Why Xiaomi dares to advance into EV market?

Chinese smartphone maker Xiaomi has formally entered the automotive industry with a new smart electric vehicle (EV) business, which plans to invest 10 billion yuan ($1.52 billion) in the wholly-owned subsidiary, with a total investment goal of $10 billion over the next ten years. And, Xiaomi CEO Lei Jun will also serve as CEO of the smart electric vehicle unit.

The news about Xiaomi's car manufacturing was once widely discussed in the industry in the past few months, and now behind a paper announcement, it can be seen that Xiaomi's full bet on the car manufacturing track.

In fact, the company's move into the EV industry follows similar steps by other tech giants like Baidu, Huawei, Geely, etc.

As early as January, Baidu aligned with Geely, registers an electric vehicle company named Jidu Auto. On March 2, the company was incorporated. The information shows that the registered capital of the company is RMB 2 billion, of which, Baidu's 100%-owned Dazi County Bai Ruixiang Venture Capital Management Co., Ltd. contributed RMB  1.1 billion, holding 55% of the shares, Shanghai Maple Automobile Co., a subsidiary of Geely Holding Group, has contributed RMB 900 million, holding 45% of the shares.

And Reuters also reported that beleaguered Chinese smartphone giant Huawei is currently in talks with state-owned automaker Changan Automobile and other companies to manufacture EVs. 

In addition, Apple has also long been planning an entry into the EV market, according to reports.

The tech giants seem to have a penchant for the EV market. The third force of the Chinese EV market is emerging.


The giants are scrambling to get into the EV sector

In the last hundred years of evolution, traditional car companies have carved their advantages like genes in the process, making people feel that car manufacturing is the set of manufacturing, it is difficult for laymen to enter.

Therefore, 10 years ago, the traditional car manufacturers thought Tesla to build electric cars was a pipe dream, was a joke of amateurs. And 5 years ago, the country was still skeptical of the new energy car manufacturing force.

But right now, the facts speak louder than words. The new trends "electrification, networking, intelligence, and sharing" led by autonomous driving are disrupting the traditional automotive industry. The new energy vehicle market in China has swept away the gloom of subsidies, sales began to recover rapidly. Foreign markets have not only improved carbon emission standards but also continued to increase subsidies for electric vehicles, which has led to a significant or even several-fold increase in sales of new energy vehicles in many countries for several months.

Some data show that for the whole year of 2020, the overall sales of China's car market declined by 2%, while the overall sales of new energy vehicles reached 1.367 million, an increase of 10.9% year-on-year, with a car market share of about 5.4%. According to the "New Energy Vehicle Industry Development Plan (2021-2035)", the sales of the new energy vehicle will account for about 25%, and the sales of the intelligent networking vehicle will account for 30% of the plan. The automotive market, which is over two trillion dollars in size, is attracting new third-party car-making forces consisting of technology and internet companies, becoming an important battleground for them to open up new growth space.

In the past, many people would feel that the automotive development process is rigorous and efficient, and there is a natural contradiction with Internet thinking. But in fact, it is not true, it mainly depends on whether the company will take advantage of its strengths and avoid its shortcomings.

First of all, the current Internet companies all choose to build an electric vehicle, which directly avoids some problems like traditional fuel car structure complex, harsh production process, with high technical barriers of the engine and transmission, will greatly reduce the threshold of car manufacturing. Batteries and drive motors are fully marketable products. CATL, as an independent battery supplier, can provide the most advanced battery pack products openly to all customers.

Secondly, whether it is a traditional car manufacturer or a new energy car company, the path of building a car is from 0 to 1, while the technology internet companies take the route of building a car from 0.5 to 1 when they take a joint traditional car manufacturer.

In the case of highly homogenized hardware such as batteries and drive motors, advanced electronic architecture and intelligent software levels are increasingly becoming the key to determining product quality.

Joint car manufacturing can not only quickly cut into the car production chain, but also allow Internet companies to focus on their core technical advantages in algorithms, information transmission, intelligent interconnection, etc.
At present, many Internet companies have some key software and hard integration capabilities that can be applied to smart cars, such as Huawei's chip, operating system, three electrical systems, LIDAR, etc.; Baidu's autonomous driving, high-precision maps, etc.; Xiaomi's voice system, etc.

These technology giants have accumulated supply chain resources of electronic companies in the past, which can be extended to the field of car making. The new business models and cutting-edge technologies brought by the Internet car-making forces are also bound to inject new vitality into the auto industry.


Xiaomi and Baidu enter the EV market

In fact, Xiaomi has been laid out in the automotive field.

According to Tianyancha, Xiaomi Group's foreign investment includes a number of car manufacturers, automotive after-market enterprises. Some media statistics say that from 2015 to 2020, Xiaomi's patents in the automotive field reached about 800, and at the same time increased the international patent layout.

However, for Xiaomi, which started with the smartphone business, the value of participating in car manufacturing may not lie in the car itself, but in the scene traffic. Because the car scene is a new generation of ecological aggregate that carries current Internet services such as information services, entertainment, and leisure, as well as links to future autonomous driving, and is also an entrance to compete for the next super traffic in the 5G era.

