Chelsea_SunChelsea_Sun ・ Mar. 29, 2024
Xiaomi Has Deep Pockets to Compete in EV Market in Next Five Years
The software engineer-turned-entrepreneur acknowledged that they will lose money for producing and selling new SU7 cars.

(AsianFin)— Lei Jun, the founder and CEO of Xiaomi Corporation, revealed on Thursday that his company has abundant cash reserves in the war chest for a cut-throat electric vehicle competition in the next five years. 

"A price war is not even on my radar. Xiaomi has ample cash reserves to tackle any fierce competition in the auto industry over the next five years," said Lei during a press conference after Xiaomi launched its first electric vehicle on Thursday.

According to Xiaomi's latest financial report, as of December 31, 2023, Xiaomi's cash reserves reached 136.3 billion yuan, setting a new record high. In 2023, Xiaomi spent 6.7 billion yuan on innovative businesses, mainly focusing on automobiles. Additionally, stock-based employee compensations related to the automotive business amounted to 800 million yuan. In 2022, Xiaomi disclosed that it had invested 3.1 billion yuan in innovative businesses such as smart electric vehicles.

He also talked about the pricing of the new EVs. "The pricing of Xiaomi cars has become a nationwide discussion. Even we were at a loss, unsure of what price would be reasonable,” he said.

Initially, the standard version of SU7 was priced internally at 229,000 yuan, and the top-of-the-line version at 350,000 yuan. However, the software engineer-turned-entrepreneur ultimately decided to lower the prices further to show genuine sincerity to Xiaomi's loyal users.

"The breakeven point for Tesla Model 3 is 223,000 yuan. Xiaomi SU7's pricing is definitely at a loss,” he admitted.

Since its venturing in the auto industry, Xiaomi has embraced a "go big or go home" mentality, he said.

Few industries have witnessed a price war as intense as the mobile phone sector, Lei noted. Three years ago, when Xiaomi made the decision to foray into the automotive, it began amassing cash reserves. Over the course of the last three years, Xiaomi has accumulated 30 billion yuan (US$ 4.15 billion) in cash reserves, with the probability of continued accumulation in the future.

Despite the crowdedness of 300 to 400 companies in the new energy vehicle market, Lei pointed out that ultimately only five to eight companies will survive.

According to data disclosed by Xiaomi, within four minutes of opening pre-orders for the Xiaomi SU7, over 10,000 units were booked by customers who had already paid deposits and expressed high purchasing intentions. Within 27 minutes of its launch, pre-orders reached 50,000 units.

"Apple spent ten years developing a car, facing countless challenges along the way, only to eventually abandon the project. But I will never give up," he told reporters. He also emphasized Xiaomi's strategic focus on the holistic ecosystem of people, vehicles, and homes.

Xiaomi aims to become one of the top five global automakers within 15 to 20 years, signaling that this journey has only just begun.

 

The following Q & A has been edited for brevity and clarity:

QRecently, many new energy vehicle companies have been cutting prices. What do you think is the reason behind this? With Xiaomi's unveiling of the SU7 car today, what do you think Xiaomi's competitive advantages are, and do you anticipate consumer confidence in the product? Additionally, do you foresee Xiaomi engaging in any future price war in the automotive industry?

LEI: We'll gauge consumer response within the next 24 hours. During the launch event's initial minute, my colleagues informed me that 100,000 individuals added the Xiaomi SU7 to their wish list. However, assessing actual purchases will require time. Yet, I'm confident in users' enthusiasm and Xiaomi's sincerity. The current market is fiercely competitive, marking the onset of a selection process.

With 13 years of experience in the smartphone industry, Xiaomi has understood its cutthroat nature. While a price war is a form of competition, product performance in technology and ecosystem holds greater importance. Xiaomi excels in intelligence and ecosystem, offering aesthetically pleasing vehicles that deliver an exceptional driving experience. Few rivals match our offerings in the sub-500,000 yuan category. I'm highly content with this car and believe car enthusiasts will share my sentiment.

