Lei Jun “paints cakes”, Xiaomi sells cars

Author | go back

Editor | Tang Fei

In August of this year, Lei Jun, chairman and CEO of Xiaomi, held his third annual speech on the theme of “passing through the trough of life”.

But for the current millet, how to get through its own trough?

Xiaomi Group’s latest financial report shows that the company’s revenue and adjusted profit in the second quarter of this year were 70.2 billion yuan and 2.08 billion yuan, down 20% and 67% respectively from the same period.

The decline in Xiaomi Group’s performance was mainly due to the poor performance of the core product smartphone. Under the combined influence of factors such as the weak global economy, the tightening of the consumer market, and the reduction of consumer demand for replacement phones, Xiaomi’s smartphone shipments dropped from 59.2 million units in the second quarter of last year to 39.1 million units in the second quarter of this year, a year-on-year decrease. 26.2%. During the same period, the revenue of the smartphone business also decreased from 59.1 billion yuan to 42.3 billion yuan, a year-on-year decrease of 28.5%.

While the main business encountered bottlenecks, “car building” was regarded as a bailout plan for Xiaomi by the outside world. Recently, Lei Jun said on social media that he believes that when the electric vehicle industry matures, the world’s top five brands will occupy more than 80% of the market share. “In other words, the only way for us to succeed is to be one of the top five and ship more than 10 million units a year. The competition will be cutthroat,” he said.

Source: Twitter

According to foreign media statistics, the global car sales in 2021 will be around 81.05 million units. If this is the base, and according to Lei Jun’s statement that the annual shipment of Xiaomi cars exceeds 10 million units, the corresponding Xiaomi will occupy more than 12.33% of the global market. share.

Then, considering the current layout of Xiaomi in the field of electric vehicles, the current competition in the industry and the market environment it will face in the future, is it feasible for Xiaomi to achieve annual shipments of more than 10 million vehicles?

“Xiaomi” who strives to build a car

On March 30, 2021, Lei Jun announced that Xiaomi Group will establish a wholly-owned subsidiary to be responsible for the smart electric vehicle business. He is also the CEO of the smart electric vehicle business.

In fact, the wholly-owned subsidiary established by Xiaomi Group in the field of car manufacturing is not one. According to Tianyancha, there are currently two companies related to Xiaomi Auto. One is Xiaomi Auto Co., Ltd., which was established on September 1 last year and is wholly-owned by Xiaomi Hong Kong company Xiao mi EV Limited. The other is Xiaomi Auto Technology Co., Ltd., which was established on November 18 last year and is wholly-owned by Xiaomi Technology Co., Ltd.

Source: Tianyancha

In addition, since the announcement of the start of the car manufacturing business in March last year, Xiaomi has deployed a number of automobile industry chain-related companies through investment and shareholding.

According to statistics from China National Financial Securities, as early as the end of September 2021, Xiaomi has invested in 62 companies in the field of smart cars, including 17 companies in smart driving, 13 companies in smart electric vehicles, and 6 companies in smart cockpits. There are 22 companies with new investment in 2021.

In terms of lithium batteries, Xiaomi has successively invested in several leading companies such as Honeycomb Energy, China Innovation Aviation, Ganfeng Lithium Battery, Weilan New Energy, Zhuhai Guanyu and Farnright. In the field of lidar, Xiaomi’s investment companies include Hesai Technology, Sagitar Juchuang, Tudatong, Beixing Photonics, etc.

In the semiconductor field, Xiaomi has invested in Rong Pai Semiconductor (Shanghai) Co., Ltd. in September this year, with a shareholding ratio of 3.5%. At the same time, Tianjin Fuzhen, which focuses on the field of automobile body equipment manufacturing, and Tieliu, an auto parts supplier, also issued documents one after another, saying that they will carry out in-depth cooperation with Xiaomi Auto in the future.

Source: Enterprise Check

In order to cooperate with the follow-up vehicle manufacturing and production, Xiaomi signed a cooperation agreement with the Beijing Economic and Technological Development Zone Management Committee in November last year, officially announcing that Xiaomi Auto will be located in the Beijing Economic and Technological Development Zone. Xiaomi Auto will build a vehicle factory with a cumulative annual output of 300,000 vehicles in two phases in the Beijing Economic and Technological Development Zone, of which the first phase and the second phase have a production capacity of 150,000 vehicles respectively. Among them, the first phase of the factory is expected to be completed in June next year.

In fact, Xiaomi Auto is not only increasing its investment externally, but also going through a new round of personnel changes internally.

