Why does Xiaomi want to make electric cars?

A business associate shared with me the news of Xiaomi's planned foray into EV manufacturing, and asked me what I think of it. I have heard about this plan quite some time ago, but had thought that it could go the way of Dyson and eventually abandoned. However, with more news coming, it seems like this is for real and we could eventually see the Xiaomi car rolling our of the car plant. That got me thinking, why would a smart phone maker want to design and produce cars?


​There seems to be no synergy here. Delve further, and you can find news about search engine companies like Baidu wanting to get into car production as well. Apple had plans to be involved in the EV business too but that enthusiasm seems to have fizzled out. I can go on and on, Google, Tencent, Alibaba, and so on, why do they want to be part of the EV production?

The motivation behind these tech companies wanting to participate in EV is to find new growth areas. As Xiaomi hinted some time ago, the room for growth in smart phones now is very limited, at best you go for bigger screens, faster and wireless charging, better cameras and so on, there is not much Xiaomi can do to revolutionize the market. However, in the EV business, car makers need to work with software suppliers in order to produce the modern car which would gradually bring them closer to autonomous driving, all of which requires digitech which the car makers do not have. Car makers are good at producing cars that run well, are safe on the roads, can cater to and adapt to diverse driving habits and yet operate well and safe. What they do not possess is digital skills and technology. So they have to work with the software suppliers and new digital communications players.

Cars now require Apple Carplay and Android Auto, and the EVs are built like a smart phone on wheels, there in lies the connection between cars and Xiaomi, and offers Xiaomi potentially a growth market. However, I question the need to get into car manufacturing, why not just form alliances with car makers, so that the car makers bring the cars to the table, and Xiaomi put in the communications technology for the connected car? In this way, Xiaomi can offer their expertise while the car makers offer theirs.

Some tech companies I spoke to seemed to have this belief that for EVs, the car becomes a much simpler machine and the entry barrier is lowered such that new players can come in to challenge the traditional car makers most of them with many decades of experience in car manufacturing. No need to worry about the entire ICE system, the technology, the supplier chain, the knowhow, when you take that entire system out you have a much simpler car design, and so the tech companies think the simplicity allows them to enter the manufacturing side. Well. not quite. Even Tesla struggled for years before getting on track somewhat. Even today, traditional car makers still have a clear edge over new players like Tesla in terms of design and quality. What Tesla wants to offer is revolutionary stuff, and Tesla has to keep going that direction to stay relevant, because if Tesla starts to compete with the VWs and Toyotas and Hondas in terms of EV built quality, that will be end of Tesla. The decades of car manufacturing experience cannot be copied overnight, Tesla will need many more years of learning curve to be on par with the traditional car makers.

Car manufacturing is a complicated business and it takes years to learn, that is why I think Xiaomi's ambition to build cars may eventually destroy them, unless they are going the route of partnerships with established car makers.

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