Take this traffic entrance is not only the need to expand the business map but also to link with its mobile products to feed the traffic. Therefore, Xiaomi's move is more inclined to the "experience" route.

Among the patents applied for in the automotive field, Xiaomi focuses more on improving the pain points in the current driving scenario from the perspective of user experience. For example, the "fatigue driving detection method and device" can improve driving safety, which can provide timely warning to drivers in a tired state; "control vehicle preheating method and device" can automatically control the vehicle to preheat before the user reaches the vehicle. This saves the user time and improves the user experience.

It is worth mentioning that the connection between cars and smart homes is a trend in the future. Xiaomi can use its huge smart home ecosystem to link the car to provide intelligent personalized services. For example, Xiaomi has now cooperated with WM Motor, users can control smart home devices in the car, those companies are bound to further their own ecosystem "transplant" to the car in the future.

As for whether Xiaomi will turn from a technology service provider to build their own cars, for now, in the case of autonomous driving technology does not take advantage, to be a good technology service provider seems to be more secure.

Although as a third-party car-making new force, Internet companies are far less profitable than traditional auto giants in terms of product sales and profitability, they are still highly anticipated by the capital market. 

On the contrary, Baidu needs a new growth point.

To some extent, the electric car is a pivotal part of the ecological chain, so it is a strategic decision for Baidu to enter the car-making business.

Over the years, Baidu has been vigorously developing unmanned vehicle technology cars, and its open platform for autonomous driving has cooperated with dozens of car companies at home and abroad. Xia Yiping, CEO of Baidu's car-making company (Jidu Auto), once said, "The same reason others hope to popularize electric cars, we hope to popularize driverless technology."

The brand is just like its name, from the very beginning of the company, it has been fully escorted by Baidu's technology matrix, such as Baidu Map, artificial intelligence, Apollo autonomous driving, plus Baidu's advantages in data, software, user ecology, and other soft power, so it will obviously take the "technology school" route in the future.

Baidu's Apollo platform's accumulation in autonomous driving has given it a lot of appeal in the industry, and its share price rose sharply after the announcement.


Opportunity, but also risk

As mentioned above, from the perspective of the current market environment and national policy guidance, the intelligent networking and digital scenario have very high market prospects in the automotive industry, and the entry of Internet technology companies is definitely profitable.

In addition, the industry's disruptive innovation is often opened by crossover giants outside the industry, where technology crossover exists. Technology companies building cars as the third new force in car manufacturing are indeed expected to become the leading force in accelerating car intelligence and iteration.

But the automotive industry from product manufacturing to the promotion and sale of the industry chain is complex and long, it requires heavy asset investment in order to completely independent car manufacturing. Following the "OEM" model of Baidu and Alibaba, choosing a vehicle manufacturer with production capacity can indeed save time and cost to a certain extent, but the Internet companies and traditional car-making enterprises themselves have differences in the development of ideas and innovative ideas, inevitably resulting in friction.

Even if the integration is smooth, burning money and mass production is still a topic that can't be avoided in the car-making industry.

It is reported that Xiaomi is now vigorously promoting the construction of offline channels, and OPPO, Vivo, and others competing to seize and tamp the market share vacated by Huawei.

In this case, if the new business of building cars is costly, the financial pressure on Xiaomi, which needs to fight on two or more fronts, will increase exponentially.

What's more, NIO, Li Auto, Xpeng, and other car-making new forces already have a place in the industry, "OEM" mode on Alibaba, Huawei, and Baidu has grabbed a step, therefore, to stand out, there must be quite hardcore strength and differentiated supply.

In the future of the automotive market, the core competitiveness of the product will most likely fall on the competition of the car's self-driving capabilities. This is why it is worth looking forward to Baidu's next car manufacturing, and it is more secure for Xiaomi to do technical service providers.

Previously, Baidu has a chip, cloud computing, the strongest AI technology, ACE intelligent traffic engine, Apollo autonomous driving, and high precision map, which already have the necessary soft power to build a good car, now the joint traditional car manufacturers to build a car is a matter of water.

For traditional car companies like Geely, cooperation with technology companies can enhance their advantages in digitalization and intelligence, which is win-win cooperation and complementary advantages.

For Baidu, the biggest significance of the current set of cars is not to cut into the car industry to do a sales of the king of the car companies but to have a platform to allow their technologies like self-driving, car networking, artificial intelligence, intelligent interaction can be shown and realized, and to complete the technology iteration.

But it is important to note that if not manufacturing production vehicles, then the commercialization of AI tools, including Baidu Apollo, is still very limited.

Previously, Baidu wanted to intervene in the promotion of the Apollo self-driving open platform by taking a stake in the new carmaker, but because of the incompatibility with the independent research and development and control spirit of new energy car companies, the investment in NIO and Li Auto both failed, and finally, Baidu had to choose the smaller WM Motor.

In short, there is no doubt about the ability of technology to change the automotive industry, but the automotive industry chain is much longer than that of Internet technology companies, requiring more time and patience. Technology Internet companies want to successfully cross the border in the automotive industry and stand firm, still need more resources to support and time test.

This is an article from WeChat official accounts Xinzhainews (ID: xinzhainews), translated by Chris Yuan.