QWe've observed that every Xiaomi car prominently displays the label "Beijing Xiaomi." Can you elaborate on the support and assistance you believe the Beijing municipal government has offered in the development of Beijing Xiaomi's vehicles?

LEI: Reflecting on the past three years of venturing into the automotive industry, I've come to recognize Beijing as a hub for entrepreneurship and innovation. Over the span of 14 years, it has fostered the growth of Xiaomi and numerous other pioneering enterprises, including Xiaomi Automobile. Without the invaluable support from the Beijing municipal government and the Yizhuang area, achieving such milestones within a mere three years would have been unimaginable. This endeavor is a highly intricate undertaking, akin to systems engineering, and I firmly believe that the Beijing government has played a pivotal role in its success.

As for the Xiaomi car factory, while Xiaomi has predominantly relied on OEM production in the past, I urge against underestimating the involvement and expertise of OEM manufacturers in the manufacturing process. We established an experimental factory in 2020, and earlier this year, Xiaomi's unmanned mobile phone factory was completed. This marks our second large-scale factory, and while it may not be deemed the most cutting-edge globally, it undeniably ranks among the forefront of technological advancement.

QHow do you think we should boost the consumption of connected new energy vehicles and other major consumer goods?

LEI: I believe the government should play a significant role, particularly in enhancing the infrastructure and quality standards of charging stations, along with improving charging efficiency. Initially, subsidizing the public charging network may be necessary to alleviate consumers' concerns about adopting pure electric vehicles. While our standard model boasts a range of 700 kilometers, in reality, it typically covers about 500 kilometers on highways.

Investing in high-powered, fast-charging, and reliable charging infrastructure can address consumers' worries about embracing pure electric vehicles. This not only promotes environmental sustainability but also stimulates consumption. Transitioning to smart electric vehicles not only enhances environmental sustainability but also elevates the overall driving experience. I strongly encourage individuals around the age of 30 to explore this option. China's advancements in pure electric vehicles and smart technology are remarkable, and those still adhering to traditional brands like Mercedes-Benz, B MW and Audi may not fully enjoy the advancements of this era.

QPresently, there's a rapid pace in the advancement of various large-scale artificial intelligence models. You've also mentioned that Xiaomi intends to incorporate its large AI model of XiaoAi Assistant into Xiaomi cars. What is your perspective of this form of artificial intelligence technology? Furthermore, in the face of this technological  revolution, how does Xiaomi plan to capitalize on the opportunities presented in this domain?

LEI: Since Xiaomi introduced the "All in AI" strategy back in 2016, we've established an AI lab and launched XiaoAi Assistant. Last year, we upgraded our technology strategy, with AI integration becoming a central focus across all our business operations. In the automotive sector, the application of large-scale AI models is incredibly extensive. For instance, by leveraging the capabilities of XiaoAi Assistant's large model alongside in-car sensors, we can enable more intelligent functions.

While some may perceive the inclusion of a large model in a car as a mere gimmick, our automated parking system utilizes an end-to-end perception decision model, significantly enhancing recognition accuracy to within 5 centimeters. Consequently, the vehicle can effortlessly navigate and park in extremely tight spaces that would pose a challenge for human drivers.

The impact of large-scale models is profound, with autonomous driving poised for disruptive transformations in the future. Successful implementation of smart driving necessitates substantial investment to keep pace with technological advancements. Notably, companies like Huawei, NIO, XPeng, and Li Auto are heavily investing in intelligent driving technologies. This puts considerable financial and transformational pressure on traditional automotive manufacturers.

Therefore, the determination and investment in intelligence by both tech companies and emerging automotive players are evident. In conclusion, I firmly believe that AI will prove its value across every facet of the automotive industry in the years to come.

QApple recently shelved its plans for producing cars, while Huawei has consistently emphasized its decision not to engage in car manufacturing but rather collaborate with existing automakers. Despite being a smartphone manufacturer, Xiaomi has ventured into the automotive industry and opted to introduce the SU7 model at this juncture. What is your perspective on Xiaomi's foray into the automotive sector?

