If Xiaomi made a car, would it be amazing?

A few days ago, Xiaomi released a statement on the Hong Kong stock market, stating that the car-making project is not yet in the planning stage. This is in line with the former general manager of Xiaomi’s PR department, current executive vice president Xu Jieyun’s statement that “any news about Xiaomi making cars is fake.”

As someone with little subjective judgment, I sincerely believe that “Xiaomi will not make cars.” Therefore, this article is a “speculative article”, discussing “what if Xiaomi makes cars”. Today, I will start from three aspects – the founder, the strategic situation, and the challenges faced by Xiaomi – to discuss whether, if Mr. Lei Jun were to make cars, this story would be as joyful as his top-tier “comedian” performance on Bilibili.

Still nothing to show for?

“Once I woke up from my sleep and thought, I wanted to start a great company, to do something great, and at the age of 40, I still felt that I had nothing to show for it. But for ordinary people, they wouldn’t understand. Everyone thought I was pretending, so I was badly criticized. In fact, it isn’t about pretending. It depends on what your pursuit is. If your goals are high from a young age, but when you are forty years old, you find out that they are not great, the inner sense of frustration is very strong.” Mr. Lei Jun said seriously during an interview with Lu Jian.

At the age of 40, after having worked for 20 years, he reached this conclusion and chose to start Xiaomi by “being laid off and seeking to be re-employed”. From this sentence, it can be seen that whether Xiaomi makes cars or not largely depends on Lei Jun, who is now in his 50s, and whether he feels that Xiaomi is great enough in his eyes. To me, it is clear that Lei Jun still has high expectations of Xiaomi. The reasons for this are not only that he still wants to be a new UP artist on Bilibili at the age of over 50, but also that there are two main drivers: capital-driven and vision-driven.

First, let’s take a look at the capital-driven driver. Lei Jun once said that among the many applications of 5G, autonomous driving and connected cars are considered the most likely to become breakout points. Autonomous driving has far-reaching implications in reducing traffic accidents, improving traffic flow, and increasing road and vehicle utilization. At the same time, the global connected car industry has entered a rapid development stage. With the application of 5G technology, the intelligent traffic industry will quickly enter an upward trend.

In 2020, the capital market is crazily pursuing electric cars. If Lei Jun’s disciple, NIO, whose market value surpassed Xiaomi, he could just “laugh it off”. However, Evergrande Auto, which has not yet made any cars, once approached the market value of Xiaomi Group. I think Lei Jun’s inner voice should be “haha”, after all, he has never said that he’s not interested in money.

Lei Jun, who was once buried in Kingsoft, basically missed the Internet era, but then firmly grasped the thigh of mobile Internet born from the 4G era, allowing Xiaomi to stand firm in the market.This “one loss and one gain” makes Lei Jun believe that most of the factors behind every major success story are determined by the times, which means that it is important to follow the trend. He believes that entrepreneurs should first have a good foundation, and then find the “big trend”, which is the most core factor of success.

Therefore, I think that Lei Jun has long believed that autonomous driving and vehicle networking will become the most likely explosive point of the 5G era, and he has no reason not to enter the field. On the one hand, he will not feel painful for earning too much money, and on the other hand, when the company reaches a certain bottleneck, a “new story” is needed to arouse the interest of capital.

Because in the current era of rapidly improving information dissemination efficiency, the theory of “Meituan has no boundaries, Wang Xing has no friends” is not just a joke. Taking an inappropriate analogy, if I operated a leather business offline fifteen years ago and chose to expand to online e-commerce channels at that time, becoming a “pig on the windward side”, then I could have done the “injuring one thousand enemies at the cost of eight hundred of my own” tactic in a vegetable market through a continuous accumulation of funds for several years, achieving a monopoly effect and becoming the boss who sells cabbage, because business society has always been a “no progress, no regression” world.

Let’s talk about vision-driven. It was mentioned earlier that Lei Jun wanted to create a “great company”, but everyone’s understanding of greatness is different. In order to understand what Lei Jun means by greatness, I found the microblog of Xiaomi’s CSO, Wang Chuan, who is also the Chief Strategy Officer. He said this:

And Xiaomi plans to do this “winning hearts and minds” thing: “We hope to make everyone in the world able to enjoy the good life brought by technology fairly and equally through our own efforts.”, which is implemented in concrete actions by ensuring that the comprehensive gross profit margin of Xiaomi hardware does not exceed 5%. To put it simply, it means providing high-end products at low prices, forcing competitors to lower their prices, and benefiting all mankind.

