Frank He, a tech analyst at HSBC Qianhai Securities, said Xiaomi made about half its profits from services sold to users, especially from the group’s app store in China, which takes the place of the banned Google Play store.

He said he expected Xiaomi’s cars to sell at a loss for the next two years as the carmaker scaled up but that eventually the group would turn a small profit on each car sold and profit from services sold to drivers.

“Chairman Lei wanted to have a new growth engine with a bigger addressable market,” he said. “The unique advantage for Xiaomi is the brand power. It’s both in China and outside of China.”

Christoph Weber, general manager of engineering software company AutoForm, has worked with Xiaomi’s car unit in Shanghai and said Lei appeared poised to repeat his success in starting with a high-quality car.

“They think as a tech company, not a traditional auto company,” he said.

At first glance, the optimism around the launch of Xiaomi’s SU7 electric car is surprising: Xiaomi would be losing money on its basic model. The SU7, which has a starting price of $29,800, is priced about $4,000 less than Tesla’s Model 3.

Discounts alone have not been enough to bring back EV buyers — particularly at the mid-priced part of the market. Even Tesla, which has cut prices aggressively in China and is popular among locals, lost market share in January as overall demand for EV slowed.

Nonetheless, there is growing confidence that Xiaomi will have a clear edge over its local peers. The smartphone maker’s cash reserve of more than $15bn will make it easier for it to withstand a price war compared with EV start-ups, as well as traditional automakers that are starting to release their own EV models.

It is doing well. Xiaomi’s operating margins have nearly tripled in the year to December on strong smartphone sales, where its gross profit margins reached 15 per cent last year. Xiaomi shares are up 36 per cent in the past year and trade at 23 times forward earnings, a premium to both local smartphone and EV rivals.

Its biggest advantage, however, is its stronghold in China’s smartphone and home appliances market. Local consumers are already familiar with the company’s brand, products and user interfaces.

Xiaomi is one of the rare local EV makers that can offer a software advantage over peers. It has a connected car that can be synced with the company’s other electronics, plus it has a head start in autonomous driving technology — it started testing self-driving cars on the roads two years ago.

Brand familiarity should help as it expands to other countries. It is the world’s third-largest smartphone maker after Apple and Samsung, with a global market share of 13 per cent. India and Europe are among its largest markets outside China.