By Justina Lee and Fabiana Negrin Ochoa


Xiaomi Corp. shares climbed in Hong Kong following the circulation of designs for what could become the company's first electric car, something analysts say looks like a risky but potentially lucrative endeavor.

Shares of the Chinese tech company, trading Thursday for the first time this week following the Lunar New Year holiday, climbed as high as HK$13.32, their highest level since late July 2022. The stock is on track for its best close in nearly seven months and was last up 11% at HK$13.22.

In recent days, leaked photos of car moldings related to Xiaomi's electric-vehicle plans have been circulated by users of Chinese social-media website Weibo. A Xiaomi spokesman on Thursday told The Wall Street Journal that the leaked photos come from a supplier, adding that they reflected early designs of a car rather than a final prototype.

Xiaomi, best known for its smartphones, TVs and other electronics, announced in 2021 that it was looking to venture into the EV space. It has said it plans to roll out its first vehicle in the first half of 2024.

China's biggest smartphone maker has been stepping up investment in its bid to enter the EV market, but analysts are uncertain on whether its bet will pay off.

Xiaomi's aim of replicating its success in the smartphone market in the car industry looks rational considering that it can use its existing technology, software and consumer base--a key strength--and build an EV ecosystem, said Sonija Li, head of retail research at MIB Securities.

However, the huge amount of capital expenditure required to succeed poses a challenge, she said.

Xiaomi reported in its third-quarter results that its EV investments contributed to a big jump in research and development spending, weighing on earnings. Ms. Li said the market expects the company to ramp up its EV spending even further in the next one to two years.

The company will also have to grapple with stiff competition in the Chinese market, where more established EV makers like Nio Inc. and XPeng Inc. have struggled to turn a profit.

"We believe Xiaomi will experience the same situation, with a long payback period," Ms. Li said.

If Xiaomi gives its entry-level model a premium price tag, it would be in direct competition with the likes of Tesla Inc., which has already had to cut prices on its cars in China, she noted.

In such a competitive field, it remains to be seen if Xiaomi can stand out from the crowd, she said.


Write to Justina Lee at justina.lee@wsj.com and Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com


(END) Dow Jones Newswires

01-26-23 0253ET