Xiaomi building cars is the best way to invest in Xiaomi

Lei Jun, the founder of Xiaomi, posted a Weibo post not long ago, to the effect that a friend said that "Lei Jun builds cars, which is his destiny. The word thunder is charged with electricity, and the word military is charged with cars." However, he probably felt a bit superstitious, so he finally deleted the post.

It’s not certain what fate will be like, nor is it certain what the general trend will be.

Between 2020 and 2024, mobile phone manufacturers are considered to be an inevitable development path. Rumors and facts are intertwined. For example, there are rumors that BBK founder Duan Yongping will lead OPPO and vivo to jointly build cars, and then From time to time, new progress and new setbacks in Apple's car-making are reported, as well as debates over whether Huawei should directly build cars or empower cars, and Xiaomi SU7 made a high-profile appearance at the end of last year.

But in 2024, after OV refuted the rumors and built cars, Apple gave up building cars, and Huawei decided not to build cars but to empower cars, Lei Jun suddenly found that he had become a lone warrior on the road to building both mobile phones and cars.

Seeing this, Li Bin took out his NIO Phone and smiled: Brother, I will accompany you.

▲ Xiaomi SU7 launch conference, the three founders of Wei Xiaoli were present to watch the ceremony

Xiaomi is like Apple but not like Apple

Before the consensus that building cars is the general trend for mobile phone manufacturers is broken, building cars is indeed a natural choice for mobile phone companies to extend their business.

We can roughly summarize the business expansion paths of smartphone manufacturers like this: In the past 10 years from the launch of the iPhone in 2007 to the peak of smartphone shipments in 2016, smartphones have developed rapidly, and smartphone manufacturers have mainly focused on Revenue is basically concentrated in the mobile phone business.

With the release of the first-generation iPad in 2010, tablet computers have become an important revenue supplement for many manufacturers in addition to the mobile phone business.

By 2014, the concept of wearable devices was a big hit, and the first-generation Xiaomi bracelet was a hit when it was released. The following year, the Apple Watch was released and became a must-have for Apple fans. This type of innovative device has become another revenue wing for mobile phone manufacturers.

Then, when the smartphone market became saturated in 2016 and gradually entered stock competition, the traditional PC business became a new choice for Xiaomi and Huawei to expand their revenue scope. Of course, Apple was an exception, as it started out as a computer company. In the same year, Apple AirPods was released, and true wireless earphones contributed to the business growth of mobile phone manufacturers.

In this process, surrounding the concepts of "smart home" and "IoT", major appliances such as TVs, as well as smart speakers and routers, which are considered "smart hubs", have also begun to accept transformations from mobile phone manufacturers.

It can be seen that for smartphone manufacturers, there are three main ways to maintain growth:

  1. The growth of the mobile phone business itself: when the market grows, I grow; when the market is saturated, I go global; when the market is saturated, I increase prices
  2. Category innovation creates new markets: such as tablets, watches and bracelets, wireless headsets, and less successful attempts such as VR, drones, and robots
  3. Enter the Red Sea and seize the old market: such as computers, TVs, refrigerators, washers, air conditioners and other home appliances

After 2020, everyone discovered a very serious problem: innovation in new categories has stopped; old markets have little potential for transformation; business growth and maintenance basically rely on the market vacancy left by the setback of Huawei mobile phones.

But Huawei will come back sooner or later.

In the time window between the coming and going of Huawei's mobile phone business, Xiaomi did two things. One was to high-end Xiaomi mobile phones and the Xiaomi brand, and the other was to build cars.

Xiaomi's 2023 financial report released not long ago can help us see many problems clearly.

Last year, Xiaomi's total revenue was 271 billion yuan, lower than 280 billion yuan in 2022 and 328.3 billion yuan in 2021. This actually shows that in terms of revenue, Xiaomi's existing business can no longer support continued growth in performance.

However, the good news is that Xiaomi’s net profit increased by 126.3% year-on-year in 2023 to 19.3 billion yuan. Especially in the fourth quarter, Xiaomi’s revenue hit a new high in seven quarters, reaching 73.2 billion yuan. The adjusted net profit surged 236.1% year-on-year to 4.9 billion. Yuan.

In addition, by the end of 2023, Xiaomi's cash reserves will be RMB 136.3 billion.

In addition to limited revenue growth, we can also analyze some information from the financial report information:

The good performance of revenue and net profit in the fourth quarter of last year was largely attributed to the success of Xiaomi Mi 14 series. Xiaomi has gained a firm foothold in the competition in the high-end mobile phone market.

Xiaomi has a very healthy financial performance. Its cash reserves of 136.3 billion yuan mean that its previous investment in the automobile business has not hindered its performance. It also means that Xiaomi can continue to invest in new businesses without external investors.

