Chinese smartphone giant Xiaomi announced its plan to join the increasingly crowded field of electric vehicle builders in China and said it would invest $10 billion USD into manufacturing electric vehicles over a 10-year period.
Financial analysts were cool to the announcement and shares of Xiaomi showed only a gain of 0.6% in the 24 hours after the announcement.
Xiaomi President Jun Lei said Xiaomi would pursue the plan through a wholly owned subsidiary, and Lei said that, “I will personally oversee this [EV business]. I look forward to the future where there is a Xiaomi car running on every road globally.”
The company’s announcement confirms a rumor about a possible EV venture that had surfaced earlier this year.
Xiaomi’s main business is smartphones and it is currently the world’s fourth-largest smartphone maker with a market share of 12%. In 2020, 60% of the company’s revenues came from its smartphone business unit.
Financial analysts said that the company’s move into electric vehicles is a partial hedge against the stagnant worldwide market for smartphones. Market research firm Canalys reports that worldwide smartphone shipments in 2020 were down 7% with sales of 1.26 billion units in 2020. Because of the global COVID-19 pandemic, only a few brands have actually seen growth during this period – and growth has been tied to the launch of new products.
Other analysts say electric cars could present a new growth opportunity for Xiaomi.
Canalys estimates that China’s sales of electric vehicles is expected to climb to 1.9 million units, a jump of 51% over 2020 and that this dynamic growth is attributable to Chinese consumers who are increasingly attracted by new automobile designs which are sleek and trendy and which often have autonomous driving features and other high technology features – such as being able remotely stream music or video via in-car displays.
Yale Zhang, an analyst at Shanghai-based consultancy Automotive Foresight says that, “Internet companies may think they have an advantage because cars are getting increasingly intelligent, and are being compared to computers on four wheels. But making cars is a huge risk, and nobody knows whether Xiaomi’s venture will be successful or not.”
Zhang points out that China’s EV market has already gone through one “boom-to-bust cycle” several years earlier when hundreds of startups tried to get into the automotive game. However, after subsidies from national and regional government bureaus to support the industry were phased out and private sector and venture capital funding dried up, only a handful of those companies have managed to survive to today.
Xiaomi’s Lei said that he made the decision to venture into EVs after careful evaluation and research and that, “We are fully aware of the risks involved and we are also aware the project will require billions in investment, and likely take at least 3-5 years before we see any return."