The smartphone maker Xiaomi has finally confirmed plans to spend 10 billion dollars building smart cars over the next 10 years.
Photo from CFP
By WU Yangyu, XU Shiqi
It’s finally happening. After more than a month of nail-biting speculation, on March 30, smartphone maker Xiaomi officially confirmed that it will make cars. In a speech to stakeholders, founder and CEO LEI Jun, spoke of his plans for Xiaomi’s ten-billion-dollar smart car endeavor. He will lead the ten-year project, with US$1.5 billion (10 billion yuan) earmarked for its first phase.
Lei, himself an investor in the EV industry, is well aware of the risks that lie on the road ahead. He described the new endeavor as the fight of his life, and if successful, the crown jewel of his thirty-year entrepreneurial career. His track record is reassuring, but making cars takes more than “courage, commitment and toil.” In the crowded and costly EV arena, success is not guaranteed even with money, technology, or timing.
Lei, 52, said the Xiaomi smart car will be his “final endeavor.” His track record is nothing but dazzling. He joined Kingsoft in 1992, became CEO six years later, and took the company public in 2007. During this time, he masterminded Joyo.com, an e-commerce platform later acquired by Amazon. After resigning from Kingsoft in 2007 – he rejoined the company in 2011 – Lei turned to angel investing and is behind Vancl.com (e-commerce) and UCweb (mobile internet services). Then in 2010, he founded Xiaomi, which last year became the world’s third-largest smartphone maker after Apple and Samsung.
Better still, Lei is no stranger to the EV industry. Shunwei Capital, which he founded, was among the earliest investors in Nio and XPeng, both successful EV startups that have since gone public. Over the past ten years, Xiaomi has directly and indirectly invested in no less than a dozen transportation-related ventures, including car software, car devices, navigation, and even e-scooters. Xiaomi has been flirting with actual automaking for years without making any serious long-term commitment.
Lei said the final plan is the result of “excruciatingly extensive research.” According to the plans unveiled this week, the project will operate as a wholly-owned subsidiary and will have access to the company’s 108 billion yuan (US$16.5 billion) cash reserve and ten thousand strong R&D force.
Smartphone makers seem to have a penchant for automaking. Apple has been working on smart cars since 2013. Like Apple, Xiaomi has proved itself in both hardware and communication technology, particularly 5G, so building smart cars is a natural next step. Smart cars may eventually become an integral part of the company’s IoT (internet of things) business.
The beautiful vision though, will be a sinkhole of money. Xiaomi has put up US$10 billion dollars, more than enough if compared to other EV makers’ pre-IPO fundraising. Nio raised only US$2.3 billion before it went public. XPeng and Lixiang raised similar amounts.
But cautionary tales abound. Byton, once hailed as the next Nio, burned through US$1.2 billion in three years only to run out of cash. Vacuum maker Dyson’s smart car ambition sucked up tens of billions before it was abandoned. Even Tesla, the undisputable champion, didn’t start mass production until 2010, seven years after its founding, and only turned a profit for the first time last year. In the interim, US$200 billion has been thrown at R&D and manufacturing.
Granted, it may not take seven years for Xiaomi to produce its first vehicle. The EV supply chain is in far better shape than in Tesla’s early years. Xiaomi is expected to sub out manufacturing to traditional automakers, much as Baidu and Apple have done.
It’s no longer a hard sell, convincing drivers to ditch internal combustion engines, but no one expects Xiaomi’s project to be cheap and easy. R&D is not cheap: technology is the core of any EV maker. Extrapolating from other company’s experiences, the 10 billion yuan pledged for the initial phase will last no longer than three years.
Cash burn aside, first-mover advantage has vanished up the road. Tesla has a cult-like following. Nio and XPeng, both founded in 2014, have a fast-growing fan base. Xiaomi can learn a lot from these predecessors’ experiences. Successful EV manufacturers deliver their first mass-production models three to five years after they are founded, then new models are rolled out every couple of years. Lei may lose some sleep over the fact that his competitors are churning out new models of cars as fast as he comes up with new models of smartphones.
More worryingly, other hopeful monsters are laying siege to the arena with Apple and Baidu yet to show their hands. Baidu’s self-driving technology is already well advanced and has outperformed almost all competitors. So, Xiaomi has a long way to go to catch up. Even compared to Apple and Baidu, it lags far behind in patented technology.
Lei said that in moments of self-doubt, he worried that Xiaomi is too late to the game, even as China’s EV market is expected to grow at 36 percent a year until 2025.
Xiaomi is in a much better position than it would have been five or ten years. Its smartphone will power the smart car project, and the capital market has received the announcement warmly.
Courage, commitment and toil? Maybe. Some luck? Absolutely. In the demolition derby of car making, even a tiny scratch in the paintwork can let the rust in. The road to automaking success is strewn with burnt-out wrecks.