LEI: Xiaomi's approach revolves around a comprehensive ecosystem encompassing individuals, automobiles, and residences; it's essentially a unified concept applied diversely across various scenarios. Consider, isn't a car essentially a mobile living space? It epitomizes the integration of smart home technology. Following the enhancement of our corporate strategy last year, automobiles have emerged as a pivotal component of our overarching strategy.

Regarding Apple's decision to abandon car manufacturing, I've been questioned about it numerous times. I can empathize with Apple; they invested a decade and encountered numerous obstacles. However, if it were up to me, I wouldn't forgo car production. It's a strategic imperative that cannot be overlooked. Naturally, now that they've opted out, I feel somewhat relieved, as it eliminates one potential competitor. Xiaomi vehicles are compatible with the Apple ecosystem, and given the substantial number of Apple users in China, they represent a significant target demographic for Xiaomi cars.

QAs a prominent company rooted in Beijing, Xiaomi bears significant expectations from the city to bolster comprehensive, high-quality intelligent development and spur overall economic growth. With the inauguration of the super factory, could you elaborate on Xiaomi's strategies and deliberations regarding the advancement and enhancement of Beijing's new energy and intelligent manufacturing industry chains?

Lei Jun: We deeply appreciate the steadfast support from the Beijing municipal government. Through our investments in cutting-edge facilities like the smartphone factory in Changping and the automobile factory in Yizhuang, both embodying modernity and significant capital infusion, we aim to spearhead the advancement of intelligent manufacturing in Beijing.

Consider the automotive sector as an illustration. Given that car factories typically stimulate the development of a network of suppliers within a 50-kilometer radius, our presence will catalyze the clustering of parts manufacturers around the Xiaomi car factory. Situated adjacent to Mercedes-Benz, our strategic location enables us to leverage shared suppliers. Notably, two-thirds of Xiaomi car's suppliers also serve as suppliers for esteemed brands like BMW, Benz, and Audi. As Xiaomi cars gain traction, we anticipate a proliferation of suppliers gravitating towards the vicinity. Hence, we aspire to foster collaboration among Beijing's four automotive giants—Mercedes-Benz, BAIC, Li Auto, and Xiaomi—to collectively propel the evolution of intelligent manufacturing in the city. Regardless of individual growth trajectories, the burgeoning ecosystem of surrounding parts and the industrial chain will evolve, yielding mutual benefits for all stakeholders, including Xiaomi.

QWhat do you think is the ultimate form of the full ecosystem interconnection between cars, humans, and homes?

LEI: Looking at cars from a holistic perspective, we can see that their ultimate evolution should include both driving and parking scenarios. In my view, the parking scenario represents a space imbued with comprehensive smart capabilities, akin to a fully equipped smart home. This implies that every aspect, akin to standard room decor, should feature intelligent functionalities. Therefore, I envision the future of automobiles as entirely smart, with seamless integration from the chip level to the underlying operating system, ensuring a consistent experience whether inside the vehicle or at home.

We have been delving into the disparities between automotive and consumer electronics standards, striving to elevate consumer electronics quality to automotive standards. This way, the same product can seamlessly transition between different environments. Many of the ecosystem products we introduced today embody this versatility. For instance, our fragrance dispenser is designed for both home and car use. We are exploring ways to make products universally adaptable across various settings. With Xiaomi's robust ecosystem capabilities, including the production of notebooks, tablets, and plans for air conditioners, refrigerators, and washing machines, we are confident that our native ecosystem expertise will gradually extend to the automotive sector, serving as our primary competitive advantage.

QBased on the most recent financial report, Xiaomi's cash reserve stands at an impressive 136.3 billion. I'm curious to understand how much of this substantial reserve has been allocated to navigate the anticipated price war in the automotive market. Additionally, considering Xiaomi's investments in AI, chips, and large-scale models, could you provide insights into the strategic allocation of capital in these areas going forward?

LEI: Last year, our R&D investment amounted to 19.1 billion yuan, and this year, we're set to increase it to 24 billion yuan. At this pace, our 130 billion yuan reserve should sustain us for the next five years, alleviating any concerns in this regard. When Xiaomi embarked on its car-making journey three years ago, we made a firm commitment to bolster our cash reserves to confront any forthcoming challenges over the subsequent five years. Through diligent accumulation, Xiaomi's cash reserves have surged by 30 billion yuan in the past three years. If necessary, we are prepared to further augment our reserves to ensure ample capacity.

