How Chinese smartphone makers Xiaomi, Huawei transformed into EV contenders
Thanks to an advanced supply chain, companies with no history making cars are challenging for supremacy in China’s EV market
Weng’s attitude speaks not only to the popularity of the SU7 but also to a shift in the competitive dynamics of mainland China’s cutthroat EV industry. With a robust supply chain churning out advanced components, even companies with no automotive legacy can, with sufficient resources, make and deliver advanced vehicles. Therefore, success relies more than before on marketing – the power that made Weng so certain that in addition to being a good form of transport, the SU7 would be a vehicle to enhance his identity.
Eventually, Weng accepted that nothing could be done to get his car earlier, and decided the wait would be worth it.
“We vote for Xiaomi because it is already a well-known consumer tech brand and has a strong cash reserve to ensure it will survive the highly competitive market,” said Nick Lai, an analyst with JPMorgan. “These advantages are rare assets for electric car makers in China.”
Still, Xiaomi said in August that its EV unit will take time to generate a profit as it incurs massive costs for research and development (R&D), as well as marketing.
The EV unit of the nation’s third-largest smartphone maker could post a net loss of 4.1 billion yuan or 68,000 yuan per car in 2024, Citigroup estimated in April.
In its second-quarter earnings report, Xiaomi said it was aiming to deliver 120,000 SU7s this year.
The car features a sleek look and sports-car-level of performance. It is powered by Xiaomi’s HyperEngine electric motor and batteries from China’s Contemporary Amperex Technology. It also has an autonomous driving system: a suite of sensors and an artificial intelligence system that work together to deliver a range of self-driving features. The SU7 can also connect to home appliances, enabling drivers or passengers to turn on home air conditioners when the car approaches, for example.
China dominates the EV supply chain, holding more than three-quarters of the world’s production capacity for batteries. Mainland companies also account for more than two-thirds of the market in all of the categories of components needed to assemble EVs, according to Beijing-based Insight and Info Consulting.
“Xiaomi does not truly enjoy technological advantages over its domestic rivals including IM Motors, but its smartphone brand awareness [among buyers] and its efficient marketing tactics hugely bolstered sales,” Cao said.
Weng agreed.
“The SU7 is a beneficiary of the latest EV technologies,” he said. “But Xiaomi has successfully built it into the best representative of China’s EV design and manufacturing heft.”
The faith of smartphone buyers
They have advantages over conventional carmakers in autonomous driving, facial recognition, over-the-air software upgrades, phone-linked features and self-parking.
But that does not guarantee success.
“Smart EVs developed by the Chinese technology firms all feature high-performance batteries, digital cockpits and self-driving systems, but their sales vary considerably even as the prices are set at the same level,” said Phate Zhang, founder of Shanghai-based EV data provider CnEVPost. “Huawei and Xiaomi, whose blockbuster smartphones are a commercial success in the domestic market, have reported sizzling EV sales, as their loyal customers also have faith in their cars.”
However, the first production model from Baidu-backed EV firm Jiyue failed to woo many mainland motorists despite the company’s claim that the car’s self-driving system matches the level 4 (L4) autonomous standard set by SAE International, a US-based association.
L4 autonomous driving does not require human intervention in most circumstances, but the driver still has the option to manually take over control of the car.
Jiyue does not appear in lists of China’s top 15 electric-car makers by monthly sales, according to data from the China Passenger Car Association (CPCA).
Tipping points
Leading EV markets are headed for a price-parity inflection point, where EVs will become cheaper than petrol-powered cars, industry analysts say. An expanded EV battery industry and improving technology make this inevitable.
The transition is expected as early as this year in Europe, 2025 in China, 2026 in the US and 2027 in India for medium-sized cars – and even sooner for smaller vehicles.
A battery module providing a driving range of 500km accounted for about 40 per cent of an EV’s total cost three years ago, but the proportion has dropped to 30 per cent, according to a senior executive at Suzhou Hazardtex, a supplier of specialised batteries.
Lidar sensors, which use laser beams to measure distance so that cars with autonomous abilities can generate accurate maps of the objects around them, have also become cheaper. They have dropped to several hundred dollars from thousands a few years ago, according to David Li Yifan, CEO of China’s Hesai Group, one of the world’s largest makers of the devices.
A veteran of 16 years as a high-level executive at Volkswagen in China, Soh said that aside from designing and assembling vehicles, carmakers now must make positioning and branding a top priority to stand out in the crowded market.
For its part, BeyonCa is striving to take on BMW and Mercedes-Benz by developing premium EVs.
“Vehicles will be transformed into a space for work and entertainment, hence reshaping the relationship between drivers, passengers and vehicles,” he said. “An ideal car will be smarter, greener and able to offer comfort to car users under more circumstances.”
Buyers are already convinced. Electric cars have been outselling petrol-burning vehicles since July in China – the world’s largest EV market – as government subsidies and steep discounts bolstered sales.
A total of 1.12 million pure-electric and plug-in-hybrid cars were handed to customers in September, a 50.9 per cent increase year on year. EVs accounted for 53.3 per cent of total vehicle sales nationwide, according to the CPCA.
In this frantic market, China’s 50 or so EV makers are expected to launch more than 50 new models this year, spending billions of yuan on R&D as well as marketing, according to Suolei, an advisory firm in Shanghai.
But only a handful will generate enough sales to offset their development costs.
In April, Goldman Sachs estimated that the profitability of the entire Chinese EV industry could turn negative this year if BYD were to slice another 7 per cent, or 10,300 yuan, off the prices of its cars.
Companies have cranked up discounting to an unprecedented level this year to lure buyers, raising fears of overcapacity. EV makers slashed prices on a record 124 models from January to September, surpassing the 97 models discounted in 2023, the CPCA said in a report early this month.
The discount war has sparked worries about the sustainability of the world’s biggest EV market, as analysts predict dozens of underachieving players will be edged out as competition escalates.
“You could argue the customers are happy because they bet they will get a cheap car,” said Jochen Goller, a member of BMW’s management board. “The problem is, sometimes they do not know whether the car [brand] they are buying will still exist in two years.”