If we look at Apple's financial reports, we can see a very similar situation.

In fiscal year 2023 (the period is from September 24, 2022 to September 30, 2023, the natural year), Apple’s revenue is US$383.2 billion, slightly lower than the US$394.3 billion in fiscal year 2022, and profits also declined slightly.

At the same time, Apple also has massive cash reserves, reaching an exaggerated US$162 billion.

What is more similar is the business composition: mobile phone revenue accounts for between 50% and 60%; hardware other than mobile phones accounts for between 25% and 30%, and good Internet and software revenue continue to supplement it. As long as you are involved in smartphones and their ecosystem, it is almost impossible to achieve significant growth in shipments due to the slowdown in demand across the industry and the growth of replacement cycles. At present, the most effective way to maintain revenue is to increase customer demand. unit price.

In 2023, the average selling price (ASP, Average Selling Price) of Xiaomi mobile phones in China has increased by 19%. This is an example of the overall upward trend of Xiaomi mobile phones, and it is also the inevitable choice of mainstream smartphone manufacturers after the overall shipment volume declines. And Xiaomi President Lu Weibing also said that in 2024, Xiaomi mobile phones must break through the price range of 6,000 yuan to 10,000 yuan.

The same is true for Apple. Three years ago, the average price of each Apple mobile phone sold was more than 860 US dollars, and now it is approaching 1,000 US dollars.

Data given by market research organization Counterpoint Research is that the total revenue of the global smartphone market in 2023 will be US$410 billion (approximately RMB 2,948.9 billion, of which Apple accounts for nearly 50% of revenue and 90% of profits), a year-on-year decrease of 2. %.

If Huawei uses the Hongmeng Intelligent Travel model to create the "Four Realms" and the Hi model to deeply participate in car manufacturing, it is a kind of trade-off and choice after actively measuring technology trends and consumer trends, and then passively measuring the world structure and its own situation. When Xiaomi and Apple think about building cars, it is more like a natural choice based on their own circumstances.

Compared with the smartphone market, which is about 400 billion US dollars per year, automobiles are a larger and broader industry with more players and more prosperous categories. It is in the transformation of the century: the annual sales volume of passenger cars and commercial vehicles is close to 20,000. With the addition of insurance, repair, decoration and accessories, the market size will be even larger, becoming the largest single category market outside of real estate.

Cars are not categories that appear out of thin air like smart watches and wireless headphones. They are a mature market that has existed for more than a hundred years.

Unlike TVs and computers, which are categories with fixed forms and limited innovation, the ongoing changes in cockpit intelligent networking, power electrification, and driving automation have made the connection between the automotive industry and the previous power consumption industry smoother. .

In terms of overall logic, the backgrounds of Xiaomi and Apple's car-making are not much different: the main business is difficult to grow, they have a lot of cash on hand, and the drastic changes in the automobile market provide the greatest possibility.

Of course, there are many differences between the two companies. For example, Apple’s system ecology is more closed, while Xiaomi’s is much more open; Apple’s model of collecting tolls through the App Store makes more money and is more elegant than Xiaomi’s advertising push; Xiaomi and Mijia’s The IoT product category far exceeds Apple’s hardware category…

But in the matter of building cars, the real key difference determined the two companies to part ways.

Xiaomi is more like a manufacturing company, but Apple is not

Ten years ago in 2014, Xiaomi completed its fifth round of financing with a valuation of US$40 billion. This year, Xiaomi's revenue was approximately 70 billion yuan.

Today, Xiaomi's market value is approximately US$48.5 billion in US dollars, and its revenue last year was 275 billion yuan.

Over the past 10 years, Xiaomi’s revenue and profits have continued to grow, but Xiaomi’s market value has not been much higher than its valuation at the time. What happened in the meantime?

If you still have an impression of Xiaomi in 2014, you will definitely remember one word: Internet thinking.

When Xiaomi had an annual revenue of 70 billion yuan, it was valued at US$40 billion because investors regarded Xiaomi as a "mobile Internet company." 10 years ago, this was the sexiest track. Companies, such as Tencent and Alibaba, can be valued at much higher price-to-earnings or price-to-book ratios than in traditional industries.

But when Xiaomi actually went public in 2018, investors used the industrial model of a mobile phone manufacturing company to evaluate Xiaomi's value.

The current situation is that mobile Internet is no longer sexy, and both Tencent and Alibaba are greatly underestimated. What is sexy now is the AI ​​track, mainly the water sellers in the AI ​​industry, such as Nvidia, whose market value exceeded US$2 trillion not long ago.

