Recently, Morgan Stanley released a research report on Xiaomi Corporation (1810.HK). The report indicates that, based on Xiaomi's strong performance in business segments such as electric vehicles (EVs), artificial intelligence of things (AIoT), and smartphones, Morgan Stanley has raised Xiaomi's target price to HK$45, maintaining an "Overweight" rating and believing that its stock price still has a 17% upside potential.

EV Business: Strong Delivery Growth and Optimistic Prospects

In 2024, Xiaomi's EV business achieved significant progress. The company successfully delivered 135,000 EVs throughout the year, marking an important milestone in capacity ramp - up. In terms of monthly delivery data, Xiaomi's monthly EV deliveries exceeded 20,000 units in October. Subsequently, the delivery volume further increased in November and December, reaching over 25,000 units in December (as shown in Figure 1). Meanwhile, the number of new orders for the Xiaomi SU7 model has been increasing continuously in the past few months. Despite the rapid increase in production capacity, the delivery waiting time still exceeds 20 weeks, indicating strong market demand for this model.

Based on its excellent performance in 2024, Xiaomi has set its 2025 EV delivery target at 300,000 units. Morgan Stanley, considering Xiaomi's past delivery performance, expects its 2025 delivery volume to reach 310,000 units. If the construction of the second EV factory is completed ahead of schedule and the capacity ramps up smoothly, there is potential for further growth in delivery volume. With the rapid growth of delivery volume, Morgan Stanley has raised its share expectations for Xiaomi in the Chinese market. It is expected that the market share will increase from 2.6% in 2024 to 3.1% in 2025 and from 3.4% to 4.3% in 2026 (as shown in Figure 2).

In terms of price and profit margin, although the retail price of Xiaomi YU7 has not been released yet, Morgan Stanley expects its average selling price (ASP) to be higher than that of SU7. It is predicted that from 2024 to 2026, the ASP of Xiaomi's EVs will increase from RMB 235,000 to RMB 245,000, and then further to RMB 250,000. Benefiting from the increase in ASP and good cost control, Xiaomi's EV gross margin is expected to improve continuously, from 17.0% in 2024 to 20.2% in 2025 and further to 21.9% in 2026 (as shown in Figure 3 and Figure 4).

Taking these factors into account, Morgan Stanley has raised its intrinsic value expectations for Xiaomi's EV business. The volume forecasts for 2024 - 2026 have been increased from 121,000, 260,000, and 400,000 units to 135,000, 310,000, and 500,000 units respectively. At the same time, the vehicle gross margin assumptions have been raised from 16.8%, 20.0%, and 21.8% to 17.0%, 20.2%, and 21.9%. As a result, the cumulative vehicle gross profit from 2024 - 2026 has increased from RMB 39.3 billion to RMB 48.1 billion, and the base - case intrinsic value estimate of the EV business has been raised from RMB 170 billion to RMB 204 billion.

AIoT and Smartphone Businesses: Promising Growth

Morgan Stanley believes that both Xiaomi's AIoT and smartphone businesses will achieve positive revenue and earnings growth in 2025.

In the AIoT business, Xiaomi has performed outstandingly. In the third quarter of 2024, its tablets ranked among the top three in mainland China and the top five globally. The shipments of air conditioners exceeded 1.7 million units, with a year - on - year growth of over 55%. The shipments of refrigerators exceeded 810,000 units, with a year - on - year growth of over 20%, and the shipments of washing machines exceeded 480,000 units, with a year - on - year growth of over 50%. In addition, indicators such as the number of connected devices on Xiaomi's AIoT platform, the number of users with five or more connected devices, the monthly active users of the Mi Home app, and the monthly active users of the Xiaomi AI assistant also showed growth trends in 2024 (as shown in Figure 5). Xiaomi's AIoT business growth benefits not only from its cost - performance advantage but also from product innovation. For example, the newly launched air conditioners and washing machines with innovative designs have received good customer feedback and strong sales performance, which also increases the ASP of products and helps to improve the product portfolio strategy. With the improvement of sales performance, Xiaomi will have greater flexibility in adjusting its product portfolio to increase profit margins. In the past few quarters, the gross margin of Xiaomi's AIoT business has increased from 13 - 15% to 19 - 20%, and Morgan Stanley expects this improvement trend to continue.

In the smartphone business, when Xiaomi launched its latest flagship smartphone, it increased the ASP of Xiaomi 15 by RMB 200 - 500 compared to Xiaomi 14. Despite the price increase, the sales momentum has been very strong. Supply chain checks show that the shipment volume of Xiaomi 15 is comparable to that of Xiaomi 14, indicating that the higher ASP has not suppressed demand. Morgan Stanley believes that the increase in ASP can help offset component costs, which will have a positive impact on profit margins in the next 6 - 12 months. If component costs decline in 2025, there may be a positive surprise in gross margin (as shown in Figure 6). With the continuous success of new smartphone launches, Xiaomi is expected to continue to gain market share in both domestic and overseas markets. Its market ranking in China has already improved from fifth in 2023 to third in 2024. In most overseas countries, Xiaomi has also achieved continuous market share growth, and this trend is expected to continue in 2025.

Adjustment of Financial Forecasts and Increase in Target Price

Based on the better - than - expected performance of Xiaomi's EV business and the good growth momentum of its AIoT and smartphone businesses, Morgan Stanley has adjusted its earnings expectations for Xiaomi. From 2024 to 2026, the revenue forecasts for the EV business have been raised by 10 - 25%, and the gross margin assumptions have been slightly increased. At the same time, the forecasts for the AIoT business have also been raised in view of its good development trend. After the adjustment, key financial indicators such as revenue, gross profit, and net profit of Xiaomi from 2024 to 2026 have all increased (as shown in Figure 7).

Regarding the target price, Morgan Stanley continues to use the sum - of - the - parts (SOTP) method to determine Xiaomi's target price. It uses the residual income (RI) model for the smartphone, IoT, and Internet services businesses, and the discounted cash flow (DCF) valuation for the EV business, combined with a probability - weighted bull - base - bear valuation method. Considering the positive impact of each business segment, the target price of Xiaomi has been raised from HK$35 to HK$45.

Risks and Challenges

Despite the promising outlook, Xiaomi also faces many risks. In the rapid expansion of the EV business, the new factory may face product quality control risks during the rapid increase in production volume. Any quality issues may lead to serious safety hazards. Compared with competitors who entered the EV industry earlier, Xiaomi has gaps in after - sales service and the existing user base, and the competition in the EV market remains fierce in 2025. In addition, the intensification of geopolitical tensions may affect the supply of Xiaomi's key components and its sales performance.

In conclusion, Morgan Stanley is optimistic about the future development of Xiaomi Corporation. Although there are risks, the development potential of each business segment is still promising. When paying attention to Xiaomi's investment opportunities, investors also need to pay close attention to the above - mentioned risk factors.