“The answer is Blowin’ in the Wind”, a quote from Bob Dylan, was mentioned by Lei Jun in his book “XiaoMi Startup Thoughts”, where Lei portrayed his varied business contemplations during different time periods. “Xiaomi Startup Thoughts” was published in August 2022, more than a year after Lei Jun announced his endeavour into the car industry.
Today, it has been three years since Lei’s announcement. In three days, he will formally unveil the mysterious Xiaomi SU7. At the same time, with SU7, XiaoMi Group will officially step into a new business phase.
However, Lei Jun is confronted with a challenging quandary. Despite Xiaomi’s strenuous pursuit into car manufacturing over the last three years, China’s new-energy vehicle market has concurrently undergone substantial transformation.
Current statistics reveal that the domestic new-energy vehicle brands have exceeded 160, and by 2023, 403 new-energy vehicle models are available on the market. A plethora of brands and models are participating in intense competition – survival of the fittest. The market space of this saturated car market is continuously squeezed like a sponge.
Three years ago, Lei Jun’s abrupt declaration to create cars initiated a significant sensation and deeply touched many people.
However, Lei may not have predicted that the new energy vehicle market would be as overcrowded and as competitive as it is now. How to continue innovating, surprising customers or dissecting what XiaoMi cars truly are, may seem more complex answers for Lei.
The Least Valuable Label is Cost Performance
One of the challenging question that is difficult to answer is what the price of SU7 should be.
Since the product technology conference of XiaoMi cars on December 28th last year, the core product strength of SU7 is no longer a secret. Its price, however, has become the primary and most discussed topic, frequently becoming a hot search term.
From the starting point of the new energy vehicle market, the price of an attractive, high-performing, eco-leading electric car like SU7 is certainly worth discussing.
With the market preoccupied with price wars, everyone is generally keen to see how Lei will fight in these price battles and what changes will occur due to the introduction of SU7. Essentially, this mood doesn’t differ much from watching other new forces like Tesla, BYD, DF, and LI Auto.
From XiaoMi’s standpoint, the price of SU7 becomes incredibly ambiguous.
Firstly, XiaoMi has deeply ingrained its cost-performance reputation through several years of operations in the phone market, influencing more than any other phone brands.However, in the new energy vehicle market, cost performance is almost the least valuable tag. Brands selling cars at a loss are everywhere, and in this regard, XiaoMi is no longer special.
Secondly, it is well known to the public that Xiaomi sets prices through the BOM cost pricing method, and the hardware profit margin will never exceed 5%.
However, the pricing method applicable to the mobile phone market may not apply to new energy vehicles because the software profit model has not yet succeeded in the new energy vehicle market. Li Xiang, CEO of LI Auto, once said that “a gross margin of 15%-25% on products is a benchmark requirement for a healthy survival of an automobile company.”
Lei Jun’s choice to compress profits and continue to “make friends” with consumers will be a major highlight of the SU7.
Finally, the release of Xiaomi product prices has always been dramatic.
For those who know a little about Xiaomi, before the price of Xiaomi products is announced, Lei Jun will always make consumers feel that the cost of products is high through various channels and methods, thereby creating an illusion that product prices are expensive. Afterwards, a price beyond expectations is given in a way similar to “persuading executives overnight”, contributing a full emotional value to consumers.
Once again, the familiar “routine” took place on the SU7.
Lei Jun has mentioned on Weibo and in interviews several times that the price of the SU7 “might be a bit expensive”, and he denied outrageous prices such as 99,000 and 149,000 that anyone would find ridiculous. Even the seemingly more realistic price of 199,000 was vetoed.
In addition, on March 20th, Lei Jun, seizing the opportunity of Tesla’s price increase against the trend, subtly gave a benchmark factor with the Model 3, making the price of the SU7 seemingly floating on the surface, yet deep in the water, creating a mysterious and elusive image.
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Apart from Lei Jun, Xiaomi brand general manager Lu Weibing also emphasized that the price of the SU7 might be a bit expensive, but at the same time emphasized that it will provide consumers with value for money.
The “routine” is familiar, but the scenario has shifted from the mobile phone market to the new energy vehicle market. It’s a play of illusion, and apart from Lei Jun, Lu Weibing, and others, no one is sure whether this is playing old game transparently with consumers or really trying a new tactic — this is another major highlight for the SU7.
In fact, pricing the SU7 is also a dilemma for Lei Jun.
On one hand, consumers’ expectation of the SU7’s price is too high, if the scale is not handled well, it may backfire; on the other hand, Xiaomi’s cost-effective tag has already rooted deeply in people’s hearts. Price-performance ratio does not mean low price, but if the price is set too high, it will hurt consumers, if it is set too low, it will hurt the brand, if it is set neither high nor low, it will hurt the SU7’s competitiveness in the price war.
In setting the price for the SU7, Lei Jun needs to consider not only the market but also consumer sentiment.## The Rationality and Passion in Car Making
“XiaoMi Auto will be my last significant venture in my life. I am willing to stake all my past accomplishments and reputation for XiaoMi Auto!”
This quote drifts from Lei Jun’s pronounce on March 30, 2021, when he announced the auto project.
Obviously, for Lei Jun, the auto industry is not just an innovative project incubated within the XiaoMi Group but a new entrepreneurial endeavor flooded with ardent commitment in an “All-in” spirit.
Indeed, compared to mobile manufacturing, the auto industry encompasses more complicated supply chains, more sophisticated product-experience designs, and larger investments, which demands more energy to maintain business efficiency.
