On August 21, Xiaomi Group (1810.HK) released its first quarterly financial report after the complete delivery of the Xiaomi SU7. The data shows that in the second quarter of 2024, Xiaomi Group's total revenue was 88.9 billion yuan, a year-on-year increase of 32.0%; the adjusted net profit was 6.2 billion yuan, a year-on-year increase of 20.1%; the overall gross margin reached 20.7%, compared to 21% in the same period last year, and 22.3% in the previous quarter.

In terms of specific business segments, after the official mass production and delivery of Xiaomi cars, Xiaomi Group's business structure has been adjusted to the Smartphone & AIoT division and the Smart Electric Vehicle and other innovative business divisions. The financial report indicates that in the second quarter, the Smartphone & AIoT division's revenue was 82.5 billion yuan, a year-on-year increase of 22.5%, with a gross margin of 21.1%; the Smart Electric Vehicle and other innovative business divisions' revenue was 6.4 billion yuan, with a gross margin of 15.4%, and an adjusted net loss of 1.8 billion yuan, compared to a car gross margin of 12.6% in the previous quarter.

Within the Smartphone & AIoT division, the revenue from Xiaomi's smartphone business in the second quarter was 46.5 billion yuan, a year-on-year increase of 27.1%; the gross margin was 12.1%, lower than the 13.3% in the same period last year, slightly higher than the analyst's expected 12.02%. The reasons for the decline include intensified industry competition and rising core component prices.

During the earnings call, Xiaomi Group's President, Lu Weibing, responded to the reasons for the decline in the gross margin of the smartphone business, stating that the decline was mainly due to several factors: the pace of new product launches, the "618" promotional season, and the increase in memory and screen costs.

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In the IoT and lifestyle consumer products business within the Smartphone & AIoT division, the second quarter revenue was 26.8 billion yuan, a year-on-year increase of 20.3%, with a gross margin of 19.7%, an increase of 2.2% year-on-year. As of June 30, 2024, the number of IoT devices connected to Xiaomi's AIoT platform (excluding smartphones, tablets, and laptops) was 822 million, a year-on-year increase of 25.6%; as of June 2024, the monthly active users of the Mi Home app increased by 16.8% year-on-year to 96.9 million, and the monthly active users of Xiao Ai classmates increased by 12.4% year-on-year to 131.7 million.

In addition, the second quarter revenue of Xiaomi's internet business reached 8.3 billion yuan, a year-on-year increase of 11.0%; the gross margin reached 78.3%, an increase of 4.2% year-on-year; Xiaomi's global monthly active user base reached 675.8 million, a year-on-year increase of 11.5%.

The Smart Electric Vehicle and other innovative business divisions were reflected in Xiaomi Group's financial report for the first time, with the second quarter revenue of Xiaomi's smart electric vehicles being 6.2 billion yuan, and other related business revenue being 200 million yuan. The Xiaomi SU7 series has delivered 27,307 new cars. Xiaomi's car factory has started double-shift production in June 2024 and carried out production line optimization and maintenance in July 2024, continuously expanding its production capacity. It is expected to achieve the target of delivering 100,000 new cars of the Xiaomi SU7 series in advance by November 2024, and strive for the new target of delivering 120,000 new cars of the Xiaomi SU7 series for the whole year of 2024.

Lu Weibing stated that the group is currently focusing on shortening the car delivery cycle, and Xiaomi's first car factory has achieved scale, with significant room for improvement in cost reduction in the future. At the same time, operations and production will be further optimized based on user needs.

Regarding the overall gross margin of Xiaomi's car business at 15.4%, Lu Weibing indicated during the call that the company is quite satisfied with the first model's gross margin of 15.4%, which is mainly based on Xiaomi's self-built factory and the group's control over supply chain capabilities. A reasonable gross margin is very important for the group; otherwise, the larger the scale, the greater the loss.

As for whether the gross margin level of Xiaomi's cars will be increased in the future, Lu Weibing stated that there are no specific numbers available at present, but overall, the trend is positive. Xiaomi's car strategy is to open up the market with one model, expand the scale of the car market under the macroeconomic background, and achieve a better scale effect. The gross margin of Xiaomi's cars in the future will be better than the current level.As for the adjusted net loss of 1.8 billion yuan, Lu Weibing believes that the main reason is the current small scale of Xiaomi's car business, and the automobile industry is a typical scale economy industry. He is confident about expanding the scale of the car business in the future. Secondly, Xiaomi's first model is a pure electric sedan, which has a high cost of investment, and it will take some time to digest this part of the cost.

In the second quarter of 2024, Xiaomi's R&D expenditure reached 5.5 billion yuan, a year-on-year increase of 20.7%. As of June 30, 2024, the number of Xiaomi R&D personnel was 18,290, accounting for 48.7% of the total number of employees. As of June 30, 2024, Xiaomi's cash reserves were 141 billion yuan.