At this time, Xiaomi no longer mentioned the term "Internet thinking".

As for the automobile industry, except for Tesla and BYD, which represent trends, and a few brands such as Ferrari, which only make ultra-high-end luxury cars, they are basically typical tracks with low price-to-earnings ratios and low profit margins, because cars The real thing is industry, manufacturing.

Even for Porsche, which only makes luxury cars, its recent net profit margin (about 15% recently) is far lower than Apple's net profit margin (about 26%). The net profit margins of car companies in different tracks, such as BMW, Tesla and Toyota, are basically are at single-digit levels.

When these key words of manufacturing, low net profit margin, and low price-to-earnings ratio come together, coupled with the trend of intelligence and networking, Lei Jun stares at the single-digit net profit rate in the financial report (7.1% in 2023), and puts on Xiaomi Automobile's work clothes, wearing HyperOS on Xiaomi 14 Ultra, a sense of mission arises spontaneously:

We make products that touch people's hearts and are reasonably priced, including cars, of course.

Apple is different. Cook looked at the incredible, unbelievable & amazing gross profit margin (about 45%) and net profit margin in the financial report, and then looked at luxury car brands such as Porsche, BMW, and Mercedes-Benz. He shook his head helplessly: It’s really two things. Juju's profits; look at Toyota, Volkswagen and BYD, and sigh again: How can such a big car be sold so cheaply?

Continuing to look at Tesla, Cook finally couldn't stand it anymore and closed his eyes, muttering silently: "Old Ma, you eat in the factory and sleep in the workshop, how little money do you make?"

Although it is a joke, this is also the almost unanimous consensus among analysts:

Automobiles are a century-old industry that is transparent in all aspects. How much money is invested, how much it costs, how much it sells for, how much profit it makes, and the profit margins and return on investment behind it are actually relatively easy to predict. Apple cannot redefine the car market like it redefined smartphones, and then leverage a trillion-dollar industry to sell tens of millions of cars every year at a price of $100,000, and still make two to thirty thousand dollars per car.

Constrained by its positioning as a technology company and the number one in the US stock market, Apple cannot draw the impossible triangle of cars with "high selling prices, high profit margins and high market share". Even the car manufacturers that account for two out of three are already very rare, but Apple has actually achieved such an impossible triangle in the mobile phone industry.

As mentioned before, Xiaomi has no interest in this extreme business model and is not good at it. It even actively embraces low interest rates and promises not to pursue high hardware profit margins.

Now, with this promise, Lei Jun is embarking on a two-way journey with the automobile industry, which will never let you make a lot of money. This is the romance of the manufacturing industry. Men in suits on Wall Street who look at numbers all day long do not understand the joy of tightening screws. .

The legitimacy of this entrepreneurship and investment: the right time, right place, right people and right people

When I was thinking about Xiaomi’s logic of building a car, I suddenly thought of a name, Uber founder Travis Kalanick.

Ten years ago, when the "sharing economy" represented by Uber was widely reported by the media as an important model innovation of the mobile Internet, Travis Kalanick was also a popular entrepreneurial star in Silicon Valley, enjoying the spotlight.

When "sharing economy" is no longer a buzzword, Travis Kalanick, who has a poor personality, has almost disappeared from media reports.

In 2013, Nvidia founder Jensen Huang, who appeared at the Xiaomi mobile phone 3 conference as a Xiaomi chip supplier, has gone from being a loser in the mobile chip competition to becoming the head of the most prestigious technology company in Silicon Valley.

Musk's image has changed from a single "Silicon Valley Iron Man" to an increasingly indescribable image. On the one hand, he is a star and a sea, and on the other hand, he is a chain-smoking tyrant.

Every once in a while, there will always be a meta-narrative theme that appears. It is PC and the Internet, social networks, smartphones and mobile Internet. It may also be the metaverse, new energy vehicles, and current AI. This meta-narrative There will also be various spokespersons, such as Jerry Yang and Gates, Jobs and Zuckerberg, Travis Kalanick, Musk, Jen-Hsun Huang and Sam Altman.

Lei Jun is one of the very few serial entrepreneurs and investors in China who has gone through several entrepreneurial cycles from early PC software to the Internet to smartphones and mobile Internet. He has participated in the founding or investment of national software companies such as Kingsoft, YY, UC, and Xiaomi. level enterprise.

From Xiaomi's corporate level, automobiles are the most suitable field for Xiaomi's development.

From Lei Jun's personal perspective, cars, as a new meta-narrative theme, are inherently attractive to entrepreneurs and entrepreneurs.

Ideal founder Li Xiang commented on Apple’s abandonment of building cars:

Apple's decision to give up building cars and focus on artificial intelligence is absolutely the right strategic choice and the time is right.

