When Xiaomi was barely a year old we profiled its founder Lei Jun (see WiC124), describing how he dreamed of creating a smartphone brand that imitated Apple.
The Chinese tech tycoon had been inspired by Steve Jobs since becoming a programmer early in his career. And when Xiaomi presented its first smartphone in 2011, Lei donned a mock turtleneck and jeans – very much aping his idol’s sartorial style.
Fast forward a decade and Xiaomi, which means “little rice” in Chinese, is now the world’s third best-selling phonemaker, behind Apple and Samsung. As chairman and CEO of one of China’s most valuable tech firms, Lei gave another of his Jobs-like presentations last week, although this time the 52 year-old was talking about a new venture in electric cars – a product that is yet to appear in the Apple portfolio.
Why is Lei steering Xiaomi into such a congested market? The answer to this question draw on Xiaomi’s sense of its own core strengths, as well as the rapidly-changing circumstances in China’s automobile industry.
What will Xiaomi look like in the next decade?
Lei took centre stage on March 31 at an event that Xiaomi had dubbed as a “Mega Launch”. His presentation detailed the company’s “key initiatives” for the next 10 years, including its first foldable phone ‘Mi Mix Fold,’ which will be powered by Xiaomi’s own image signal processor, ‘Surge C1’.
Lei also unveiled a new company logo, created from a three-year collaboration with Japanese designer Hara Kenya, who applied a “superellipse” (or Lamé Curve) mathematical formula in the redesign. Onlookers were underwhelmed by the revamp, which didn’t seem to have altered the original logo too dramatically, although Lei insisted that the changes represent a renewal of the company’s “internal spirit and qualities”.
What was much more dramatic was another of Lei’s announcements, however: the 11 year-old Xiaomi is going to spend $10 billion in the next decade to make smart electric vehicles (EV).
The initial investment will be sized at Rmb10 billion ($1.53 billion) and the company will set up a new, wholly-owned unit to oversee the new business, with Lei personally leading the division.
Why has Xiaomi decided to join the EV race ?
Xiaomi has done an excellent job in growing into the world’s third best-selling smartphone brand, Huxiu.com reports. But going a step further – “from scoring 80 to getting full marks of 100” – will be extremely difficult as it implies moving further upmarket and directly challenging Apple. Perhaps that’s why Xiaomi has opted to switch some of its focus from smartphones to making EVs, the news portal reckons.
Xiaomi has been able to offset slower sales growth in China by expanding into international markets like India and Brazil, TMT Post notes, but it is also keen to avoid “becoming the Nokia or Motorola of the pre-smartphone era”.
Local rival Huawei is already taking aim at the EV sector, identifying ICT (information and communication technology platforms) for carmakers as a future focus for its business.
LG, the world’s third best-selling smartphone brand only a few years ago, also announced this week it is getting out of its lossmaking smartphone business to focus on EV components, AI and other products and services.
In another telling comment TMT Post cited the saying that next-generation vehicles will bear comparison to oversized smartphones on wheels. The link here to Xiaomi is an obvious one, although the description is actually a play on a throwaway remark by Geely Automobile boss Li Shufu in 1997 that a car was no more than “four wheels plus a sofa” (see WiC22).
Li was implying that there was little reason to see carmaking as a tremendous technical challenge. The advent of a new era of electric and (soon to be) self-driving vehicles has put a new twist on the claim by encouraging an even wider breed of companies to try their luck in the sector.
Because of radical changes in technology and design, the barriers to entry in carmaking are being eroded faster and further. An anticipated revolution in consumer behaviour (driverless cars and people choosing to share cars with others rather than own them outright, for instance) is also expected to shake up the sector.
All of this is coming at a time when China’s government has been willing to extend strong policy support. Part of the 14th Five-Year Plan is a goal for sales of new energy vehicles to account for a fifth of the Chinese car market by 2025 and 37% or more by 2030. The potential is significant, given the current market share for EVs is 5-6%.
However, the rush of interest from investors like Lei Jun also means that competition to take control of the EV world is escalating from intense to insane.
Xinhua has just offered a stark warning of what might be ahead in an overheating market. Sales growth has been promising, with about 4.9 million EVs on Chinese roads by the end of last year, the state news agency reported last week. That was 29% higher than 2019. But Xinhua also noted how the promise of future profits has sparked a slew of so-called “PowerPoint carmakers” – start-ups with sky-high valuations that are yet to mass-produce a commercially viable car. Singling out Evergrande New Energy, the EV-making unit of China’s most indebted property developer Evergrande, Xinhua highlighted how the Hong Kong-listed firm is now worth more than HK$500 billion ($64 billion) but that nearly 99% of its revenues last year came from selling cosmetic products, and not EVs.
What are Xiaomi’s competitive advantages in making cars?
Xiaomi is another latecomer to the race, TMT Post remarked. But its bid for glory is less of a surprise in a sector extolling the prospects of AI, 5G and ‘new energy’ rolled into one.
Certainly, Xiaomi’s background seems better suited to making breakthroughs with EVs than a property giant like Evergrande. It has also accumulated a wide portfolio of intellectual property for electric vehicles, local research firm SAAS noted, with at least 834 car-related patents in applications as varied as data processing to driving control systems and navigation.
