Smartphone Maker Xiaomi Is Getting Into EVs. It’s Going to Be Rough.
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A Xiaomi store in Beijing in January.
Greg Baker/AFP via Getty Images
The electric-vehicle landscape is getting complicated. Not only are traditional auto makers spending billions to catch up with
Tesla and other EV-only auto makers, big tech firms also want a piece of the pie.
Having big plans is great. But big tech companies trying to make cars might be in for a rude awakening. Being a car player with enough scale to succeed requires a lot of money. And not every tech player has the stacks of cash
Apple (ticker: AAPL) commands.
The smartphone and electronics maker
Xiaomi (1810.Hong Kong) unveiled initial details of its plans to build electric vehicle at an analyst event on Tuesday. Xiaomi said it plans to have an EV by 2024 and is spending $10 billion to make it happen.
Investors like the plan. Xiami shares were up 5.4% in overseas trading, while Hong Kong’s
Hang Seng Index
gained 1.5%. Futures on the
S&P 500
and
Dow Jones Industrial Average
were both up about 0.4%.
This isn’t the first time Xiaomi has talked about entering the EV market. In the first quarter of 2021, the company said it would be making the move, and company President Xiang Wang called EVs ” one of the largest business opportunities of the next decade” on an earnings conference call in May.
Tuesday’s news follows Monday’s unveiling of three EV prototypes from
Hon Hai Precision Industry (2317.Taiwan), the iPhone manufacturer that is better known as Foxconn. It plans to assemble EVs for auto makers just as it puts together smartphones for Apple.
Other big tech firms have announced EV plans as well. The Chinese search engine company
Baidu (BIDU) disclosed plans to enter the EV market back in January. Apple is also said to be looking to enter the EV market; the company has declined to comment multiple times on its auto plans.
All the announcements mean that the EV industry could be very competitive in a few years. Traditional car companies such as
General Motors (GM), EV pure plays such as Tesla (TSLA), and a bevy of tech companies could all be competing for market share.
How it turns out is anyone’s guess, but the market is betting on Tesla and the traditional industry winning. GM stock, for instance, is up about 37% year to date and has been unshaken by EV announcements from companies outside the auto industry. Tesla, of course, is the world’s most valuable car company with a market capitalization approaching $900 billion.
The $10 billion Xiaomi plans to spend sounds like a lot, but it really isn’t for the multitrillion-dollar car business.
Volkswagen (VOW3.Germany) plans to spend more than $80 billion on EVs between now and 2025. General Motors is spending about $35 billion over the same span, and
Ford Motor‘s (F) plans tally about $30 billion over the coming few years.
What is more, the $10 billion Xiaomi plans to spend works out to about 20% of its estimated 2021 sales. GM’s spending works out to about 25% of its estimated sales. Those numbers illustrate the difference in scale between two aspiring EV winners: GM is able to spend 2.5 times the cash despite committing only a slightly bigger share of the revenue generated from its business.
GM’s market capitalization is also bigger than Xiaomi’s, highlighting the fact that many of the tech companies looking to be EV players aren’t in a particularly strong position in terms of size. There are exceptions, of course. Apple is a $2.4 trillion behemoth, with more cash, net of debt, on its balance sheet than Ford is worth.
Apple and the other trillion-dollar tech giants can probably do EVs if they really want to. That still doesn’t mean tech-branded EVs are a great idea.
Write to Al Root at [email protected]