By the way, Lei Jun once said to Wang Chuan: “I know everything you want to do.” So, whether Wang Chuan, who used to not only want to build cars but also love cars, still wants to build cars now, largely affects Lei Jun’s judgment at present, after all, Xiaomi said this is a “strategic judgment.”

Moreover, I think that in Lei Jun’s eyes, on the one hand, the beautiful life brought by technology in the automotive industry is not yet equitable enough. On the other hand, the automotive industry has always been an important landing scene for Xiaomi’s AIoT strategy.

Therefore, from the perspective of the founder, Xiaomi’s car-making is a high-probability event. As for strategy and challenges, please see the following text.

What is the endgame?## Strategic Planning

As someone who was once considered a “brother” by Liu Qiangdong, I received an internal letter from him one evening after working late, and to be honest, his article was enlightening in terms of my understanding of strategic planning.

In simple terms, I believe that strategic planning for a company involves considering what role the company will play, what problems it will solve, and what value it will offer in the ultimate environment it believes in. Then, a series of tactical combinations are developed to achieve strategic goals. A good strategy may not be understood by the majority at present.

Xiaomi’s Strategy

Since I have never been a “friend” of Lei Jun, I found this statement on the official Xiaomi website, which is what Lei Jun said: “Let everyone in the world enjoy the beautiful life brought by technology fairly”. From a literal perspective, this statement is similar to the saying that “good companies earn profits, great companies win the hearts of the people.” In simple terms, Xiaomi aims to change the public mindset of “cheap goods are no good”.

Currently, Xiaomi has built a “fan circle wall”, where people inside and outside the wall cannot understand each other, but once users are inside the wall, they would not want to leave. I believe that Lei Jun and Li Bin discussed this topic extensively during their overnight communication. However, I think this is more like a “strategic-level tactic” rather than a strategy.

From what I consider tactics, we can see that as cars become more technologically advanced, building cars will certainly be an indispensable part of Xiaomi’s business plan. Perhaps “wait and see, there’s no rush for now” means they are waiting for a mature strategic plan? After all, Lei Jun once said: “I am not good at surviving in adversity, I prefer to fully understand a matter first with the aim of avoiding getting into difficulties.”

Current Situation

Looking at it from an international perspective, both China’s carbon peaking and carbon neutrality goals and the EU’s carbon emission trading are to save the habitat of polar bears from further shrinking. Although the fundamental essence of this effort may not coincide with new energy vehicle development, at least they appear to be connected.

In terms of China’s Gross Domestic Product (GDP), which hit 101.6 trillion yuan in 2020, breaking the trillion-yuan mark is a cause for celebration, but that’s not the main point here.

The main point I want to make is that the annual growth rate of new energy vehicles, which was 17.3%, and integrated circuits, which was 16.2%, in China’s secondary industry not only greatly outpaced the industry’s general growth rate of 2.8%, but also outperformed the subdivision of the manufacturing industry, with an increase of 6.6%.This is not the end. If we continue to look at the third industry, we will find that the growth rate of “information transmission, software, and information technology services” is 16.9%, which not only outperforms the growth rate of the third industry by 2.1%, but also outperforms the financial industry by 7%. It seems that Maotai was not strong enough last year. There are too many similar data to list one by one. I think this should be what Lei Jun described as the “typhoon” that entrepreneurs should look for.

As for the industry, in addition to the factors such as new energy vehicles breaking through the technical barriers of transmissions and engines and being a once-in-a-century opportunity, I believe that there are also many factors such as the maturity of the consumer market and the enhancement of national confidence. However, this is not what I want to talk about today.

Firstly, let’s look at the new forces such as Tesla and NIO, which all develop from high-end car models to lower end ones. In many people’s eyes, this is a clever marketing strategy. But in my opinion, besides being clever, it is also somewhat inevitable. Because it involves several aspects, firstly, the capital environment of electric vehicles was not good at that time; secondly, the supply chain was immature; and thirdly, it is more challenging to compete in the mid-to-low end market.

