Xiaomi officially announced a $10 billion car-making plan, which is worth looking forward to.

Latest update time：2021-09-02 00:03

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At Xiaomi’s 2021 annual press conference on March 29, CEO Lei Jun officially announced that the company will enter the automotive industry and start building cars!

Xiaomi's "seriousness" about this matter can be reflected in two aspects: from the company level, Xiaomi plans to invest 10 billion yuan in the initial phase and continue to invest 10 billion US dollars in the next ten years to implement this plan. It is said that such a decision was made through 85 industry visits and communications, in-depth exchanges with more than 200 senior automotive industry professionals, 4 internal discussions of the management, and 2 formal board meetings within 75 days; from Lei Jun's personal level, when announcing "Xiaomi making cars", he solemnly stated that "this is the last major entrepreneurial project in my life. I am willing to bet all the achievements and reputation accumulated in my life to fight for Xiaomi Automobile", which has a feeling of going all out.

Xiaomi Group issued an announcement on the Hong Kong Stock Exchange, announcing the official launch of its smart car business (Source: Internet)

In fact, the news that "Xiaomi is going to build a car" has been circulating in the market for more than a month, but Xiaomi has never commented on it. Now it seems that it was probably still in a "tangled" period before the final decision. Now that everything has settled, everyone can finally do some analysis and speculate on the mental journey of Lei Jun and Xiaomi in the matter of building cars.

The rapidly growing new energy vehicle market

First, the most compelling argument for the company's internal decision-makers is the broader trend in the electric vehicle market. According to data from China's National Bureau of Statistics, China's new energy vehicle production reached 1.456 million units in 2020, a 17.3% year-on-year increase. This demonstrates that despite the impact of the pandemic and the easing of preferential policies, China's new energy vehicle market remains robust. According to China's "New Energy Vehicle Industry Development Plan (2021-2035)," new energy vehicle sales are projected to account for 20% of total new vehicle sales by 2025, and 40% by 2030.

According to the National Bureau of Statistics' social consumer goods retail statistics, of the national total consumer goods retail sales of 39 trillion yuan in 2020, 1/10 was spent on car purchases. This figure is more than three times the size of the consumer electronics market. For a company that hopes to have sustained growth rather than sinking deeper and deeper into the quagmire of competition in the mobile phone market, "making cars" will definitely become an important option in its diversified development.

From a global perspective, electric vehicles have also performed exceptionally well in 2021. According to data from the EV Sales website, global electric vehicle sales jumped 136% year-on-year in February, reaching a market penetration rate of 4.6%. Global electric vehicle sales are expected to reach 4.5-5 million units for the entire year. These impressive market figures undoubtedly prove to Xiaomi that intelligent new energy vehicles are the next big thing, and that it's worth taking advantage of this opportunity.

New opportunities in a new era for the automotive industry

In addition to the promising market prospects, the transformation that is brewing within the century-old automobile industry also provides opportunities for "outsiders" in the industry like Xiaomi.

Today, people can clearly see that the automotive industry is rapidly moving forward with the trend of the "new four modernizations" of electrification, networking, intelligence, and sharing. In order to adapt to this development trend, automotive products themselves also need a thorough innovation. The most important point is that the automotive electronic and electrical architecture that was previously hardware-centric is rapidly evolving towards "software-defined cars". This also means that future car functions will no longer be a state that is difficult to change and solidified by hardware, but will be continuously updated and iterated with software upgrades; the car you buy does not become older with use, but is always new with frequent use - this is a bit like the smartphones around us. During its life cycle, it can always bring new experiences to users through the iteration of software systems and applications.

When it comes to the "software" sector, companies like Xiaomi that started out in the ICT industry will find that they suddenly have more "say" and a greater sense of participation in the automotive field: on the one hand, as the functional extension of automotive products expands, the intersection with the ICT industry will become greater and greater, and opportunities will naturally increase accordingly; on the other hand, the deep accumulation of ICT companies in software engineering also makes them full of confidence in the "software-defined car" concept.

Crucially, Tesla has already successfully navigated the "New Four Modernizations" of the automotive industry. In 2020, Tesla's market capitalization soared to $600 billion, exceeding the combined sales of the world's top five automakers. This clearly demonstrates that investors and the market are ready to bid farewell to the era of the internal combustion engine and usher in a new era for the automotive industry. Ambitious Xiaomi is naturally poised to participate at such a crucial historical turning point.

Using electric vehicles to “overtake on the curve”

In addition, in the process of moving towards a new era and a new era in the automotive industry, latecomers such as Xiaomi have seen the opportunity to "overtake on the curve."

As we all know, in the era of internal combustion engine vehicles, after more than a century of development, many core technologies (such as engines and transmissions) were controlled by a few leading players, and newcomers who wanted to compete with them faced almost insurmountable barriers. However, for electric vehicles, key core components (such as the "three major electrical components"—motor, electronic control, and battery) are relatively commercially available. This means that newcomers can quickly develop and manufacture their own vehicles by purchasing them from the market or building their own technology platforms.

More and more ICT companies have already recognized this opportunity and are already taking action. From the end of last year to the beginning of this year, the pace of many companies' efforts to establish a presence in the automotive industry has significantly accelerated. For example, Baidu officially announced the establishment of a new automotive company with Geely Holding Group; Alibaba and SAIC Motor jointly launched the high-end car brand Zhiji Auto; Huawei plans to collaborate with Changan Automobile and CATL to create a new high-end smart car brand; Foxconn is in talks with Geely and Faraday Future (FF) about electric vehicle collaboration; and there's even Apple, a hidden but rumored rival. All of this has given Lei Jun and his team the smell of gunpowder before a major battle, forcing Xiaomi to accelerate its pace.

The rapid growth of the electric vehicle market, the strong demand for transformation within the auto industry, and the opportune opportunity for latecomers to overtake competitors—from the above analysis, you can probably understand why Xiaomi is pressing the start button on its "car manufacturing" plan at this point in time.

Of course, all of these favorable conditions, including timing, location, and people, only provide a possible path to success for Xiaomi's car manufacturing venture. The challenges along the way still need to be overcome one by one. Take the ongoing chip shortage in the automotive industry last year, for example, which clearly demonstrates how a single weakness in supply chain management can have an immeasurable impact on a company's overall success.

Global automotive chip company market share (Source: Internet)

In short, car manufacturing is risky, and one must be cautious when entering the industry. Before considering overthrowing a tradition or a competitor, it's essential to maintain a respectful attitude. However, having said that, we've come a long way through this cycle of disruption and being disrupted. As long as a "serious" disruptor is involved, we should give him a big thumbs up.

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