Lei Jun wants to fight for Xiaomi cars.
Editor’s note: This article is from the micro-channel public number “lunch Finance” (ID: daxiongfan), Author: Ren Yafei.
“I am willing to stake all the achievements and reputation accumulated in my life to fight for Xiaomi cars.”
Entrepreneurship is like gambling. Not only is there an addiction, but the stakes are getting bigger. Lei Jun said that for the last time he started his own business, he relentlessly bet on smart cars.
At the Xiaomi new product launch conference yesterday, Lei Jun announced his official entry into the smart electric car market, and said domineeringly that Xiaomi “can afford to lose” because there is still a cash balance of 108 billion on the account.
Before there was PPT who built a car, and then there was Gree and Dyson who came across the border. They were in a dilemma several times and gave up building a car in the middle. Lei Jun’s gambling requires a lot of financial support, how to burn, how much to burn , Enough, these are about life and death.
“I repeatedly asked myself, can I still have the same courage as ten years ago, the same determination ten years ago, or even the same physical strength ten years ago?” Lei Jun struggled and hesitated very much in his heart when it came to building a car. Mentioned that the past 75 days have been extremely difficult. During the day, he would think of 10 reasons that he must do, and at night, calm down and list 10 reasons why he should not do it.
The pain is that car building is a fashionable topic. In the face of the big wave, should Xiaomi enter the electric car industry. The answer given by Lei Jun is: personally lead the team, invest 10 billion US dollars in 10 years, and invest 10 billion yuan in the first phase.
Ten years ago, when Lei Jun entered the smartphone market, he was just 40 years old. Now he is leading a business again, and Lei Jun is over 50.
Lei Jun said that he will be ready to sprint for at least 5 to 10 years. But time is not friendly to Xiaomi. For Xiaomi, the market is also surrounded by enemies. It not only has to face the transformation of traditional car companies, new car manufacturers, but also cross-border technology giants such as Baidu and Apple.
Can Lei Jun win the final battle? Still crises.
Supervise the battle personally
In the past 75 days, Lei Jun has done his homework, 85 industry visits and communications, more than 200 communication with auto industry professionals, and two board meetings. In the end, Lei Jun decided to embark on the journey of building a car.
On March 30, Xiaomi Group issued an announcement stating that the company’s board of directors formally approved the establishment of the smart electric vehicle business. The company plans to establish a wholly-owned subsidiary to be responsible for the smart electric vehicle business. The initial investment is 10 billion yuan, which is expected toThe investment in the next 10 years is 10 billion U.S. dollars. Lei Jun, Chairman and CEO of Xiaomi Group, will concurrently serve as CEO of the smart electric vehicle business.
With regard to the capital investment, Lei Jun explained that this is a decision made by Xiaomi’s 108 billion cash reserves. In particular, Xiaomi will set up a wholly-owned subsidiary, and all investments will be made by Xiaomi itself. Lei Jun explained that in the two or three hours after the announcement, a large number of people in the investment industry wanted to invest in the Xiaomi car project. However, Lei Jun believes that only by connecting with mobile phones and ecological chain products can the rice noodles provide a better intelligent experience. Lei Jun said that Xiaomi has built a mature intelligent ecological environment, and the arrival of Xiaomi cars will complement the key part of Xiaomi’s intelligent ecological scene.
In addition, Xiaomi did not disclose more details of the car in the announcement and press conference.
However, based on previous reports from Bloomberg, Xiaomi should not directly build factories and build cars, but outsource production to automakers, and it is possible that Xiaomi is looking for new power companies to build cars. In addition, Xiaomi has hired engineers to come. Develop software embedded in the car.
According to “Deep Web” reports, there is a high probability that Xiaomi will finance its auto subsidiary separately. In addition, with regard to Xiaomi’s entry into electric vehicles, Lei Jun also serves as the CEO, but Wang Chuan and Li Wanqiang may actually take the lead.
Wang Chuan joined Xiaomi in 2012 and successively took charge of the TV Department, the General Staff Department, the China Region, and the Major Appliances Department, and participated in the entire chain of product development, production, channels, and sales. Li Wanqiang was once one of the core co-founders of Xiaomi. From 2010 to 2012, Li Wanqiang was responsible for the overall R&D, design and operation of MIUI. In 2011, he established Xiaomi.com and was responsible for the operation, marketing, service, e-commerce, logistics and other businesses of Xiaomi mobile phones. After Xiaomi decides to build a car, Li Wanqiang, who has resigned, will return and will be responsible for brand marketing.
