Ralf Hahn
Speaking at a launch event for its first electric vehicle, the smartphone maker’s CEO Lei Jun declared his ambition to become one of the world’s top five automakers in 15 to 20 years.
Xiaomi Corp.’s (OTCPK:XIACF)(OTCPK:XIACY)[1810.HK] brief life story is closely intertwined with its charismatic founder and CEO Lei Jun, who was a telecoms layman when he launched the company that would go on to become one of China’s and the world’s biggest smartphone makers. But can he pull it off again with new energy vehicles (NEV)?
Lei certainly thinks so, and is pumping huge resources into the space as part of his bigger vision of building a Xiaomi ecosystem of smart devices that can communicate with each other and their owners in a future world often called the internet of things (IoT).
Lei unveiled the latest piece in that ecosystem just before the end of last year with Xioami’s demonstration of its first NEV, the eye-catching SU7, which some likened to a mix of Porsche’s Taycan and a composite of Tesla’s (TSLA) style. Lei emphasized repeatedly the SU7 won’t be aimed at NEV users looking to save a buck, noting it would be “impossible” to price such a model at 99,000 yuan ($13,961) or even 149,000 yuan.
“Please show some respect for all the technologies we’ve invested in,” he told the crowd, responding to repeated questions about the pricing.
Such response indicates that Xiaomi will no longer adopt an “affordability first” strategy with its new NEV foray, unlike its smartphones which rose to early prominence on their low prices. Now, it will be up to the market to decide what to make of the SU7 when it officially hits China’s crowded NEV market this year.
Aiming high for the global top five
Despite Xiaomi’s late arrival to NEVs, Lei said his company would spare no expense to catch its competitors, some with a decade or more of experience. “We’ll put in 10 times more effort, starting with the basics and working our way up to build a good car with craftsmanship,” he said. “We aim to become one of the world’s top five automakers in 15 to 20 years.”
Markets were less impressed with the highly hyped and widely anticipated debut. Xiaomi’s stock sank steadily throughout the launch day, ending down 4% at HK$15.28 for the day. Does that mean investors are bearish on its NEV gambit? We personally don’t have a crystal ball to answer that question directly, though company and broader market conditions may offer some clues.
It’s no secret that China’s NEV market is already quite crowded with established giants like Tesla and BYD (OTCPK:BYDDF), alongside newcomers like NIO (NIO), XPeng (XPEV), Li Auto Inc. (LI) and Leapmotor. As a latecomer, Xiaomi will need to work extra hard to attract attention. What’s more, China’s NEV market, which accounts for more than half of global sales, may be slowing down after several years of rapid growth.
Rise of NEVs
Spurred by the global drive for reduced carbon emissions, NEVs are expected to gradually replace traditional gasoline-powered vehicles over the next decade. And with penetration rates still relatively low, there is plenty of room for new players.
China’s NEV sales have soared from 1.37 million in 2020 to 6.89 million in 2022, with the market growing 158% in 2021 and 96% in 2022, according to the China Association of Automobile Manufacturers (CAAM). The penetration rate for NEVs in China reached around 36% as of November last year, a relatively high figure but still far from saturation. And with penetration rates much lower overseas, Chinese NEV makers have plenty of space to grow both at home and abroad.
But the sector is rapidly shaping up as a land governed by rules of the jungle, where only the strongest survive. One of the biggest failures so far has been WM Motor, a highflier whose case illustrates how today’s rising star can rapidly become tomorrow’s flame-out.
There’s little doubt that Lei may have what it takes to succeed in the cutthroat space, given his past record. After making his name at software maker Kingsoft, Lei went on to build his smartphone empire from scratch into one of the world’s top smartphone brands. Despite criticism that Xiaomi has yet to find a place in the most profitable high end of the smartphone market, it is still one of the top three global brands in terms of sales volume.
And while Xiaomi’s recent NEV pivot may look like a whim to some, Lei actually began exploring the space as early as 10 years ago by investing in NEV startups like carmakers XPeng and NIO, as well as others like Segway-Ninebot, a maker of electric scooters. Xiaomi has also invested in companies like Hesai and RoboSense, makers of LiDAR technology used in autonomous driving. Such investments have provided Xiaomi with a considerable network of contacts that can provide experience and knowledge for the company’s own push into NEVs.
Laying the groundwork
Such preemptive planning and investing are likely key factors that gave Xiaomi access to the kinds of talent, technology and manufacturing capabilities it needed to bring its first NEV to market just 1,003 days after announcing its intent to enter the space.
Xiaomi also shouldn’t have any funding problems for its NEV foray thanks to its huge established business, unlike startups that are continually challenged for cash. In the third quarter alone, the company reported operating cash flow of 13.3 billion yuan, 31.7 billion yuan in cash on hand, 51.4 billion yuan in short-term bank deposits, and just 44.8 billion yuan in long- and short-term borrowing.
Lei and his big NEV ambitions look like a modern equivalent of Oda Nobunaga, a Japanese daimyō and leading figure of the Sengoku period in the 15th and 16th centuries, who strived to rule Japan by initiating wars. “This is the last major entrepreneurial venture of my life. I am willing to stake my reputation and accomplishments on the battlefield to go all out in developing Xiaomi cars,” Lei said
Such words may be largely rhetoric, designed to draw attention to what could possibly be Xiaomi’s biggest-ever gamble. But it’s a gamble that could stand good chances for success, given Lei Jun’s strong track record in software and smartphones, coupled with his strong ability and endless enthusiasm.
Disclosure: None
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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