In August this year, Zhou Jin, the former deputy general manager of SAIC-GM-Wuling Sales Company, joined Xiaomi Auto as the head of marketing, reporting directly to Lei Jun. According to another report from 36Kr, the Xiaomi Auto team made personnel adjustments to two core executives. Among them, the product department under Li Xiaoshuang, the vice president of Xiaomi Automobile, is handed over to the vice president Yu Liguo, while Li Xiaoshuang has been stationed in Shanghai and is mainly responsible for the supply chain. This is also almost one of the few changes involving the vice president since Xiaomi announced the car manufacturing for more than a year.

Although Xiaomi Group has not responded to this matter, it is widely speculated in the industry that compared with Li Xiaoshuang, Yu Liguo, who has been working hard in the automotive industry for many years, can give more stable ideas, which will help Xiaomi achieve smooth progress. mass production.

According to the data of Wisdom Buds, Xiaomi Auto has applied for 125 patents in the automotive field since its establishment, of which about 70 are related to autonomous driving, involving vehicle target detection, path planning, vehicle form control and L2+ level technologies.

Source: Wisdom Bud

Continued investment, increasing technology research and development, and making up for talent shortages also show Xiaomi’s determination to mass-produce cars. But are these enough?

What does Xiaomi Auto rely on to attract car owners?

In fact, compared with Lei Jun’s ambitious goal of selling more than 10 million vehicles per year, Xiaomi should think more about the question: what is its core competitiveness? Or in other words, why are car owners willing to buy Xiaomi cars?

For new energy vehicles, its manufacturing costs mainly include “three powers” (ie battery, drive motor and vehicle electronic control), automotive electronics, body, chassis suspension, interior decoration, etc. Among them, three powers are new energy vehicles Core. Relevant statistics show that in the cost composition of pure electric vehicles, the proportion of battery, drive motor and vehicle electronic control is 42%, 10%, and 11% respectively, that is, the total cost of the three electricity accounts for 63%.

For car companies, the ability to control the cost of three electricity, including power batteries, is undoubtedly their core competitiveness. Especially in the context of declining subsidies for new energy vehicles, this core competitiveness has become the most important driving force for the long-term development of new energy vehicle companies.

BYD is the only car company that has mastered the core technologies of the new energy vehicle industry chain such as Sanden and IBGT. It is also this advantage of BYD that makes BYD’s price have a certain advantage in similar models, and has become the “sales champion” of new energy vehicles.

In the same way, Tesla’s advantage lies in the industry-leading battery management system (BMS), so Tesla has always stood in the center of the new energy vehicle. On the other hand, how should Xiaomi Auto, which was just established last year, win the market?

As we all know, Xiaomi mobile phones won by taking the cost-effective route, but this style of play cannot be completely copied to electric vehicles.

Judging from the news on the Xiaomi automobile supply chain, the batteries used by Xiaomi automobiles in the future are the Kirin and BYD blade battery solutions of CATL. However, it is worth noting that the price of lithium iron phosphate, as one of the important raw materials for Kirin batteries in the CATL era, has risen from 37,050 yuan/ton in October 2020 to 159,900 yuan/ton in October 2022. If the price of this raw material continues to rise in the future, CATL will inevitably transfer the cost pressure to the downstream Xiaomi car.

Source: Wild Swan Network

In fact, in addition to the rising cost of batteries, other raw materials such as copper and aluminum used in automobile production have risen significantly, which will inevitably increase the cost of Xiaomi automobile manufacturing and challenge the company’s cost control ability. .

Source: Business Club

If the cost cannot be reduced, it will be difficult to label it as “cost-effective”. If there is no cost-effectiveness, it will be difficult to increase sales in the short term. If sales do not increase, there will be a lack of bargaining power at the supply chain end, which will make it difficult to reduce costs. This seems to be a ” Infinite loop”.

The more critical problem is that the replacement frequency of electric vehicles is much lower than that of mobile phones. The average service life of a car can reach 8-10 years, while an Android phone may need to be replaced every 1-2 years.

Moreover, if Xiaomi Auto insists on the cost-effective route, it may reduce the profit of the sales link, which will inevitably lead to dissatisfaction of Xiaomi Auto dealers and is not conducive to the promotion of Xiaomi Auto’s follow-up business.

According to the latest revelations, the future price of Xiaomi cars may be between 180,000 and 250,000 yuan.

