After a high-profile and long-awaited car launch, Xiaomi's founder Lei Jun has a new nickname: Thor.
The reason is, of course, that the long-awaited Xiaomi SU7 looks like a fair price. Among the three versions of Xiaomi SU7, the price of the standard version (rear-drive long-range intelligent driving version) of the new version of the Tesla Model 3 (parameter | inquiry) is 215,900 yuan, which is 30,000 yuan cheaper than the latter, and the price of the Xiaomi SU7Pro version and MAX version is 245,900 and 299,900 respectively, which is also lower than many people's expectations. After all, at the technology conference a year ago, Lei Jun made it clear that "the price of Xiaomi's first product will be more expensive, and it will most likely not be" 19.99 Make a Friend ". In the past 4 months, he has publicly exaggerated the price of Xiaomi cars too many times, even at the press conference, he also mentioned "500,000 or more" many times to create high-price suspense.
I have to admit that Lei Jun, who is a newcomer to car manufacturing, is the entrepreneur who knows the art of war the most, understands consumer psychology the most, and is the most good at marketing, which also makes Xiaomi SU7 order more than 10,000 in 4 minutes after the price is announced, 20,000 in 7 minutes, and 50,000 in 27 minutes. There's no denying that the fledgling Xiaomi car has taken its first steps towards success. In today's extremely involuted new energy vehicle market, what are the chances of Xiaomi SU7?
Why does Xiaomi have to build a car?
First of all, smartphone shipments are declining year by year, and the ceiling of Xiaomi phones is visible. Since the launch of smart phones, global mobile phone shipments have grown rapidly from 2008 to 2016, from 150 million to 1.47 billion, with a compound growth rate of 33%. However, since 2017, shipments have basically been in a negative growth trend, although the last two years have ushered in a wave of 5G replacement, but it is expected that the global mobile phone shipments in 2025 will only be 1.5 billion units, in line with the growth rate of only 3.7%, the overall growth momentum of the smartphone market is insufficient, and the incremental space is limited.
From the perspective of domestic data, Xiaomi's mobile phone market share began to decline after peaking at 16% in 2015, and has basically remained below 15% since 2021. On March 19, Xiaomi Group released its 2023 annual results announcement. According to the data, in the past year, Xiaomi Group achieved annual revenue of 270.97 billion yuan, a year-on-year decrease of 3.2%, operating profit of 20.009 billion yuan, a year-on-year increase of 610.4%, an annual profit of 17.474 billion yuan, a year-on-year increase of 598.2%, and an adjusted net profit of 19.273 billion yuan, a year-on-year increase of 126.3%. Among the three core business segments, the revenue of the smartphone segment decreased by 5.8% to 157.5 billion yuan from 167.2 billion yuan in the same period last year, a decrease of nearly 10 billion yuan. The average price of mobile phone shipments in the fourth quarter was 1,092 yuan, down 2.6% year-on-year.
However, the market size of cars is about 5 times that of smartphones. According to the data, global smartphone shipments in 2023 will be 1.14 billion units, with a total size of about $410 billion. In 2023, global passenger car sales will reach 88.9 million units, and the global passenger car market alone will reach about 2.47 trillion US dollars based on an average price of 200,000 yuan (about 27,800 US dollars) per vehicle. Compared with the $400 billion smartphone market, the automotive market has more strategic prospects for Xiaomi.
Now is also the best time for Xiaomi to enter the car building. With the continuous promotion of the domestic "double points" policy and industrial development, the penetration rate of new energy vehicles in mainland China has increased rapidly, with the penetration rate of new energy vehicles reaching 36% in 2023, and the plug-in and extended-range hybrid market segments are constantly expanding, and the market share has risen to 33% in 2023. Although, with the increase in penetration, the market has entered the stage of reshuffle, but for Xiaomi Auto, it is quite "stirring up the storm in the troubled times".
Xiaomi's success in the field of electronics shows that Xiaomi has a strong ability to integrate the industrial chain. Nowadays, consumers can clearly find that in addition to mobile phones and computers, the goods sold in Xiaomi stores also include smart wearables, smart homes and other devices, and even TVs, refrigerators, washing machines and other "large items". The super industrial chain integration ability has not only helped Xiaomi improve the flat sales of stores, but also allowed investors to see its ability to create market demand.
In the field of new energy vehicles, Xiaomi has united many upstream enterprises in the new energy vehicle industry chain in the process of promoting car manufacturing. "Lei Jun" capital has also invested in a number of related enterprises, in the power level, China Aviation Lithium Battery, Honeycomb Energy, Ganfeng Lithium Battery, etc., Xiaomi is behind the figure, in the autonomous driving perception layer, Xiaomi has invested in Hesai Technology, Zongmu Technology, etc., and at the decision-making level, it has added autonomous driving solutions, and wholly owned Shenzhen Dong Technology. Xiaomi can further integrate the resources of the industrial chain and achieve the coordinated development of the upstream and downstream through car manufacturing. This can not only reduce costs and improve production efficiency, but also lay a solid foundation for Xiaomi's long-term development.