Further, Xiaomi has a track record in experimentation, managing a complex supply chain to mass-produce a range of different “smart devices” and home appliances.
Indeed, in the case of the latter it has been successful at marketing an extensive portfolio of products, which spans hairdryers, rice cookers, air purifiers and even scooters.
Some of the company’s customers already own up to 40 devices from Xiaomi, all networked through one of the brand’s smartphones, claims news website 36Kr. Cars could join that interconnected ecosystem, with Xiaomi’s experience in hardware manufacturing and software integration becoming a major advantage.
There are similarities here between Xiaomi’s dream of carmaking and longstanding plans at Apple to launch EVs of their own. Since at least 2014, the Californian giant has been working on ‘Project Titan’, the codename for a secretive plan to make ‘iCars’. And in a podcast with the New York Times this week, Apple CEO Tim Cook offered a few insights on what the company has been working on behind closed doors. “If you sort of step back, the car, in a lot of ways, is a robot. An autonomous car is a robot. And so there’s lots of things you can do with autonomy. And we’ll see what Apple does,” he said. “We love to integrate hardware, software and services, and find the intersection points of those because we think that’s where the magic occurs.”
Excluding smartphones and laptops, Xiaomi said that more than 324 million hardware devices were connected to its internet service platform by the end of 2020, up 38% from a year earlier. Customers with five or more devices reached 6.2 million, up 53% year-on-year. The latter group are the hardcore ‘Mi fans’ (much like the original core of Apple devotees) and likely to be interested in Xiaomi’s EVs
‘Mi fans’ have been out in force in social media, claiming that Xiaomi’s EV venture will deliver “the first dream car for young people” (implying an affordable but high-quality choice). Xiaomi seems likely to enter the mid-tier market, one of the most competitive areas. Lei did a livestream session on Douyin this week, saying that Xiaomi was looking at sedans or SUVs costing between Rmb100,000 and Rmb300,000 ($15,300 to $45,900)
Is Xiaomi going to ride alone?
Another key strength for Xiaomi – as Lei admitted on stage during his keynote presentation last week – is that it has cash to burn – something like Rmb108 billion in cash or equivalents. This war chest will allow it to invest “without hesitation or extra concerns”, the company says.
“To be honest with you, we can afford to be lossmaking,” Lei also told his audience, adding that his wealthy friends had been calling him to ask if they could invest in Xiaomi’s new venture.
That’s just as well as the journey towards making EVs is likely to be a demanding one. One widely quoted reason why Apple has taken a slow-burn approach to Project Titan is the complexity of the supply chain, with carmaking requiring very different know-how to assembling mobile phones, 36Kr says. “It is simply not possible to go to Foxconn and say you want them to build you a new car,” it notes.
But the bet is that Xiaomi can bypass some of these challenges by adopting an OEM approach and outsourcing the more industrial work to more established carmakers. One potential partner is Dongfeng Motor, a state-backed manufacturer that is headquartered in Wuhan. Reuters reported last month that Xiaomi might also choose to partner with Great Wall Motor, one of the bigger private-sector car brands.
Another argument getting more play is that production of EV cars isn’t going to be as challenging as traditional carmaking because of its more modular style.
In this line of thinking, electric vehicles are less integrated than cars with combustion engines, with specific parts that can be plugged into pre-defined platforms. Tech giants like Xiaomi can then purchase what they need from specialist providers: battery packs from CATL, for instance, or electric motors from XPT.
Making the electronic systems that bring together the architecture of these next-generation cars is often being classed as more of a challenge than making the hardware, analysts say, and Xiaomi’s core skills in application software and IoT already put it ahead of many of the EV manufacturers.
Lei may also choose to fall back on a powerful network of personal contacts to further his aspirations in EVs.
That was evident a few days after Xiaomi’s Mega Launch, when a photo of Lei and the bosses of several leading EV firms went viral online. Lei was pictured with the likes of Wang Chuanfu (the chairman of BYD) and the three founders of XPENG, NIO and Lixiang (Lei has personally invested in two of these firms).
According to Huxiu.com the occasion was the latest gathering of a group with a name that translates as the “Huaxia old boys” in Chinese – a club of about 50 or so entrepreneurs reportedly founded in 2003 by alumni from the Cheung Kong Graduate School of Business and the China Europe International Business School (CEIBS), two leading Chinese business schools.
The group meets twice a year and its latest meeting, hosted by Xiaomi, was also attended by the likes of Neil Shen of Sequoia China and Meituan’s Wang Xing.
What was discussed was unclear, although Huxiu has speculated that some of the leading EV firms may opt to forge closer partnerships to ward off competition from foreign rivals such as Tesla and to avoid the kind of wasteful investment that accompanied the scramble for market share in sectors like bike-sharing and solar power.
“The EV sector is a race track with extremely high uncertainties. New developments in battery technology and business models could easily subvert the industry landscape,” it warned.
Lei Jun understands perfectly what the risks are in Xiaomi’s new venture. “It will be the last and important start-up project in my life. I am willing to bet my lifelong reputation to fight for Xiaomi EVs,” the flamboyant tycoon said.
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