By Jacky Wong
Apple just put its decadeslong pursuit of an electric vehicle into reverse. But its Chinese smartphone rivals are stepping on the accelerator pedal.
That could reshape the high-end EV market in China, and eventually perhaps globally: Several of the new entrants already have strong name recognition and a formidable reputation for quality at the right price. In the near term, it will add further fuel to the price war burning up major EV makers' margins.
And the first EV from Chinese phone maker Xiaomi is off to a roaring start. The company received nearly 90,000 refundable orders in the first 24 hours after it launched its sedan SU7 last Thursday. The SU7 looks conspicuously similar to a Porsche Taycan, as many car reviewers quickly pointed out. But buyers who don't mind a certain lack of originality in design will get the car at an attractive price. The SU7 starts at around $30,000, about $4,000 cheaper than a Tesla Model 3 in China.
As EVs increasingly become "computers on wheels," phone makers arrive with several advantages. They have experience designing sleek, easy-to-use software and managing complex supply chains integrating components such as cameras and sensors.
But they are also jumping into a brutal price war, particularly in China. Low profitability may have deterred a juggernaut such as Apple, but not Chinese phone makers used to competing on razor-thin margins.
Investors cheered Xiaomi's news: The company's Hong Kong-listed stock jumped 9% Tuesday, although it gave up some of those gains the next day after Tesla's disappointing earnings release. Goldman Sachs expects Xiaomi to sell around 100,000 EVs this year. In comparison, Tesla sold more than 140,000 Model 3s -- the most comparable model -- in China last year. BYD, the country's top EV maker, sold around 2.8 million cars of all types in China in 2023.
Xiaomi isn't the only Chinese phone maker trying to make its own EVs. Huawei is having a go too, although it is taking a different approach. Instead of launching cars under its own brand, Huawei has joined with different automakers to design cars together. The company is also supplying software and hardware to cars in what it calls "Huawei Inside." Xiaomi, on other hand, has its own EV factory in Beijing, but has joined with state-owned automaker BAIC.
Xiaomi is a household name in China. Apart from being one of the largest phone makers, it also sells a range of electronic products, from rice cookers to vacuum cleaners. Its name recognition and brand cachet -- a reputation for quality at an affordable price -- will probably help sell cars too, as long as there aren't any major design problems that become apparent once the cars hit the road. And as cars increasingly add more screens and sensors, Xiaomi will also have an edge in both operating-system design and supply-chain management.
But the EV adventure likely won't be profitable for some time. The current price war could drag on, especially since some parts of China's automotive industry are state-owned and potentially able to absorb large losses.
Xiaomi will also need to raise capital expenditures and plow more cash into research and development. Xiaomi's core business is generating plenty of cash, but making a car is still quite different from making smartphones or other household appliances, and is very capital-intensive. There will be more regulatory requirements too. Having BAIC as a partner probably helps but there may still be a teething period.
Nonetheless as the phone market matures, heavyweights such as Xiaomi are eyeing EVs as their second act. And unlike Apple, they probably don't mind wading into an ugly price war. The economic and political waves triggered by China's EV prowess may be about to get even bigger.
Write to Jacky Wong at jacky.wong@wsj.com
(END) Dow Jones Newswires
April 03, 2024 23:00 ET (03:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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