Recently, there are rumors in the industry that Xiaomi Auto's Yizhuang factory has been in trial production for nearly a month, can produce 50 prototypes per week, and is making final preparations for the mass production of its first new energy vehicle.
At a previous performance exchange meeting, Xiaomi Group President Lu Weibing revealed that Xiaomi Motors has ended its summer testing and is progressing very smoothly, with a clear goal of mass production in the first half of 2024. At the same time, Jiemian News also pointed out that Xiaomi Motors received approval from the Ministry of Industry and Information Technology in the past two months, and it could be approved by the end of the year at the latest.
After long calls, Xiaomi's "dream of building a car" has finally reached the final step. So. Breaking into the world of new energy vehicles, can Xiaomi perform the script of overtaking in corners and become a "dark horse"?
Cross-border car manufacturing ebbs
The new energy vehicle industry in 2023 will be a world of ice and fire.
On the one hand, the new energy vehicle market has shown signs of rising month by month in the first half of this year, and the overall market performance remains relatively stable.
Not long ago, Cui Dongshu, secretary-general of the Passenger Car Association, wrote that sales of new energy passenger vehicles from January to July this year were 7 million units, a year-on-year increase of 45%. At the same time, the Passenger Car Association also predicts that China's new energy passenger vehicle sales will reach 8.5 million units in 2023, and the annual new energy vehicle penetration rate is expected to reach 36%.
On the other hand, as Tesla announced price cuts, car companies followed suit one after another, setting off a continuous wave of price cuts. This directly results in the overall profit margin of the industry being at a low level and increasing operating pressure on car companies.
In the context of "involution", the enthusiasm of the originally ambitious Internet companies to build cars themselves seems to have gradually cooled down.
Baidu's Jidu Auto officially changed its name to Jiyue, Didi transferred its smart car development business to Xpeng Motors for a total price of HK$5.835 billion (US$744 million), and Huawei has repeatedly emphasized that it will not stop building cars and is still insisting on independence. There are only a few major car manufacturers left.
Quad level
This change is actually not difficult to foresee. In addition to the intensifying competition in the industry and the end of the novice protection period, the threshold for cross-border car manufacturing itself is not low and may not be in line with the long-term strategies of all major technology companies.
Major Internet manufacturers face four major challenges in building cars:
One is the technical difficulty. The automobile is a highly complex system engineering involving technologies in multiple fields such as engine, gearbox, chassis, body, electronics and electrical appliances. Although technology companies have certain advantages in aspects such as intelligence and connectivity, to achieve basic requirements such as electrification, safety, and comfort of automobiles, they still need to master and break through the core technologies of traditional automobiles.
As the largest mobile travel platform in China, Didi once cooperated with BYD to launch the D1 electric car customized for online ride-hailing, and reached a strategic cooperation agreement with Xpeng Motors. However, Didi's journey in the field of vehicle manufacturing has not been smooth. It has tried many times to cooperate with OEMs and enter the field of vehicle manufacturing, but in the end it almost failed to make substantial progress.
The reason is that the technology overlap between car manufacturing and Didi's main business, namely travel services, is low, requiring too much resources and energy to be invested in research and development, which may not necessarily be in line with Didi's long-term strategic plan.
The second is the input-output ratio. Car manufacturing is a high-investment, high-risk, low-return industry that requires a large amount of capital to invest in research and development, production, sales and service. Although major Internet companies have strong financial strength, they are not unlimited. Building a car requires patience and long-term investment, and you cannot expect to recover costs and make profits in the short term.
Baidu has a leading advantage in autonomous driving technology. Its Apollo platform has launched Robotaxi services in many cities and has reached cooperation with Geely and other car companies. However, in the current market environment, most new car-making forces are also facing profitability problems and huge financial pressure. Transforming into a technology provider shows that Baidu may prefer to focus on its core strength, namely artificial intelligence technology, rather than getting involved in vehicle manufacturing.
Baidu Apollo’s “Luobo Kuaipao” launches fully unmanned self-driving travel service in Wuhan
The third is supply chain integration. A car is a product composed of tens of thousands of parts. It is necessary to establish a stable and efficient supply chain system to ensure the quality, quantity and timeliness of parts. Technology companies have crossed over to become a new force in car manufacturing. They lack the cooperation experience and trust foundation with traditional auto parts suppliers, and may encounter supply chain instability and uncontrollable risks.