Lei Jun also said in an interview with the media that the automobile business is not to "show off", but because the current tram has changed from the machinery industry to the information industry, and peers are already doing it, "Xiaomi will fall behind if it doesn't do it". For Apple to give up making cars, Lei Jun said frankly, "Apple gave up, I am also relaxed, and there is one less potential competitor, Apple users don't care about themselves, we care, we Xiaomi car support Apple, let Xiaomi car become the first choice of Apple users, this is my goal now." ”
There are all kinds of indications that the heavy automotive business line is a key step for Xiaomi to realize the transformation from a hardware manufacturer to a comprehensive technology service provider. If the automotive business can be successful, it will bring new growth points for Xiaomi Group and further enhance its competitiveness in the global market.
What are the chances of the Xiaomi SU7 winning?
On the eve of the upcoming announcement of the price of Xiaomi Auto and its official launch, Zhou Yu, deputy general manager of the brand division of Wuling Motors, revealed the pricing information of Xiaomi SU7 in advance in a live broadcast, saying that this price will bring a huge surprise, and predicts that it will sell out about 80,000 units of production capacity this year in a day or two. However, in the face of the current fierce competition in the new energy vehicle market, whether the starting price of 215,900 can withstand the test of the market is indeed concerning.
The challenges faced by Xiaomi Auto are not small, and the dual pressure of market competition and technical difficulties makes its prospects full of uncertainties. Among the similarly priced models, the Xiaomi SU7 will undoubtedly face strong competition from the Zeekr brand. In particular, ZEEKR 007, which is based on the 800V architecture, is comparable to the price of Xiaomi SU7, and the interior space and comfort are not inferior. In addition, ZEEKR 007 also performs well in terms of driving control and performance, and has set a benchmark for 200,000-level pure electric cars.
The new ZEEKR 001 (parameter | inquiry) launched in February 2024 is a direct competitor of Xiaomi SU7, which adopts an 800V architecture and is equipped with lidar as standard, and the starting price is also competitive, and it has received more than 20,000 large orders in less than 20 days after its launch. In addition to ZEEKR, Xiaomi SU7 also needs to face strong competitors from traditional car companies such as Tesla Model 3 and BMW i3 (parameter | inquiry), as well as new power brands such as AVATR 12, Xpeng P7 (parameter | inquiry), and NIO ET5 (parameter | inquiry). In the future, the addition of new competitors such as Lynk & Co Zero and Zhiji L6 will make the market more competitive.
In terms of production capacity, Xiaomi Auto is also facing a lot of challenges. The technical threshold for automobile manufacturing is high, and in order to ensure the stability and security of the supply chain, Xiaomi needs to complete the technical reserves and industrial chain layout in a short period of time. Although Xiaomi signed a cooperation agreement with the Beijing Economic and Technological Development Zone Management Committee at the beginning of the announcement of car manufacturing, and plans to build a vehicle plant with an annual production capacity of 300,000 vehicles, how to effectively cope with the pressure of orders still needs to be tested by the market.
The strength of the brand is also the key to Xiaomi's success. In addition to accumulating a large number of fans in the field of smartphones for many years, Lei Jun's personal influence cannot be ignored. It can be said that he is currently the top 3 entrepreneur in China's personal charm value, and it is not an exaggeration to say that he is the first. This personal charm comes from his early experience and aura, but also from his success in the mobile phone business, but also from his courage to think and dare to do things with him.
Finally, there are cash flow reserves. The amount of capital required to build a car is huge, and the highly saturated market competition also brings huge cash flow pressure to car companies. In February, Gaohe announced that it would suspend work and production for 6 months, and stores were closed one after another, and many car owners had no way to protect their rights. Going back in time, in the past two years, Byton went bankrupt, and Weimar lost as much as 18 billion yuan in three years, and finally went bankrupt and reorganized. The dismal end of the friend businessman sounded the alarm for the new players later: if you want to build a car, you must be prepared to "burn money". Xiaomi's annual report shows that as of December 31, 2023, the group's cash reserves reached a record high of 136.3 billion yuan. This figure exceeds the ideal of the new EV manufacturer with the best operating conditions at present.
Why can't it be sold below 200,000?
Why can't it be sold below 200,000?
The reason why everyone initially suggested that the entry price of Xiaomi SU7 should be less than 200,000 yuan is mainly due to the fact that the current car market is staging an increasingly fierce price war. Since 2023, price war has become a key word in China's auto market. Compared with last year, this year's price war has distinctive characteristics, not only with a wide range of participation, but also with a significant increase in the preferential range. From economical mini-electric cars to luxury models, no one is spared. In the face of such a market situation, many car companies feel pressure and have to deal with it.
The formation of this price war stems from many factors. First of all, the reduction of car manufacturing costs provides an opportunity for price wars, especially the significant reduction in the cost of power batteries. For example, the price of lithium carbonate has dropped from nearly 600,000 yuan/ton at the end of 2022 to 100,000 yuan/ton currently, which has had a huge impact on the cost of power batteries. Power batteries account for as much as 40% of the cost of pure electric vehicles, and for small A-class vehicles, this proportion may even reach half.