According to previous reports, Wang Chuan is on behalf of Xiaomi Group to find out about the auto industry, seeking talents, technology and factory manufacturing and other resources.
According to an insider of Xiaomi, the Xiaomi car-building team has already started to work. There are multiple internal Xiaomi teams merged into the car-building team, including many managers of the artificial intelligence department. These people have reported to Wang Chuan before and joined The car building team will continue to report to Wang Chuan.
According to Tianyan Check, Xiaomi Group’s foreign investment includes many automakers and auto aftermarket companies. For example, it invested in map manufacturer Kay Lide in 2014; in 2017, it invested in Maiche.com and Checai.Many; In 2019, invest in new technologies for service providers in the fields of Xiaopeng Motors, smart vehicles and smart travel; in 2020, invest in BYD Semiconductor, etc.
From 2015 to 2020, Xiaomi’s patents in the automotive field reached about 800, and at the same time, it increased its international patent layout.
“The development iteration of smart cars and smart phones is very similar. Therefore, Xiaomi and others, as successful people in the smart phone revolution, are naturally sensitive to the development trend of smart cars. This is also an important reason for their cross-border development. One.” Essence Securities said in a related research report.
New battles that can’t be lost
“Building cars, we have money and are not afraid of losing money.” This is the source of Lei Jun’s self-confidence.
However, if you have been concerned about Xiaomi for a long time, you should be able to feel that the spirit of Xiaomi since its launch has been hard to come by.
On July 9, 2018, Xiaomi successfully listed on the Hong Kong Stock Exchange, with the issue price set at 17 Hong Kong dollars per share. Lei Jun boasted that he wanted to double the income of those who bought stocks that day, and claimed that Xiaomi was the first stock of young people.
As a result, after climbing to a high of 22 Hong Kong dollars, Xiaomi has fallen all the way. The stock price has been lower than the issue price for a long time, and even has been below 10 Hong Kong dollars for a long time. In the next more than a year, Xiaomi’s stock price has been sluggish, and a year later, it has been directly cut down.
Lei Jun, who looked in his eyes and worried in his heart, had no choice but to laugh at himself: “Short-term stock price is not important, long-term performance is the most important.” He also said in an interview with the media: “Faced with the falling stock price, I couldn’t sleep all night, and I was so embarrassed to see acquaintances.”
Behind the stock price fluctuations, what reflects Xiaomi’s weakness in the mobile phone business.
At that time, Xiaomi’s dilemma was the sales of smartphones, and its growth in China was almost stagnant. From 2014 to 2015, the pattern of the domestic mobile phone market was that Huawei and Xiaomi competed for hegemony, but after 2015, Xiaomi’s high growth suddenly ceased, with sales of 70 million. According to IDC statistics, in the first quarter of 2016, Xiaomi lost the champion of smartphone shipments in China, surpassed by Huawei, OPPO, vivo, and Apple, and ranked only fifth. Until 2018, Xiaomi has not squeezed into the top three. In 2018, Xiaomi’s smartphone sales were about 52 million, ranking fourth, down by more than 26% from three years ago, and the market accounted for less than 13%.
In the high-end market, Xiaomi faces Apple and Huawei, and in the mid-range market, it faces OPPO and VIVO. Under all circumstances, Xiaomi’s cost-effective strategy has gradually lost its advantage in fierce competition. The blind pursuit of low prices also caused some damage to the Xiaomi brand. Many people ridiculed Xiaomi as a “diaosi machine”.
On the other hand, at least judging from the reaction of the capital market, Lei Jun claimed when he went public that Xiaomi is an “Internet company with mobile phones, smart hardware and IoT platforms as the core”. FailedRecognized by the public. Making air conditioners, making sockets, and making kettles, Xiaomi seems more like a manufacturing company.
In the past two years, although the revenue of Xiaomi’s IoT smart hardware segment has been growing, the revenue of Internet services has grown slowly. For the entire year of 2019, Xiaomi’s Internet business revenue was 19.8 billion yuan, accounting for 9.6% of revenue. In 2020, Internet business revenue will be 23.7 billion yuan, which is basically the same as last year.
In the past two years, Xiaomi struggled while seeking to solve the problem.
Lei Jun once admitted that the initial anchor price of 1999 yuan for the Xiaomi digital flagship series made Xiaomi, but it also restricted its further development. He said that Xiaomi Mi 9 will be Xiaomi’s last flagship phone with a price of less than 3,000 yuan. And the hardware profit that the flagship machine once promised will not exceed 5%, which also makes it difficult for Xiaomi to increase its gross profit margin.