The capital environment needs no explanation. Investors who were optimistic about electric vehicles in the past may now be able to use their 82-year-old Lafite to take a bath. The problem with immature supply chains is that the BOM cost of the entire vehicle is high, especially for batteries, chip sensors, and assisted driving solutions. Therefore, cars must be made high-end to cover the cost in terms of sales price, otherwise it will be more talk than action. As for the third point, which is that it is more challenging to compete in the mid-to-low end market, it is clear from the current sales situation of electric vehicles.

Now, what I want to say is that the current supply chain system is a relatively suitable time for Xiaomi, and Xinwangda cultivated by Apple ten years ago is a good example of this. Of course, let me state first that I am not saying that the “Mi Fans,” cultivated by Xiaomi for many years, represent the mid-to-low end market. What I mean is that a mature supply chain system allows costs to be reduced. Whether it is the “first car for young people” or the “exclusive toy for the rich,” this makes Xiaomi more likely to succeed. After all, the market is so large that getting a share of a sub-segment market is not enough to dominate the world.

Next, let’s look at Xiaomi Group itself. According to Xiaomi’s financial report, as of the third quarter of 2020, the monthly active users of the MIUI system have reached 368 million, and the stickiness of “Mi Fans” is well known to us all: it is definitely higher than that of flour. In addition, Xiaomi’s net profit margin is only 5.7%, which is close to 20% of Apple’s net profit margin during the same period. Here’s one thing to say: Xiaomi still has room to try to force competitors to lower their prices, and Xiaomi still needs Lei Jun, even if only as a spokesman for a trial period.

However, for Xiaomi in the current mobile phone market, it is seeking differentiation in a saturated market, as the AIOT market share has not yet fully opened up. Xiaomi not only needs a new story to attract the attention of capital, to achieve a new high in its market value, but more importantly, it needs to accumulate various advantages in the new track, in order to achieve the complementarity between the leather business and the cabbage business mentioned above.

In addition, as of the third quarter of 2020, Xiaomi had RMB 55.9 billion in cash and cash equivalents and short-term investments. By the end of 2020, Xiaomi had raised nearly 4 billion US dollars through the issuance of shares and convertible bonds.

As Lei Jun said, having experienced the era of “Microsoft at the front and piracy at the back,” he has become a “senior financial fanatic” who values cash flow extremely. I don’t know whether Xiaomi’s large cash reserves are due to Lei Jun’s habit of counting money in his office, or whether he wants the upcoming Xiaomi 12 to make all “friendly competitors” crash because “Xiaomi does not make cars.”

Looking back, the current state of the automotive industry is very similar to that of the mobile phone industry ten years ago, in a state of transition between the old and the new, but not yet fully saturated.

Here, I fully agree with Li Yanhong’s statement that “the competition of scientific and technological talents ultimately lies in the competition of talents.” This is quite coincidental, as I am studying human resources at Fudan University and can share a little bit of knowledge. With the development of social productivity, the relationship between companies and talents has fundamentally become like “phase-based demand matching.” Simply put, when a company wants to “develop a ten-acre field from a one-acre field,” the talent needed is different from the talent needed for “fine production to increase yield in a ten-acre field.” This implies many things, which I will not elaborate on.

The problem that arises is that in the current mature automotive supply chain, the demand for talent in manufacturing is not too urgent. The talent war for product R&D and software algorithm will begin to heat up. In 2019, there was a bottleneck in the recruitment of internal combustion engine talent in the automotive parts industry, while the increasingly popular demand was for talent in image recognition and machine deep learning. The change in the supply chain must come before that of the entire vehicle, otherwise, if the tide recedes, there will be no underwear left to wear.

According to public information, Didi is currently recruiting automatic driving TPM and R&D engineers with a salary range of 500,000-900,000 yuan, while Alibaba is recruiting senior experts in automatic driving perception algorithm with a salary range of 200,000-1,000,000 yuan, and Tencent is recruiting technical consulting positions for automatic driving with a salary range of 500,000-2,500,000 yuan. Of course, the recruitment market is like a commercial society, “full of trickery.” The above information still has a lot of uncertainty and is for reference only.

