When Lei Jun stepped on stage this week to announce Xiaomi’s entrance into China’s highly competitive electric vehicle (EV) race, the company founder and CEO compared smart cars to “smartphones with four doors”.
Calling the initiative his “final major entrepreneurial project”, he struck a confident tone, describing EVs as a “natural choice” for the Chinese gadget maker to expand its so-called artificial intelligence of things (AIoT) ecosystem, a vision that Lei has been trying to sell to investors for years.
Lei has long touted Xiaomi as an internet company that also makes hardware.
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“I call [Xiaomi] the triathlete of the new economy, where Xiaomi makes hardware and devices, sells its products through e-commerce and offers services on the internet,” he said in an interview with the South China Morning Post in 2018.
While investors may have been sceptical at the time, Xiaomi’s latest financial results speak for themselves.
The Beijing-based company doubled its profits in 2020 from the year before, raking in more than 20 billion yuan (US$3 billion). Revenue from internet services rose nearly 20 per cent; revenue from IoT and lifestyle products increased 8.6 per cent.
Xiaomi’s foray into EVs mirrors the company’s origins: it was founded in 2010, when consumers were moving away from feature phones to smartphones.
Xiaomi was able to differentiate itself from early rivals by introducing affordable products. Its first handset cost only 1,999 yuan, and reportedly received 300,000 orders within the first 34 hours of launch.
“If you compare [the automotive industry] with mobile phones, it is at a critical juncture similar to the transition from feature phones to smartphones,” said Li Lianfeng, research director at market research firm IDC.
“The barriers to entry [in the EV industry] are actually lower now with the advancement in battery technology and infrastructure construction. Consumer acceptance isn’t such a big obstacle either,” Li said. “The upcoming competition is for players to meet the specific needs of different consumers.”
The key for all players is to develop something unique, according to Danny Chen, an associate focusing on the automotive industry at Hong Kong-based credit rating agency Pengyuan International.
“Carmakers are competing to develop that one product that changes the landscape, like how the iPhone changed the mobile phone segment,” Chen, told the Post in January.
The EV market in China has also been buoyed by substantial government subsidies in recent years, as the world’s largest car market pushes towards its ambitious goal to become carbon neutral by 2060. Hundreds of companies have heeded the call.
“We don’t think it’s too late to enter this market,” UBS analyst Paul Gong said, adding that the Chinese EV market is forecast to grow tenfold over the next decade.
Different companies could get a share of the market by playing to their own strengths, he said.
Despite the market’s potential, though, analysts warn that making an EV is very different from assembling a smartphone.
“The EV market requires long-term investment and a different set of capabilities,” said Charlie Dai, principal analyst at market research firm Forrester.
“The technological complexity, business models and supply network ecosystem are very different … not only for the vehicle itself, but also the investment in the whole ecosystem, such as battery, motor control, charging piles and after-sale services.”
“For cars, the technological requirements, especially in safety, are much higher than that of a mobile phone … the whole ecosystem requires a large investment,” echoed IDC’s Li.
Time is also of the essence for Xiaomi.
Owing to the complexity of the supply chain and strict safety standards in the car industry, it generally takes years to deliver a new vehicle to the market.
Right now, Chinese consumers already have a bevy of EV options to choose from, ranging from premium Teslas to budget vehicles costing as little as 30,000 yuan, such as Wuling Motors’ HongGuang Mini EV.
Both manufacturers were behind China’s two bestselling EV models last year, according to market research firm Canalys.
Also in the game are domestic manufacturers like BYD, SAIC and GWM, as well as start-ups Xpeng and NIO, both backed by Lei. Several tech giants – including search engine company Baidu and telecoms behemoth Huawei Technologies Co – are also considering stepping into the arena.
Additional competitive pressure could come from foreign brands. By the time Xiaomi launches its EV, traditional carmakers such as Volkswagen, Toyota, Honda and Nissan will already have a head start by several years, said Chris Jones, chief automotive analyst at Canalys.
“A lot will happen in the market between now and when the first Xiaomi EV hits the road in the future,” said Jones.
Still, Xiaomi’s Lei sees the chance to grab a share of the fast-growing market too tempting to give up.
“Smart electric vehicles represent one of the largest business opportunities in the next decade, and represent an indispensable component of smart living,” Lei wrote in an internal letter after Tuesday’s product launch.
The CEO said he became interested in the EV industry after meeting Tesla founder Elon Musk in 2013 and buying his own EV from the brand.
He hopes that Xiaomi’s electric vehicles will one day become prized possessions among Mi fans – a community of Xiaomi enthusiasts that the company has been actively cultivating.
One way that Xiaomi could drive down the cost of producing EVs is to partner up with established manufacturers. Apple supplier Foxconn Technology Group, for example, struck a deal with China’s leading carmaker Zhejiang Geely Holding Group in January to assemble made-to-order electric cars.
In any case, Xiaomi has indicated that it is willing to splurge no matter the outcome.
During Tuesday’s product event, Lei said the company had 108 billion yuan in cash reserves by the end of 2020. It also had over 10,000 engineers working in research and development, and it plans to hire 5,000 more in 2021.
“We can afford to lose,” said Lei.
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