The Xiaomi electric vehicle is certainly a deal worth looking into right now. This newcomer is more affordable than a Tesla and offers superior range. Xiaomi’s CEO, Lei Jun, recently cleared the air about how this pricing strategy is possible. The truth ? Xiaomi experiences a financial loss from the sales of its electric vehicle, the SU7, but foresees a revolution in the industry in the imminent future.
Xiaomi’s electric vehicle, the SU7, has provoked awe due to several factors. However, the standout feature was its pricing, mentioned at the press conference on March 28, 2024. The Xiaomi electric vehicle is priced lower than the Tesla Model 3, boasts an extended range, and includes unique technologies not found in other vehicles. An intriguing mix ? Absolutely. Is it profitable ? Not quite.
Initial pricing for Xiaomi’s SU7 was planned at 229,000 yuan with some rumors of even 239,000 yuan. But, volatile pricing war has been going on for about a year in the electric vehicle industry, forcing Lei Jun to reconsider. This price war involves several Chinese manufacturers, including Tesla.
Lei Jun clarifies that the base model of Xiaomi SU7 is priced 30,000 yuan lower than Tesla Model 3, resulting in losses which have to be absorbed. But how is Xiaomi planning to survive in the electric vehicle market if every vehicle sold is a loss ? The answer may lie in their strategy which proved successful in the smartphone market.
Within 24 hours of its release, Xiaomi had already sold 88,898 units of its vehicle, showing their commercial success. However, the real question is if this success will translate into financial stability. With the loss at each order, by the end of 2024, the accumulated loss might be colossal. Yet, this strategy of undercutting the competition with lower prices has previously been successful for the company in the smartphone market.
Xiaomi is seemingly planning to adopt a similar strategy with its electric vehicles - eliminate competition by selling at loss until the market stabilizes and then gradually increase prices (and profit margins). A possible win-win for consumers and the company itself, provided it withstands the losses in the interim.
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