But this price range is obviously a battleground in the current domestic electric vehicle field. According to the data of the China Passenger Car Association, models in the price range of 80,000-250,000 yuan will account for more than 70% of the sales volume of my country’s new energy vehicle market in 2021. From this, it can be expected that Xiaomi Auto will face fierce market competition.

Data source: car owner guide network

In the case of similar prices, car owners naturally turn to choose model configuration and brand strength. As a “cross-border” manufacturer, Xiaomi is not as good as Tesla and “Wei Xiaoli” in terms of model polishing and delivery, and is not as good as BYD, Geely, GAC and other brands in terms of brand accumulation. The intelligent level of the vehicle.

At the press conference in August this year, Xiaomi Auto demonstrated the current level of autonomous driving. According to Lei Jun’s statement at the press conference, the first phase of Xiaomi’s autonomous driving technology plans 140 test vehicles, which will be tested across the country one after another, with the goal of entering the first camp in the industry in 2024.

Source: Xiaomi conference

But even if Xiaomi enters the “first camp” as wished, it does not mean that Xiaomi Auto will be able to “lie down and win”.

Several industry insiders pointed out that it will take several years for China to truly integrate autonomous driving technology into daily life. For example, Zhang Hong, secretary general of the New Energy Branch of the China Automobile Dealers Association, believes that the following elements are needed for the real implementation of autonomous driving:

First, the maturity of autonomous driving software and related hardware, including the running-in of cars and autonomous driving software, the running-in of road signals, traffic conditions, emergency contact and autonomous vehicles, and the running-in of drivers and autonomous driving software, etc. Second, the improvement of relevant laws, regulations and standards. Third, the greater the market demand, the shorter the landing time will be. However, from the current domestic stage, these conditions are not mature.

In addition to the immature external conditions, the cognitive penetration rate of autonomous driving also needs to be improved. Zhang Tao, an employee of a brand car 4S store in Anhui Province, told Value Planet that when customers come to the store to buy electric cars, the most frequently asked questions are, how is the battery life of the electric car? Is the body frame rigid? Is the interior space large enough? Is the driving experience comfortable? However, few customers ask whether the vehicle supports unmanned driving. After all, handing over one’s life to AI is indeed a matter that requires careful consideration.

For Xiaomi cars, the choice of technology, price and selling point may become the most important issues before mass production.

Xiaomi struggles to sell 10 million units

In fact, in order to achieve the goal of Xiaomi Auto’s annual sales of 10 million electric vehicles, Xiaomi still needs to think about where the key channels for future car sales will be?

From the perspective of the domestic market, if considering the current saturation of trams in first- and second-tier cities and strong provincial capitals, the sinking market will be a growth point in the industry. But from the current point of view, if trams want to be widely popularized in the sinking market, they still face many obstacles.

Source: public information collation

On the one hand, according to the previous experience of new energy vehicles going to the countryside, rural consumers are more sensitive to prices, and their car purchase budget is mainly concentrated within 50,000 yuan, which explains why the Wuling Hongguang MINI EV priced at 28,800-48,600 yuan The reason why it can be ranked among the top three domestic new energy vehicle sales all year round.

In 2021, the annual sales of Hongguang MINI EV will exceed 390,000 units. It is not only the champion of its class, but also the champion of the national new energy vehicle sales list. The price of Xiaomi cars between 180,000 and 250,000 clearly has a certain threshold for consumers in the sinking market.

On the other hand, the charging piles closely related to electric vehicles are still in their infancy in the sinking market, and the penetration rate is very low. Taking Jieshou City, Anhui Province visited by Value Planet as an example, in the main urban area of ​​this county-level city, there are almost no new energy charging piles.

In the international market, based on the data released by the General Administration of Customs in 2020, the main incremental markets for my country’s electric vehicle exports are the European market and the North American market, with growth rates of 211% and 294% respectively, and the total export volume has increased compared with 2017. 30.67%. In other words, traditional European and American countries will be the largest potential market for Chinese new energy vehicles to go overseas.

Data source: China Customs Statistics

But it is worth noting that Tesla itself has a first-mover advantage in these markets, and it is difficult for the export of domestic new energy vehicles to move its foundation. Moreover, the domestic new energy vehicles exported to these markets were mainly low-priced models, and the international competitiveness of high-end brands was still relatively weak.

Source: China Automobile Association

Therefore, whether it is in the domestic sinking market or in the international market, the resistance encountered by Xiaomi cars is not small, and it is difficult to achieve the goal of annual sales of more than 10 million vehicles.

*This article is based on public information and is only for information exchange and does not constitute any investment advice