Author | Yungo
It has been more than 600 days since Xiaomi announced its car-making plan in March last year.
In August this year, Lei Jun announced that Xiaomi’s autonomous driving technology had entered the testing phase and released a real video of road testing, demonstrating the ability of Xiaomi’s car-making algorithm and scene application in autonomous driving technology.
Despite being a giant in the Internet industry, the praise for Xiaomi’s car-making market has gradually turned into doubts. Many people think that Xiaomi has entered the market too late, has not yet obtained the qualifications for car-making, and the development of autonomous driving is not as expected. There were even rumors that the project has been halted. In response, Lei Jun stated that Xiaomi will no longer comment on the situation of its car-making project and hopes that everyone will have confidence in Xiaomi and believe that Xiaomi will continue to surprise us as always.
It is clear that Lei Jun is committed to car-making.
However, from the experience of technology companies inside and outside China transforming into car-making, car-making is not an easy task. Even Apple, a giant in the technology industry, has delayed the launch of its car until 2026, and no longer plans to deploy a fully automatic driving system.
Xiaomi has indeed caught the upsurge in car-making, but it cannot be denied that Xiaomi’s car-making plan is not as early as “We Xiaoli”. Xiaomi’s goal is to enter the first echelon of the industry in 2024. In today’s highly competitive new energy market, entering the first echelon is not an easy task. So what are the difficulties that Xiaomi faces in the process of car-making? Can car-making progress smoothly in the future? Will it be able to achieve its goal of entering the first echelon in 2024?
Not yet obtained car-making qualifications
Car-making qualifications is a major problem faced by new car-making companies. Without these qualifications, production cannot begin, and car-making qualifications have become the key to whether new car-making companies can land on the market.
Rumors about Xiaomi’s car-making project started to circulate when it was announced. It was not until November last year that Xiaomi Auto and the Beijing Economic and Technological Development Zone Management Committee signed a cooperation agreement, and Xiaomi Auto settled in the Beijing Economic and Technological Development Zone. It is introduced that Xiaomi’s factory in the Economic and Technological Development Zone of Beijing will be built in two phases, and the expected annual output will be 300,000 vehicles when completed. The first phase is expected to be completed in June 2023. That is to say, Xiaomi needs to obtain car-making qualifications as soon as possible in less than seven months.
According to the disclosure of the Yizhuang New Energy Vehicle Research Institute, it is expected that Xiaomi’s car factory will obtain automobile production qualifications in June to July 2023, but there is a certain level of uncertainty.
According to the plan, Xiaomi’s first product is expected to be officially mass-produced in the first half of 2024.Perhaps the easiest solution for Xiaomi in the automotive industry is to directly acquire a car manufacturer with vehicle production qualifications. In September 2021, rumors were circulating that Xiaomi was actively pushing for the acquisition of Baowo, but it remained only a rumor and Xiaomi did not receive any acquisition contracts until Baowo went bankrupt. Some industry experts believe that “other than qualification being available, Baowo has nothing to offer Xiaomi since it cannot cover its debts.”
Currently, it seems that Xiaomi is choosing the difficult path to obtain its manufacturing qualifications, build its own factory, and overcome obstacles in the development of its own brand. In order to achieve this, Xiaomi has not only invested RMB 10 billion in its initial stage and acquired dozens of automotive supply chain companies, but also rapidly established a car manufacturing team of over 1,800 employees. The benefit of the Xiaomi approach is that it can independently build cars according to its own ideas and concepts without being dependent on other companies. However, the downside of this model is that it requires a long investment period and substantial financial support in the initial stages of car manufacturing. Obtaining production qualifications by themselves takes a long time and is uncertain, and the cost of building their own factory is too high with no traditional automotive technology, leading to a market validation period for Xiaomi’s cars.
The Challenge of Upscaling
Lei Jun revolutionized the mobile phone industry with high-performance and cost-effective models that allowed “everyone to enjoy the fun of technology.” Many Xiaomi fans expect Lei Jun to continue to release high-tech, high-performance electric vehicles with similar cost-effectiveness. Some fans have explicitly stated that cost-effectiveness is the primary consideration when choosing Xiaomi Motors. If Xiaomi cars offer better intelligent experiences at the same price point, they will be preferred over others.
According to a survey initiated by Lei Jun on Weibo, netizens hope that the first Xiaomi car will be priced at around RMB 100,000, but Xiaomi clearly plans differently. At the beginning of its establishment, Xiaomi Motors announced that it is similar to Xpeng Motors, focusing on the high-end market with a strong technical advantage.
In smartphones and electric vehicles, Xiaomi has to take the step to attack the high-end market in order to succeed.In February this year, Lei Jun publicly stated that “the high-end route is the only way for Xiaomi to grow and the battle for life and death for Xiaomi’s development. We will resolutely implement the high-end strategy.”