Meanwhile, rivals like BYD, Tesla have already grabbed the say in the new energy vehicle market — a fact that puts XiaoMi Auto, a green hand in the field, into an uphill battle of aggressively snatching market shares.
Consequently, XiaoMi Auto is bound to confront arduous challenges in its initiation. As Lei Jun put it, “Over the past three years, I’ve been living on tenterhooks, facing various difficulties and challenges daily.”
Still, we must march on despite difficulties.
For Lei Jun, the question is not whether he should enter this industry; the actual query is how to carry it forward.
In recent years, the smartphone market has approached saturation, and XiaoMi Group’s smartphone business has seen more and more evident revenue stagnation. Lei Jun needs to identify new momentum to break through this bottleneck.
Additionally, Lei Jun is set on shaping the XiaoMi brand into a high-end one. However, XiaoMi is still struggling to secure a foothold in the high-end market — the public’s persistent impression of it as a budget brand is hampering progress.
To solve these two grave issues, launching into the automobile industry amid the winds of vehicle electrification and smartification might just be the most suitable path.
On one hand, smart vehicles can significantly enrich XiaoMi’s smart ecosystem, enabling XiaoMi to complete a circle of intelligent scenarios tying together “people, cars, and homes”. By this drive, XiaoMi Group can make a breakthrough in its business; On the other hand, high-end smart vehicles can help elevate the brand value of XiaoMi to appear more high-range.
In choosing the path of car manufacturing, Lei Jun embodies the rationality of an experienced businessman. As for what kind of car to produce, Lei Jun once again unfolds his relentless spirit of “Embrace life and death, resist till the end” — choosing to manufacture electric sedans.
First, let’s talk about electric-powered. Electrification is undoubtedly a trend, yet charging and endurance remain as the Achilles’ heels for electric vehicles, which inhibits potential consumers from taking the plunge.
Then, regarding sedans, in China, because of their small space and lack of practicality, sedans often sell less than SUVs. For instance, Model Y and Model 3, though fundamentally the same model, Model Y’s sales far exceed that of Model 3.In other words, if they were to manufacture a hybrid or extended-range SUV first, XiaoMi would be more likely to achieve commercial success at a faster pace. Yet, Lei Jun led XiaoMi down a more challenging path – manufacturing solely electric sedans.
At the XiaoMi car technology conference, Lei Jun expressed that the choice to manufacture sedans is due to it representing the “epoch spirit” of the automotive industry.
Later, in the “XiaoMi Car Answers 100 Questions from Netizens (Medium Set)”, the official XiaoMi car team added, the SU7 requires both performance and ecological technology. The ultimate experience of these three can only be achieved by sedans. “It’s easier to do a high body car, but harder to make a sedan”, manufacturing a sedan is the most challenging path, but XiaoMi chose it because it is difficult yet presents long-term value.
Indeed, making a solely electric sedan popular and trending could further highlight XiaoMi’s determination and strength in the new energy vehicle market, but Lei Jun and XiaoMi will have to pay a higher price for it.
Due to this, users have high expectations for Lei Jun, XiaoMi, and SU7. The success or failure of XiaoMi SU7 also indirectly affects the emotions of “Mi fans”, who have accompanied and witnessed XiaoMi’s growth over the years.
In order to succeed in one effort and meet expectations, Lei Jun has recently started to focus on SU7.
On Weibo and his personal video account, Lei Jun is vigorously promoting SU7, explaining the product and introducing factories. Even if some say he started from scratch to popularize things that are common in the car industry, he still can’t help repeating the sentimental words and honest words, lest others can’t understand the product power of SU7 and XiaoMi’s intentions.
And three days later, the hard work that Lei Jun has devoted to car manufacturing over the past three years will be condensed into one night. All the emotions of all those who pay attention to XiaoMi will surely condense into a rare carnival. The next day, as sentiment gradually withdraws and reason takes over, Lei Jun, XiaoMi, and SU7 officially enter the new energy vehicle market and start fighting tooth and nail.
Will the results of history be the answer now?
While chatting with a person in the industry about XiaoMi’s car, I asked whether making mobile phones in the past would limit XiaoMi’s car manufacturing due to historical limitations. He pointed out that Lei Jun and his team have been fought hard in the battlefield, and they may face limitations, but history may have already provided the answer.
1,999 yuan was the price of the first generation XiaoMi mobile phone when it was launched in 2011. According to Lei Jun, including the screws, the first generation XiaoMi mobile phone used Apple’s supply chain.
However, as XiaoMi was a new brand at that time and it was difficult to reduce the prices in the supply chain, the entire cost of the first-generation Xiaomi mobile phone came to 2,000 yuan. Embarrassingly, the average price of domestic mobile phones back then was only 700 yuan – whether to generously lose money for long-term value or to protect profits first and deal with the rest later, was a life-or-death choice for XiaoMi, which had just been established.The ultimate outcome is that XiaoMi dashes to the game. The first-generation XiaoMi smartphone was priced at 1,999 yuan, although it is far higher than the domestic average price, the supreme cost-effectiveness allowed it to sell 300,000 units within 22 hours, and XiaoMi itself also became famous overnight.
In response to this, Lei Jun described it as “winning the dream start”.
In the blink of an eye, 13 years have passed, Lei Jun led Xiaomi to build the first car — XiaoMi SU7, still high quality, still “a little expensive”, this time, does everyone believe history will answer the question?
This article is a translation by AI of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.