufacturers have low net margins and often suffer losses (for example, NIO lost HK$20 billion, and Xpeng lost HK$10 billion). While the SU7 was initially profitable, the automotive industry is known for its high turnover rate, with many companies failing within a short period (For instance, Nezha once led sales but went bankrupt two years later). Therefore, the stock price increase was more due to a bubble of popularity than a fundamental change in Xiaomi's business model.
3. The Automotive Industry Is a Challenging Field
Many people think building cars is a lucrative endeavor, but it is actually a tough business:
- Low and Unstable Profits: Smartphone companies can maintain profit margins around 10% and rarely incur losses, while the automotive industry's net margins are typically below 5%, with many companies losing money (for example, Honda and Nissan have experienced losses).
- Fierce Competition: There are no permanent leaders in the automotive industry; even established brands like BYD and Toyota face constant competition. Even if a company has strong technology and a good brand, a poor performance of its next product can lead to collapse (the SU7's success was followed by a four-month decline in sales for its successor, the YU7).
In other words, Xiaomi's stock price increase was more related to short-term popularity than a transformation in its business model.
4. Excessive Casual Fans: A Double-edged Sword
Lei Jun gained 25 million followers, most of whom were casual fans who were interested in the brand rather than core users. These fans have the following characteristics:
- They Gather During Popularity: When the SU7 became popular, they bought Xiaomi phones and home appliances, boosting company performance.
- They Disappear Quickly During Problems: When issues arose (such as fires with the cars), these fans lost interest and began to criticize Lei Jun and Xiaomi, leading to a decline in both reputation and sales.
This is similar to internet celebrities; the more casual fans you have, the higher the risk of failure, as it is impossible to satisfy everyone's expectations, and any flaws are magnified.
5. The "People-Car-Home Ecosystem": A Boost During Success, a Drag During Failure
Xiaomi has emphasized an integrated ecosystem (cars, phones, home appliances), but this has both positive and negative effects:
- Positive Effects: When the SU7 was popular, its popularity boosted sales of Xiaomi phones and home appliances.
- Negative Effects: When car sales declined, Xiaomi's mobile phone shipments plummeted by 35% (falling out of the top five in China), and TV sales dropped by 22% globally. This shows that the ecosystem is not yet self-sustaining; one area's decline affects the entire company.
Conclusion
Xiaomi's rollercoaster performance reflects a mismatch between short-term popularity and long-term competitiveness. The SU7's success led to an overestimation of its capabilities, but its underlying business model (low profits and intense competition) remained unchanged. Once the hype faded and casual fans disappeared, the challenges of the automotive industry became apparent, returning Xiaomi to its usual position. This is not a result of poor management but a natural consequence of business dynamics: companies that rely on temporary popularity are ultimately affected by it.