This is where reforms take place.
In terms of business, in 2019, Xiaomi began to cut red rice, focusing on the low-end market, while Xiaomi positioned the high-end market. At the Xiaomi Mi 10 conference, Lei Jun said that “the goal is to break the price constraint, pursue the ultimate user experience, and fully impact the high-end market.”
In the market, in the face of the weakness of domestic smartphones, Xiaomi has made efforts in overseas markets. From India, Southeast Asia, and then to Africa, Xiaomi has established new Southeast Asia and Africa regions respectively. According to the latest data, in 2020, Xiaomi’s mobile phone shipments in the Indian market will be 41 million units, with a market share of 27%, far surpassing Samsung and Apple, ranking first.
In addition, in order to tear off the label of manufacturing companies, Xiaomi officially launched the “mobile phone + AIoT” dual-engine strategy, raising the AIoT business to be as important as mobile phones. In the next 5 years, Xiaomi will continue to invest more than 10 billion yuan in the AIoT field. Later, the “5G+AIoT” strategy was promoted.
Xiaomi’s various actions have begun to show results. After the release of the second quarter earnings report in August last year, the capital market was optimistic. Xiaomi’s stock price began to rise, and within 4 months of the end of the year, the stock price had tripled, reaching a maximum of 37 Hong Kong dollars per share.
However, the turmoil reappeared and Xiaomi’s high-end route has not yet gone out. The “Diaosi remarks” made by an executive inside Xiaomi in November last year caused it to be controversial. Xiaomi Group subsequently apologized. In overseas markets, in addition to India, Xiaomi’s development is also very difficult.
Xiaomi and cars are a new opportunity for Lei Jun.
How long can 10 billion burn?
To formally decide to build a car, for Lei Jun, on the one hand, it is a definite opportunity brought by the rapid development of smart cars. On the other hand, it is also the inevitable choice for Xiaomi to find the next traffic entrance after the growth of its main business peaks.
Just like Apple relies on iPhone ecosystem software and hardware to eat everything, if technology companies want to dominate the next round of automotive revolution, building cars may be one of the few choices. ThisIt is also in line with Lei Jun’s judgment after visiting Musk and test-driving Tesla in 2013. He believes that Musk built Tesla, like Xiaomi, “software, hardware plus Internet, triathlon.”
But Lei Jun’s last battle was not easy to fight.
Car building is an extremely money-burning business. In the early stage, it has to go through a hellish ramp-up of production capacity, and the company’s financial ability is being tested all the time.
The “first movers” may be a simple reference. It was only 15 years after Tesla was founded that it became profitable for the first time, and it burned more than $5 billion in these years. Among them, the loss in 2017 alone was as high as 2.3 billion U.S. dollars, burning an average of 6,500 U.S. dollars per minute.
Li Bin once revealed in the second quarter of 2019 financial report that Weilai burned about 22 billion yuan in 4 years. After the announcement of the financial report for the whole year of 2019, Weilai lost as much as 11.3 billion that year. The net loss in 2020 is 5.3 billion yuan.
Compared to Tesla and NIO, Dyson is even more miserable. The money he put in made several prototype cars. In October 2019, James Dyson, the founder of Dyson, announced to all employees via an email that Dyson had given up on the six-year electric vehicle project.
The reason he gave was straightforward: it burned too much money. 21.7 billion was invested in two years, of which only James personally invested 500 million pounds, equivalent to 4.3 billion yuan, which directly caused him to lose about 3% of his wealth.
Xiaomi may not be short of money at this stage. The cash flow of 108 billion yuan is enough for Lei Jun to toss. But once it gets involved in car building and continuous capital investment, whether Xiaomi can sustain it or not, there are still big variables, and this will also affect its development in smart phones and smart home business to a certain extent, thus losing its leading edge.
Citigroup released a research report on Xiaomi’s car manufacturing in February that it believes that for a light-asset internet company like Xiaomi, car manufacturing will bring no small risks. To put it simply, if Xiaomi really spends part of its funds and resources to build cars, it means that Xiaomi has shifted from a light asset model to a heavy asset model, and the market’s valuation model of Xiaomi’s “Internet company” may need to be revised.
Citi stated that building a car is much more complicated than building a smart phone, and the supply chain is also longer, but Xiaomi has not yet built such a supply chain. Moreover, car manufacturing is an asset-heavy business, which will consume a lot of resources, and at the same time bring a long-term financial burden to the company, which may have an impact on the current company’s profitability.