Everybody wants to get into the EV racket—Chinese hopefuls include search engine provider Baidu, e-commerce giant Alibaba and ride-hailing app DiDi Chuxing. Even vacuum cleaner vendor Dyson set out to suck up some coins from the electric carpet before conceding that it couldn’t see a way to commercial viability.
The latest entrant to the crowded field (the BBC says there are “hundreds of companies in China jostling for a share of the world’s leading market”) is Chinese phone maker Xiaomi, which aims to “offer quality smart electric vehicles,” and plans to invest some $10 billion in its new EV venture over ten years.
Xiaomi will set up a wholly-owned subsidiary, headed by the company’s Chief Executive Lei Jun, with an initial investment of about $1.5 billion. “The decision was made after numerous rounds of deliberation among all our partners, and this will be the final major entrepreneurial project of my life,” said Lei Jun.
Another foolhardy corporate giant poised to lose a bundle in the unforgiving auto industry? Maybe not. ZoZo Go, a reliable source of insightful comments on China’s EV industry, called Xiaomi’s announcement “a bold move,” and surmises that soaring demand for EVs among Chinese consumers over the past 12 months is what convinced the savvy Lei Jun to wade into the packed pool.
ZoZo Go’s Michael Dunne writes that, until about a year ago, low-cost compliance cars from stodgy Chinese brands such as BAIC, SAIC and BYD dominated the market, selling large quantities of vehicles to taxi fleets, government agencies and state enterprises, as “rich subsidies and quotas greased the wheels.”
When China slashed the subsidies, demand for these meh models collapsed. But in 2020, a funny thing happened—consumers started buying sexier EVs from Tesla (which sold 135,000 units in 2020) and from trendy startups like NIO, Li Auto and Xpeng, all of which saw huge sales increases in 2020. One of the winners was the Wuling Hongguang Mini EV, which sold an astonishing 200,000 units in its first 200 days of production.
As Dunne sees it, this shift in the market convinced Xiaomi’s Lei Jun that the time was right to make his move. Connected car services are seen as a potentially huge new profit center, and this would play to Xiaomi’s strength. “As we look back five years from now, we will see 2020 as the take-off point of real demand for EVs in China,” writes Dunne. “Xiaomi’s timing looks just right.”