Xiaomi is reluctant to build cars, and the fact that the “diaosi” group cannot afford them is not the only reason

Faced with the unprecedented change in electric vehicles, Xiaomi seems to be determined. Regarding the rumors on the Internet that Xiaomi is making cars, the deputy director of the Xiaomi Group General Office said: "Just grasp one principle: any news that Xiaomi is going to make cars is fake news."

Mature companies must be determined to stick to their business and not be fickle. However, from a broader industry perspective, it is somewhat unusual for Xiaomi to avoid new energy vehicles, the largest consumer category after smartphones. Why is Xiaomi unwilling to be a dragon slayer anymore?

Outsiders in the electric vehicle industry

Although Xiaomi's global smartphone shipments surged 45% in the third quarter of 2020, returning to the third place in the world, from a broader industry perspective, the smartphone market has inevitably become "notebook-ized."

IDC data shows that in the third quarter of 2020, global smartphone shipments were 348 million units, down 1% year-on-year, continuing the downward trend since 2017. Considering the extremely severe problems of homogeneity and price wars in the current smartphone industry, many industry analysts believe that this is just a precursor to the decline of smartphones.

Image source: IDC data

Based on this, smartphone manufacturers and mobile Internet content operators have begun looking for the next smart terminal outlet similar to the time when smartphones replaced PCs.

Although the industry has given many possible answers, from the perspective of the secondary market, smart cars are undoubtedly the most promising future. Take Tesla as an example, its market value has increased nearly eightfold in one year, and its current market value has exceeded $600 billion, which is higher than the total market value of the nine traditional automakers.

The data from the "2020 China Intelligent Connected Vehicle Market Development Trend Report" released by IHS Markit also shows that in 2020, the penetration rate of smart cars in the global automotive market is only 45%, and it is expected that this figure will increase to 60% in 2025. Due to the vigorous promotion of the Chinese government, it is expected that the penetration rate of smart cars in the Chinese market will reach 75% in 2025. This also means that China will become the world's largest smart car market by then.

Image source: IHS Markit

Although the main business of smartphone manufacturers is not closely related to smart cars, from a historical perspective, how many of the leading companies in today's smartphone industry have been engaged in the mobile phone industry before 2007?

In fact, smartphone companies including Apple and Huawei have begun to actively prepare for the smart car market.

Take Apple as an example. It began to promote the car-related "Titan Project" as early as 2016. Although it has experienced several twists and turns and even rumors of the death of Apple's car, according to the latest report from DigiTimes, Apple is actively building factories and is expected to officially launch the "Apple Car" in 2024-2025.

Xiaomi doesn’t want to be like Weilai

From the perspective of major trends of the times, Xiaomi, as a technology company, must keep up with the trend of the times, because Nokia has set a precedent for Xiaomi. However, it cannot be ignored that some of Xiaomi's own characteristics also determine that it is impossible for it to blindly invest heavily in some trends of the times.

Although traditional cars will gradually become networked, intelligent, and electrified, the nature of cars also determines that smart cars will eventually not escape the fate of being the most important sub-industry in the mechanical industry. This sets a very high entry threshold for "new forces". Li Bin, the boss of NIO, once said frankly: "Don't make cars without 20 billion yuan."

Take NIO as an example. Although it also gained high recognition in the secondary market in 2020, similar to Tesla, according to the financial report, NIO still suffered a net loss of 1.047 billion yuan in the third quarter of 2020. Counting the listing period alone, NIO has lost more than 20 billion yuan.

Interestingly, Dong Mingzhu, who made a bet with Lei Jun that year, spent 3 billion yuan to invest in Yinlong New Energy in a high-profile car manufacturing project, but ended up in vain. This made Xiaomi realize the risks of an outsider rashly entering the automotive industry.

If high risk and low return simply make Xiaomi resist smart cars, then Xiaomi's business model and target audience determine that Xiaomi cannot touch smart cars at this stage.

Whether it is mobile phones or televisions, Xiaomi relies on the "private label" method of integrating the supply chain to lower the price of products as much as possible, cater to what Xiaomi calls the "Diaosi group", and achieve a dual-wheel drive of its business.

However, in the smart car industry, where the technical barriers are higher, integrating the supply chain alone cannot give products corresponding advantages. Take Tesla as an example. In order to increase its production capacity, it has to build factories around the world. The Shanghai Super Factory cost 50 billion yuan to build.

On the other hand, even among the new car-making forces, Xiaopeng Motors' G3 product is sold at a minimum price of 146,000 yuan, which is obviously not affordable for Xiaomi's user groups.

Xiaomi's stock finally showed signs of rising in 2020. Now, whether it is to rationally layout its own business or to stabilize investors' sentiment, Lei Jun has no reason to take Xiaomi into the "miserable" and continuously loss-making car manufacturing industry.

Instead of making cars, it is better to invest in making cars

From a business operation perspective, it is understandable that Xiaomi will not enter the automotive industry for the time being. However, given the two major market trends of smartphones and smart cars, is Xiaomi really willing to ignore such an important consumer terminal trend?

In fact, Lei Jun has long found a way to ensure that Xiaomi does not miss the opportunity and does not have to take unnecessary risks: investment + business linkage.

According to Liu Erhai, an early investor of NIO and founding partner of Joy Capital, when NIO was just starting out, "Li Bin talked to Lei Jun and obtained investment from Shunwei Capital, which is owned by Lei Jun." Coincidentally, in November 2019, Xpeng Motors also received US$400 million in Series C financing, invested by Xiaomi Group.

Comparing these two investments, we can find a very obvious difference. Although both investments come from Lei Jun’s faction, the difference is that the investment in Xiaopeng was not completed by Shunwei Capital, which focuses on investment, but by Xiaomi Group.

From the perspective of financial health, Lei Jun's wide-ranging investment is indeed inevitable, but the reason why Xiaomi Group also bears part of the investment, according to Lei Jun, is mainly because: "Xiaomi Group and Xiaopeng Motors have carried out in-depth cooperation in the interconnection of smartphones and smart cars, and have achieved rich results. We hope to deepen the cooperation between the two parties in the fields of smart hardware and IoT through this strategic investment."

After establishing a relationship at the capital level, Xiaomi can implement the concept of "Internet of Everything" at a low cost. In September 2019, when Xiaomi launched the Xiaomi 9 Pro 5G, it linked up with Xiaopeng Motors, making the former the "car key" of the latter.

Considering that Xiaopeng Motors does not involve IoT, mobile phones and other businesses, this investment relationship can actually help Xiaomi solve the contradiction between seizing the travel entrance and creating products at a lower cost. Once Xiaopeng Motors opens up the market, Xiaomi can enjoy the dividends of the travel entrance with this investment relationship, which is obviously better than creating products by itself.

Judging from Xiaomi’s latest plan, “Xiaomi’s core strategy for the next decade” is “mobile phones + AIoT”, not “smart cars”. Therefore, the investment actually meets the needs of this full-dimensional connection strategy.

In short, although Xiaomi's model is invincible in the fields of smart phones, smart TVs, IoT, etc., Xiaomi is obviously aware of its own limitations in the smart car track, which is more financially and physically demanding, and therefore wisely chooses to "watch the fire from the other side of the river". But will this approach cause Xiaomi to miss the entire electric car era? Perhaps Lei Jun already has the answer in his mind.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.