Xiaomi: Citi hikes TP on rosier outlook for EV segment

Investing.com-- Citi analysts hiked their target price for Xiaomi (OTC:XIACF) Corp (HK:1810), citing increased confidence in the Chinese electronics giant’s electric vehicle ambitions and expectations for a manageable decline in its smartphone segment. 

Citi hiked Xiaomi’s TP to HK$21.90 from HK$19.60- representing an upside of 35% from Xiaomi’s close on Tuesday- at HK$16.18. 

Citi also hiked its earnings forecasts for the electronics firm, citing a better-than-expected outlook for its EV business. Xiaomi is expected to clock adjusted earnings per share of 0.64 yuan in 2024, up from prior forecasts of 0.51 yuan. 

The brokerage expects Xiaomi to ship 100,000 units of its recently-launched SU7 EV in 2024, up from prior forecasts of 60,000 units, and for shipments to reach 280,000 by 2026. 

The positive outlook comes after Xiaomi said during its investor day that it secured lock-in orders exceeding 70,000 units for the SU7 EV, and that it aims to deliver 10,000 units by June. 

CEO Lei Jun earlier this month said sales of its first EV offering were 3-5 times higher-than-expected, and that deliveries had also begun ahead of schedule. 

Xiaomi saw unexpectedly strong demand for the SU7, the success of which analysts had initially doubted given the high levels of competition in the Chinese EV market. 

But the model’s aggressive pricing- less than $30,000 for the base model, which undercuts Tesla Inc's (NASDAQ:TSLA) Model 3- helped support demand. 

For Xiaomi’s core smartphone business, Citi expects a mild increase in sales amid weak global demand, but that  margins for the business were expected to fall amid higher raw material costs. 

Xiaomi said it intended to become the world’s biggest smartphone maker by shipments in 2028, and that it also intends to rank among the three biggest EV makers. 

Still, the electronics giant expects to lose money on each SU7 sold. But it also has relatively deeper pockets than its EV competitors.

China is the world’s biggest EV market, and has seen competition in the space turn cutthroat in recent years as EV makers slashed prices to capture the biggest market share. 

This trend was initially started by Tesla, who had triggered a price war in the country with a series of aggressive price cuts over the past two years. 

Still, Chinese EV demand may now be slowing, especially as broader economic conditions in the country remain weak.