Apple’s strength in the consumer electronics industry chain is self-evident, but internal disputes, brain drain, failed cooperation, etc. all show that creating a product that can subvert the industry and define smart cars requires the strength of one company alone. Too difficult. Therefore, Apple may still be looking for the best solutions and partners.
Fourth is the issue of qualifications. The required qualifications for producing and selling new energy vehicles, such as the license qualification from the National Development and Reform Commission and the approval qualification from the Ministry of Industry and Information Technology, are indispensable. As the "newbie period" of the industry ends, it is becoming increasingly difficult for latecomers to obtain qualifications. For example, Baidu gave up on independent car manufacturing because it might not be able to determine its qualifications for car manufacturing.
In short, looking at the cross-industry giants, although their strategic thinking and market positioning are different, the challenges from capital, technology, talent, supply chain, partners, market demand, etc. are generally similar.
So where does Xiaomi’s confidence in building cars come from?
Invest in hardware and make money through software?
Compared with other major Internet companies, consumer electronics giants such as Xiaomi and Apple still have advantages in the basics of the industrial chain.
For example, in terms of hardware, Xiaomi has a flexible supply chain management and marketing strategy. Xiaomi adopts the OEM model in supply chain management, reducing its own investment and risks. In terms of software, Xiaomi has its own operating system MIUI, artificial intelligence platform Xiaoai, and Internet of Things platform MIoT, etc., which can provide intelligent and connected solutions for cars.
The most important thing is that in the automotive industry chain, Xiaomi can invest and integrate many suppliers through Xiaomi Group, Shunwei Capital, Xiaomi Industrial Investment, Xiaomi Yangtze River Industry Fund and other institutions to establish a complete smart car industry ecosystem.
Xiaomi's successful layout in the upstream and downstream of the automobile industry chain is inseparable from the accumulation of China's automobile industry. From January to July 2023, China's new energy passenger vehicle sales were 4.42 million units, accounting for 61% of the world's new energy vehicles.
Today, China's automobile supply chain covers all aspects from raw materials to complete vehicles, and can provide stable and efficient supporting services for Xiaomi's car manufacturing. Including the "core shortage" problem, the domestic supply chain can also meet most needs.
In short, based on China's automobile supply chain, the hardware problems of car manufacturing can be solved. The main issue Xiaomi needs to think about is how to make profits.
Making cars "burns money" and the problem of losses is always the first difficulty facing new car-making forces.
As the first echelon, except Ideal due to good sales in the first half of this year, the other companies are under great operating pressure. Evergrande Motors, which came from across the industry, lost 84 billion yuan in two years. It once became a hot topic of discussion.
Behind the difficulty of making profits is the current industry situation of "expensive power shortage of cores". Issues such as tight supply and rising costs of core components such as chips and batteries have affected the stability of the supply chain.
As we all know, in the smartphone business, Xiaomi's hardware profits have never been high. Lei Jun, founder and chairman of Xiaomi Group, has promised that the profit margin of mobile phones will not exceed 5%. Therefore, Xiaomi’s approach is very Internet-based – “selling hardware and making money through software.”
However, it is difficult to say whether this logic will work in the field of smart cars.
Cars are a high-value, long-cycle product, while mobile phones are low-value, high-frequency, short-cycle products. Users have stronger demand and motivation for mobile phone upgrades, and are more likely to accept software subscriptions and payments. For cars, users' habit of paying for hardware is more deeply ingrained, and the mentality of consuming software products still needs to be cultivated.
Whether Xiaomi can build competitive electric vehicles through ecological and software services under the trend of intelligent networking remains to be explored and verified.
Conclusion
In any case, judging from the integration of the industrial chain and the financial situation, Xiaomi is ready for the mass production of electric vehicles.
On August 29, at the performance exchange meeting, Xiaomi Group President Lu Weibing said that Xiaomi is pursuing the goal of entering the top five in the world in the long-term layout of automobiles, doing full-stack self-research, and building its own automobile factory, so the cash The investment in streaming is even higher than the disclosed figures. As of June 30, 2023, Xiaomi Group’s total cash resources reached 113.2 billion yuan.
At the same time, so many years of brand operation for smartphones and smart homes have laid the foundation for Xiaomi’s brand influence and user thinking. The brand's existing ecological chain and user base are highly overlapped with smart cars. The first electric car is positioned as "the ultimate coupe for young people" and can give full play to the user advantages of Xiaomi's ecology.
However, after truly entering the new energy vehicle track, Xiaomi must find a win-win path for sales and profits in order to continue running in the industry's "protracted war" and wait for opportunities to overtake.
Source: Hong Kong Stock Research Institute