Moreover, according to relevant information obtained from the industry, Xiaomi’s first car is a pure electric sedan, with a vehicle price ceiling higher than 300,000 yuan and positioned as a mid-to-high-end model. There are two configurations: high-end and low-end. The low-end model plans to be equipped with a 400V voltage platform and a lithium iron blade battery; the high-end version plans to adopt an 800V voltage platform and use CATL’s Kirin battery.
In addition to the investment in the three electric aspects, Xiaomi’s path to high-end mainly relies on the competitiveness of autonomous driving. To gain a foothold in the high-end market, autonomous driving is a focal point that Xiaomi cannot ignore.
Xiaomi autonomous driving has always claimed full-stack autonomous driving technology. In the road test video released in August of this year, the scene includes commonly used scenarios such as high speed, city, and parking, and realizes various functions such as entering and exiting the freeway, changing lanes and overtaking, avoiding obstacles, and parking with memory.
In order to perfect the autonomous driving industry chain, Xiaomi acquired DeepMotion Technology and recruited relevant talents. It also invested in application solution providers, such as ZongMu Technology, Zhixingzhe, Momenta, and lidar company Hesaitech, as well as chip manufacturers such as Heise Black Sesame.
However, precisely because of the testing video released in August, people have questioned Xiaomi’s progress in autonomous driving. The video has few continuous shots, and the implementation of many functions is not continuous, but more like a collage.
Moreover, there are reports from related media that Xiaomi’s autonomous driving business may have changed from the original self-developed full-stack solution to a temporary supplier solution.
According to this situation, it is not easy for Xiaomi’s high-end plan in the auto industry.
Although Xiaomi’s car has not yet been born, Xiaomi’s “high-end plan” for cars is destined to be as difficult as the phone industry. For consumers who are used to labeling Xiaomi as “cost-effective,” they have already attached this label to Xiaomi’s car. If Xiaomi’s car users are expected to be locked in cost-effectiveness, Xiaomi needs to invest more resources to change this perception.
Main business income declines
In 2020, Xiaomi’s mobile phone achieved double-digit growth in revenue and net profit, and the situation was very good. As of the end of 2020, Xiaomi’s cash reserves reached 108 billion yuan, enough to support the investment cost of Xiaomi’s car-making for the next ten years.
It is precisely the good development of Xiaomi’s mobile phone business that has given Xiaomi the confidence to make cars and is willing to burn money for the auto business. Xiaomi’s initial investment in car-making is 10 billion yuan, and it plans to invest 10 billion US dollars in the next ten years. The total investment in car-making by Xiaomi in the first three quarters of 2022 was 1.86 billion yuan.
However, there was a shift in the profitability of the smartphone division in Q3 2022. Financial reports showed that Xiaomi’s revenue, gross profit, and adjusted profit all declined in the third quarter, where the operating profit “turned losses into deficits.” Xiaomi’s total Q3 revenue was ¥70.5 billion, down 9.7% year-on-year, and the adjusted net profit was ¥2.12 billion, a significant year-on-year decrease of 59.1%. Meanwhile, its R&D expenses amounted to ¥4.1 billion, a year-on-year increase of 25.7%, and a 8.1% increase over the previous quarter, with expenses in innovative industries, such as smart electric vehicles, reaching ¥829 million.
However, concerning the long-term investment of building cars, Mr. Lei Jun once stated that “I am well aware of the risks in the automotive industry and also the significant investment costs which could be tens of billions of yuan. It would take at least three to five years to take effect.” Besides, Xiaomi’s group partner and president, Mr. Wang Xiang, expressed that the company’s R&D investment between 2022 and 2026 would exceed ¥100 billion.
Moreover, even for the newly established car manufacturers that are currently profitable, in terms of the car manufacturing business section, they will continue to suppress Xiaomi’s profitability for an extended period.
Xiaomi’s mass production of cars is set for 2024, at which time the intelligent new energy vehicle market will have entered the elimination match. Based on faith in the Xiaomi brand, respect for Mr. Lei Jun, and the appeal of the product itself, the sales of Xiaomi’s first vehicle may seem somewhat worry-free.
However, the new energy vehicle market has entered a stage of intense competition, as domestic new energy vehicle manufacturers like BYD, EAON, and NIO, which are repeatedly recording increasing sales, as well as newly established car manufacturers that are repeatedly releasing hot-selling models, have significantly compressed the survival space for latecomers. At the same time, traditional car manufacturers such as Volkswagen, General Motors, and Toyota are gradually increasing their efforts to transform into electrification in China. In 2024, when Xiaomi enters the market, it will inevitably face unprecedented competition, and even missed out on the last chance to obtain new energy vehicle purchase subsidies.
The 2022 Beijing epidemic brought many challenges to the construction of the Xiaomi car factory. Under the cruel competition from the pandemic and the market pressures, Xiaomi’s automotive future has a lot of uncertainty. To achieve the success threshold of “being in the top five globally and shipping over 10 million vehicles annually,” it is undoubtedly becoming even more difficult.# 标题
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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.