SHANGHAI – Xiaomi Corp., a major Chinese smartphone maker, went public this week with bold plans to develop intelligent electric vehicles.
The announcement came as no surprise. A late entrant to the EV sector, Xiaomi has the potential to develop into a force that few other players could ignore.
As a computer software engineer, Xiaomi’s co-founder and CEO, Lei Jun, displayed keen interest in connected EVs early on. He visited Tesla’s Elon Musk twice in 2013 and his private equity firm has invested in domestic EV startups Nio and Xpeng.
After extensive market research over the past few months, Xiaomi’s board decided to move forward into the EV market, Lei said Tuesday when unveiling the company’s new smartphone.
He will directly lead Xiaomi’s EV unit and “this will be the last startup project in my career,” Lei, 52, said at the event.
The strong commitment Lei and Xiaomi have demonstrated to EV development is in stark contrast with many Chinese automakers who were lured into the market around 2014 by generous government subsidies.
It has also set Xiaomi apart from two domestic real estate developers, China Evergrande Group and Baoneng Investment Group, who intend to leverage EV projects to obtain additional cheap land from local governments for their core business -- real estate development.
Xiaomi is rich, with plenty of cash, a clear advantage over other EV startups in China.
Lei also said Tuesday that the company, which amassed 108 billion yuan ($16 billion) in cash as of the end of 2020, is prepared to plow $10 billion into the EV project.
Tight cash supply is a perennial headache for most EV startups wherever they are.
Last year alone, Byton and Bordrin and several other EV startups in China went belly up after running out of cash.
Nio, the largest Chinese EV startup by sales, ran into the same problem. In late 2019, it alerted investors about a possible cash flow disruption. The Hefei government in east China’s Anhui province came to its rescue with an investment of 7 billion yuan.
Now that it is diversifying into the EV sector, Xiaomi also has something invaluable that no other EV makers has: High brand recognition cultivated among young Chinese consumers thanks to its thriving smartphone business.
Xiaomi became the world’s third-largest smartphone maker last year following Samsung and Apple, with shipments rising nearly 18 percent from a year earlier to top 146 million, according to its financial report.
In the fourth quarter of last year, it surpassed Huawei to become the largest smartphone supplier in China with a market share approaching 15 percent.
In China, the main buyers of Xiaomi’s smartphones, priced at 3,000 yuan and above, are aged 18 to 24.
Its base of smartphone customers largely overlaps with the young Chinese age group that is most inclined to purchase EVs marketed under domestic brands.
According to a new-vehicle purchase intention study released last month by J.D. Power, more than 60 percent of consumers in the post-1995 generation – those born between 1995 and 1999 -- tend to buy domestic brands and nearly a quarter buy electrified vehicles, the highest among all age groups.
That means as long as it can develop the right products, Xiaomi stands a good chance of converting a large number of its smartphone owners into EV customers.
That is bad news for other EV makers, whether established or ambitious startups.