Our ambition to rank among the world's top five car manufacturers within 15 to 20 years signifies a long and arduous journey that has only just commenced. Moreover, I firmly believe that few industries witness fiercer price wars than the mobile phone sector. We have evolved from humble beginnings to become adept at navigating such battles, so why should we shrink from them in the automotive industry?

From the outset, we recognized this venture as a formidable challenge. Despite the proliferation of three to four hundred companies venturing into new energy vehicles, history tells us that only a handful, between 5 to 8, will endure. Hence, from day one of Xiaomi's foray into the automotive realm, we embraced a do-or-die mindset, prioritizing core technologies and infusing tenfold effort into every facet of our operations.

I harbor reservations about the common practice of launching dozens of cars annually, some of which fade into obscurity. Tesla, for instance, has introduced a modest "two and a half" models in two decades — the Model 3, half a Model Y, and the Cybertruck — yet achieved substantial success, selling 1.8 million cars last year alone. Therefore, my philosophy revolves around focus and concentration, channeling all our resources towards a singular point to ensure the excellence of our product.

QThe pricing of Xiaomi cars has always been a focus of attention. Could you elaborate on the internal factors and considerations that influence the final pricing decisions?

LEI: The pricing strategy for Xiaomi cars has consistently captured significant attention. In late December, we hosted a technical conference dedicated to our cars. Just three months later, we launched the product, a notably swift timeline compared to industry standards. While some have misconstrued this efficiency as hesitancy or reluctance to disclose pricing, such claims are merely fabrications propagated by certain manufacturers.

QWhat is the real sticking point within Xiaomi when it comes to pricing?

LEI:The Xiaomi SU7 boasts a configuration surpassing that of the Model 3, not because I possess superior capabilities to Elon Musk, but because we've invested in achieving it. While Tesla's Model 3 reaches break-even at 223,000 yuan, I acknowledge that the Xiaomi SU7 will incur losses. However, determining the extent of these losses poses a challenge. We initially contemplated a price of 239,000 yuan but found ourselves entangled in a nationwide pricing debate, leaving us uncertain about a reasonable price point.

Conversations persisted late into the evening, with the idea of pricing the SU7 30,000 yuan below Tesla's Model 3 emerging as a potential solution. While entertaining the notion of positioning a car outside Tesla's store for comparison, we ultimately dismissed the idea. Instead, we opted to show respect by undercutting the global benchmark Model 3 by 30,000 yuan. The top configuration, initially priced at 350,000 yuan, was adjusted downward due to anticipated production constraints in the first year. We believe in the SU7's excellence and are confident that consumers will recognize its value and make decisive purchases.

QWhat has been the most daunting challenge you've encountered or the instance where you almost threw in the towel over these past three years? In contrast to your announcement of entering the automotive industry three years ago, what fresh perspectives have you gained regarding car manufacturing?

LEI: The most challenging moment for me came after we unveiled our plans for car manufacturing in 2021. We dedicated a year to design work and produced two prototypes. However, during discussions, concerns arose about whether users would embrace a design that was too avant-garde. Consequently, we made the tough decision to start afresh, significantly tightening our timeline in the process.

We shifted our design approach to one that would endure the test of time, recognizing that failure was not an option for our inaugural car. By early 2022, we had finalized a completely new design. Throughout this intense period, my design team and I held daily video meetings at 8 o'clock every morning, even on weekends. I personally participated in every detail discussion, ensuring we progressed swiftly.

I am immensely thankful for the overwhelmingly positive feedback we have received thus far. Our aim was to create a vehicle that not only looks appealing but also convinces everyone of its worthiness. I deeply appreciate our designers; they are among the world's finest, and our entire design team comprises top talent in the country. Their dedication shines through in every color choice and intricate detail, inspiring me profoundly.

(1 yuan equals US$ 0.14)

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