Xiaomi, which is currently the most successful Chinese smartphone OEM globally, has announced its entry into the electric vehicle (EV) market. The company will kick-start the project with an investment of 10 billion yuan ($1.5 billion) and expects to spend up to $10 billion over the next decade.
It is not Xiaomi alone, other smartphone OEMs are also looking to enter the EV market, which is poised for growth. For example, ZTE has announced its entry into the segment while Huawei and Chinese automaker SERES recently launched a Level 2 autonomous electric hybrid vehicle that uses Huawei’s solutions for smart cars.
Why Xiaomi and Other Smartphone OEMs are entering EV Segment?
Xiaomi, through its IoT strategy, has been investing in future growth drivers beyond smartphones, and EVs fall into this category. While on the outside, the automobile may seem like an unrelated business for Xiaomi to enter, but it is not the case thanks to two broad trends happening in the automobile segment ؘ– electrification and digitization. And the latter falls within Xiaomi’s competency.
Future cars will be more connected, will generate lots of data to be analyzed, will have greater processing power on the edge, and will have higher engagement with the driver, much like smartphones and other connected devices. And this is where Xiaomi will focus.
Over the years, Xiaomi has been building an ecosystem with smart devices, smart home and smart white goods. It will be looking to provide this digital ecosystem experience through cars as well. Further, it will be aiming to have control over the software and thus, streams of user data, on which it can build revenue models. Thanks to its smartphone and IoT business, Xiaomi has strong know-how on integrating software with hardware and building revenue models on top. It has a strong brand name with a large user base, which also gives it an advantage.
As far as the manufacturing of EVs is concerned, Xiaomi is likely to partner an ODM. Building manufacturing capabilities from scratch for automobiles would require massive investment, increase time-to-market and is outside Xiaomi’s core competence. Reportedly, Xiaomi is in talks with Great Wall (GWM) to use its plants to manufacture Xiaomi branded cars. Great Wall is China’s prominent SUV and pick-up truck producer.
On the other hand, competition in China’s EV market is heating up. GWM is facing challenges from rivals like NIO, Xpeng and Li-Auto. Established OEMs are losing share to start-ups. With Xiaomi’s collaboration, GWM has an opportunity to become an ODM and increase volumes in the segment. Besides, becoming an ODM for vehicle segments other than pick-up trucks and SUVs will give GWM an opportunity to grow scale with a less direct competition. Software and internet-based business models have not been a core strength of automakers (with the exception of Tesla), and this is another area where Xiaomi’s partnership can benefit GWM.
Xiaomi also has a long-standing relationship with Foxconn, which also announced its foray into the EV space.
Xiaomi has not revealed the price segment its EVs would cater to, but it will likely go after the mass market like with its smartphones.
China: Large Market Potential for EVs
China is one of the world’s largest EV markets. In 2020, the Chinese government imposed a mandate on automakers that at least 40% of their sales should be EVs by 2030. China has also been ahead in rolling out 5G. Close to two-thirds of the smartphones sold in China in February were 5G capable. The ultra-reliable and low-latency communication capability which 5G brings, would be suitable for the mission-critical applications like autonomous driving and connected cars. 5G will also be important in enhancing the overall digital experience of the driver. How fast the information is being transferred from sensors to car, from object to vehicle, or even from vehicle to vehicle, and how quickly it is being analyzed would be critical. This is where low latency of 5G can help. Further, 5G can help the AI in the car make faster and reliable decisions, thus enhancing user experience.
The government support, 5G availability and rising demand together make the EV segment a lucrative opportunity to bet on, and Xiaomi does not want to miss this.
Counterpoint’s Take
The EV market in China is booming, but also getting crowded. Tesla is setting early industry benchmarks, but challengers like NIO also have a head start and are gaining popularity. The first wave of growth is already underway. The market is only set to be more crowded in the future with other smartphone OEMs possibly following Xiaomi’s footsteps. Therefore, time-to-market will be crucial for Xiaomi’s success, and this is where landing the right partner will be important.
Looking at the bigger picture of Xiaomi’s IoT strategy, and its strengths in the hardware-based internet service business, we can find natural synergies with the smart automotive segment. Xiaomi has been able to build a successful business by democratizing the smartphone market by playing on lower margins and developing a software and ecosystem-based business model. It is aiming to do the same in the automotive segment as well.
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