In addition, serious product homogenization and weak domestic demand have also intensified competition in the automotive industry. According to the China Association of Automobile Manufacturers, China's auto sales will grow by only 3% year-on-year in 2024, far lower than the 12% growth rate in the previous year. At the same time, the problem of overcapacity cannot be ignored. The overall production capacity of passenger cars in mainland China is close to 55 million units, but the actual annual production volume is only about 23 million units, and the capacity utilization rate is lower than the normal standard.
In the price band of Xiaomi SU7, the layout of friends also shows a "siege" trend. In particular, Geely has laid out five models in the price range of 15-300,000 yuan, and its market positioning is highly overlapping with Xiaomi SU7, which undoubtedly brings pressure and challenges to the pricing strategy of Xiaomi Auto.
However, the price reduction strategy is not a panacea. While some luxury brands and Chinese brands achieved sales growth through price cuts, sales volumes and prices of second-tier luxury brands and joint venture brands did not meet expectations. This shows that a simple price reduction does not necessarily lead to an increase in sales. Therefore, the price war is undoubtedly a "group loss game" in the long run, and excessive price reductions may damage the long-term earnings and brand image of enterprises. McKinsey's research report has pointed out that the boom in the smart electric vehicle market is based on the profitability of overdraft car companies. The long-term low profit situation not only affects investor confidence, but also hinders car companies' investment in technology research and development and long-term competitiveness.
Therefore, it is not a wise move for an established technology company like Xiaomi to enter the automotive market with the logic of a price war. Xiaomi Auto needs to find a more stable and sustainable development path to win market share through technological innovation, quality improvement and differentiated competition. However, even so, the Xiaomi SU7 with a starting price of 215,900 yuan is enough to make the rim boss insomnia.
The marketing master's dimensionality reduction strike
Chinese companies are well versed in the way of cost-effective products, and Xiaomi is one of the leaders, and was once known as the "cost-effective master". However, the times are advancing, the strength of enterprises is changing, and the connotation of cost performance needs to keep pace with the times. Xiaomi has quickly occupied the market with a strategy of "low price and high configuration", attracting a large number of users and achieving profitability through value-added services. In just five years, Xiaomi has surpassed Lenovo and other established companies and ranked among the top five domestic Internet companies.
However, as the competition in the smartphone market has become increasingly fierce, hundreds of brands have poured in, and the market has experienced crazy expansion, brutal reshuffle, and lower profit margins. In stark contrast, in the fourth quarter of 2016, Apple accounted for 92% of the industry's profits, even though it had only 18% of the market share. After the market gradually saturated, the focus of competition in the mobile phone industry began to shift from hardware configuration and price to user experience. The market for thousand-yuan machines is gradually shrinking, while flagship models are increasing day by day. Xiaomi also adapted to the trend and began to march into the high-end market to explore a new realm of cost performance.
In 2019, Xiaomi and the Redmi brand were separated, and Redmi took over the banner of Xiaomi's cost performance, while Xiaomi mobile phones focused on the pursuit of ultimate technology and experience. Today, Xiaomi's premiumization strategy has entered its fifth year. With the hot sales of the Xiaomi 14 series, Xiaomi has doubled its share of the global high-end mobile phone market.
According to the financial report data, the average unit price of Xiaomi mobile phones in the Chinese mainland market in 2023 will increase by more than 19% year-on-year, a record high. In the smartphone market in the price range of 4,000 yuan to 6,000 yuan, Xiaomi's market share reached 16.9%, an increase of 9.2 percentage points year-on-year. In the process of Xiaomi's impact on the high-end market, despite the suggestions of fans to increase the pricing, Xiaomi still adheres to the principle of cost performance. Lei Jun emphasized that cost performance does not only refer to low price, but to pursue the comparative advantage of the best performance at the same price and the lowest price under the same performance.
For Xiaomi Auto, which will be unveiled in 2024, its mission is no longer to promote the popularization of new energy vehicles, but to pursue the ultimate experience, create new fields and define new products. In the context of China's auto market shifting from increment to stock, consumers are demanding more and more products and experiences. They not only pay attention to price, but also value quality, craftsmanship, cutting-edge technology and brand image, which is why Xiaomi SU7 is selling well with its rich peripheral products. The new energy vehicle market is no longer a blue ocean, and the market penetration rate is close to 40%. For the soon-to-be-entered Xiaomi Auto, the key to success lies in achieving differentiated competition through brand building, product upgrades and high-quality services. Giving up differentiation and returning to the old path of price war will not work for Xiaomi.
Full text summary: Xiaomi's cross-border involvement in automobile manufacturing is not only an important step in the diversification of the enterprise, but also a manifestation of Lei Jun's determination to fight against the odds. Ferry Porsche's famous quote: "When I looked around and couldn't find my dream car, I decided to build one myself." It seems to be tailor-made for Lei Jun, vividly reflecting his inner driving force of personally taking charge of the car. In an environment where the smartphone market is becoming increasingly saturated, it is clear that the automotive business has brought new growth opportunities for Xiaomi. But it will take time to verify whether this game, which integrates technology and dreams, can finally make the market pay.