The companies mentioned above are just the tip of the iceberg in the current fierce competition for talent in the automotive industry. Unfortunately, Xiaomi has yet to release any related information regarding their cars. As a result, most companies are ahead of Xiaomi in terms of timing, and Xiaomi cannot afford to lose more than just time in this race.

Therefore, gaining an advantage in the talent war is an important step for Xiaomi. While acquiring talent may be the first step, it is more critical to effectively unify values and allocate limited resources rationally. In addition, Xiaomi recently lost a vice principal, so it is necessary to fill this vacancy immediately.

It is worth mentioning that the demand for point cloud perception algorithm talent is increasing, just like the demand for deep learning algorithm talent. If you know what Lidar is, you know what this means.

Moving on to the “racetrack,” if policies are the pacifier for electric cars, then capital is the cradle, with the former being from 0-1 and the latter from 1-10. For example, just as many electric car manufacturers are “stuck in the mud” when they lose their pacifiers, many electric cars cannot “walk” when they lose their cradles. In short, when the wind blows, pigs fall.

Although the enthusiasm for capital has made this racetrack even more crowded, the scale of capital is not unlimited. It’s like thousands of people crowding into a football stadium, and some phones can’t connect to the Wi-Fi due to hardware issues. It’s due to the company’s “core competitiveness,” some call it a “moat,” in short, Xiaomi needs to clarify its strategic framework, including who they are, where they come from, and where they want to go, and then use a series of combination punches to win.

However, if Xiaomi chooses to manufacture cars, it will become a not-so-small “capital” itself, so it should not be the biggest challenge facing Xiaomi. The bigger challenge is the “friendly greeting” from rival companies, such as Apple and Huawei, who have better prepared or more solid groundwork in the automotive industry compared with Xiaomi.

Although the electric car market will continue to boom in the short term, the “window period” for this boom will become even shorter due to the influx of many players. For a company that has not yet integrated an automotive supply chain, does not have automatic driving technology reserves, and has no marketing experience in the automotive industry, the shorter “window period” means that time is more valuable and sufficient “trial and error costs” should be reserved during the development process.

Therefore, if Xiaomi chooses to manufacture cars, it is almost inevitable to continue with their “OEM” (Original Equipment Manufacturer) mode, as people are more acceptable to the phenomenon of cars being produced by “OEM,” compared to a few years ago. Furthermore, competitors like NIO can help Xiaomi, receiving much criticism and backlash for them.Regarding Xiaomi’s software and channel capabilities, I won’t say much. The slogan of “Software-defined Car” has reached the “home” of technology companies. Currently, Xiaomi has over 2,000 Xiaomi Home stores, and combined with its online channels, these factors have pushed Xiaomi’s car-making progress a few steps forward.

Final Thoughts

In 2019, Xiaomi also partnered with Mercedes, bringing Xiao Ai into the interactive interface of a Mercedes. Additionally, Xiaomi has invested in many automotive-related companies, such as Here Maps, NIO, Xpeng, and Shanghai Botai, which specializes in connected cars. Moreover, Xiaomi has also applied for many invention patents for automotive technology, such as cruise control, energy supplementation, vehicle control, navigation, assisted driving, and driving safety.

With its strategic position, funding, channels, and hardware and software capabilities, Xiaomi has the reserves to make cars, but it still needs to prepare in terms of strategic thinking, automotive industry marketing, and human resources.

Meanwhile, many years ago, internet giants began actively participating in the automotive industry but focused more on “letting professionals do their jobs” by empowering the automotive industry with AI, big data, cloud computing, and other technologies. However, times have changed, and we are hearing more about “Software-defined Cars.” If the competition is coming to your doorstep, can technology companies not fight back?

Apart from this, I believe that since Xiaomi’s CEO, Lei Jun, who is in his 50s, was willing to go on Bilibili, China’s biggest video-sharing website, to promote Xiaomi smartphones and help the company’s marketing team meet its KPIs, he will also participate actively in making cars in order to enable more people to experience the beautiful life brought about by technology.

Although I have never met Lei Jun personally, I still look forward to the opportunity to see him shout out those five shiny golden characters at his own car launch conference.

This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.