Auto Industry

Lei Jun’s big choice

Is Xiaomi set to work with BYD to make EVs?

Xiaomi-w

Who will it partner with?

The big beasts of China’s tech world have all forged alliances in the electric vehicle (EV) sector with one notable exception: Xiaomi. The Hong Kong-listed group is best known as a smartphone manufacturer but it has ambitions to become an EV powerhouse much in the same way as Huawei and the BAT troika (Baidu, Alibaba and Tencent) do. Earlier this year, Xiaomi announced a $10 billion, 10-year investment plan for an EV subsidiary run by its founder Lei Jun (see WiC535). But it hasn’t identified any partner in the plan, leading to weeks of speculation about potential allies.

In March, Reuters suggested that Great Wall Motors was in the frame, although a spokesperson for the car producer later described the report as “nonsense and fake news”.

In April Lei was photographed walking into Xiaomi’s Science and Technology Park with BYD chairman Wang Chuanfu, sparking another round of chatter about commercial collaboration between the two. But in May he was spotted visiting a SAIC-GM-Wuling plant and earlier this month he was reported to be back at Great Wall’s headquarters in Baoding.

In mid-June BYD’s Wang stoked more debate when he claimed that BYD’s existing partnership with Xiaomi – to manufacture its smartphones – could be extended into support for its car business. He added that the two companies were discussing a number of projects, although soon afterwards he was forced to respond to allegations that he had earlier dismissed Xiaomi’s ambitions with a comment that many well-known business figures with aspirations in EVs lacked any kind of edge to achieve them. Lei shouldn’t “lose money and waste time,” he added.

Wang later said the remarks had been misinterpreted and that he was trying to say was that Lei should focus on adopting the right strategy. “Spending $5 billion is nothing to someone like Lei Jun,” he explained. “Even $100 billion wouldn’t be a problem. The key is to avoid wasting three years. How much money would that be worth?”

Forging a partnership with Xiaomi might offer new support for BYD’s share price. Some analysts are underweighting the stock following a strong run-up over the past 12 months. BYD’s Hong Kong-listed shares are trading on a consensus forward price to earnings ratio of around 90 times, according to S&P Global Market Intelligence. They have almost quadrupled in value in the space of a year.

This is largely because BYD is China’s only fully integrated EV company, spanning batteries, auto parts and car production. More recently, there have been rumours that Apple might choose it as a key battery supplier for its own EV business too. Yet some analysts think BYD shouldn’t be valued on a par with the best of the start-ups in the sector because it isn’t developing new brands for its EV business, but repurposing the models it already offers as internal combustion engine (ICE) cars.

BYD’s hope is that a new range of plug-in hybrid (PHEV) models for its Song, Tang and Xin brands could eat into the sales of its rivals’ more conventional cars. These PHEV models deploy BYD’s proprietary DM-i technology, which reduces fuel consumption to 3.8 litres per 100 kilometres and has battery power covering 120 kilometres.

They are already racking up stronger revenues: in May sales of PHEVs jumped to 12,970 from 2,323 the month before. The group has a target of 200,000 units for the whole of 2021.

Last week a BYD employee posted a photo online of one of its more famous shareholders – Berkshire Hathaway’s Charlie Munger – taking delivery of Tang and Han models in California. Munger inspected the cars and praised their design and quality, according to the employee.

Alongside production of its own cars, BYD has forged a tie-up with Didi Chuxing to develop an EV specially for ride-hailing services.

In other collaborations Huawei is working with BAIC and Chang’an Auto, while Alibaba has teamed up with SAIC to develop its Intelligence in Motion (IM) branded cars. Mass-production of the first model is scheduled for later this year.

Xiaomi may decide to go it alone. But the Chinese media says a slew of struggling EV firms would welcome the tech group’s financial firepower. They include Borgward Auto, Zotye and FAW-Xiali.


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