First, if toC's artificial intelligence is built, Apple will become a US$10 trillion company; if artificial intelligence fails, Apple will become a US$1 trillion company. Artificial intelligence will become the top-level entry point for all devices, services, applications, and transactions, and it will be a must-win for Apple.

Second, if the car is built and becomes a big success, Apple will increase its market value by US$2 trillion, but the necessary condition for the car's success is still artificial intelligence. The electrification of cars is the first half, and artificial intelligence is the final.

The artificial intelligence extended by mobile phones is bits, the artificial intelligence of cars is atoms, and artificial intelligence spans the digital world and the physical world.

Three necessary conditions for the success of artificial intelligence: talent, data, and computing power

At the same time, he also believes that the two choices of AI and car building cannot be had at the same time, and you can only choose one or the other:

At the strategic level, if a new business can focus on one, it will never focus on two. The strategic farce involving Evergrande and LeTV will not happen on Apple. In addition, choosing the biggest one and the one closest to your core advantage is probably not a good strategy.

AI and car building, these two branch choices under the meta-narrative of the era, are still applicable to Xiaomi and Lei Jun, but Xiaomi has chosen its own path and more geographically powerful car building.

After all, domestic AI companies will play a catch-up role for a long time, and there is too much uncertainty. Domestic new energy companies have extremely rich talent and supply chain reserves, as well as a lot of mature experience for reference, and it is also a large-scale manufacturing industry.

Therefore, we can define Xiaomi’s car manufacturing this way: it is an expansion of Xiaomi’s corporate business, it is Lei Jun’s re-entrepreneurship, and it is also a reinvestment of Xiaomi’s assets.

This kind of investment behavior not only occurs in Xiaomi's automobile business itself, which is worth tens of billions in three years, but also includes investment in the new energy vehicle industry chain.

For example, last year, NIO founder Li Bin and Vice President Shen Fei took turns driving an ET7 equipped with a 150KWh NCM solid-liquid hybrid battery from Shanghai to Xiamen. They completed the 1,000-kilometer endurance challenge without charging or changing batteries along the way. The supplier of this battery is Beijing Weilan New Energy. In addition to Weilai, Xiaomi is also an investor.

Of course, Lei Jun is also one of the first investors in Weilai. Xiaomi Group has been a multiple-round investor in Xpeng Motors, and provided life-saving money to Xpeng Motors during the most difficult period in 2019.

Since the announcement of car manufacturing, the two investment entities, Xiaomi Group and Xiaomi Yangtze River Industry Fund, have adjusted their main investment directions to advanced manufacturing and the automotive industry chain.

For example, in the field of lidar, which is crucial in high-end smart driving sensors, Xiaomi has invested in Hesai Technology and Sagitar Juchuang. Both companies are leading companies in the field of lidar. Last year, Hesai Technology delivered products throughout the year. In December last year, it became the first company in the global automotive lidar industry to deliver more than 50,000 lidars in a single month. Sagitar Jutron successfully landed on the Hong Kong stock market at the beginning of the year. The financial report shows that Sagitar Jutron delivered 243,000 vehicle-mounted lidars last year.

Huixi Intelligent, an autonomous driving chip developer and automotive sensor company Bingling Intelligent that are still in the early stages of entrepreneurship, respectively received angel round investment from Xiaomi.

Also receiving early investment from Xiaomi is Huashen Ruili, an innovative automotive parts supplier.

This company is developing an integrated EMB (dry brake-by-wire technology that drives the motor system) based on the vehicle's central control architecture. This technology has a simple structure and smaller size, which can reduce the layout space and weight of the car. At the same time, because it eliminates Hydraulic transmission directly controls the wheel-end electric brakes through electrical signals, which greatly improves the car's braking response speed, thus improving safety.

BYD Semiconductor, whose business scope covers car-grade image sensors and car-grade MCU chips, has received investment from Xiaomi early. Among them, car-grade MCU chips have been installed on BYD cars on a large scale.

In the field of batteries, Xiaomi's investment territory is also quite broad. Xiaomi is a shareholder behind companies such as Ganfeng Lithium Battery, AVIC Lithium Battery and Honeycomb Energy that have been successfully listed.

In the past 2023, most of Xiaomi's investment projects were closely related to automobiles. The top two sub-sectors were auto parts and autonomous driving.

In short, echoing the maturity of Xiaomi SU7 in car-making itself as reported by many test drive bloggers, Xiaomi's roots in the automotive industry chain are much deeper than ordinary people imagine.

When it comes to building cars, Xiaomi's attitude is worthy of the word serious. It cannot be compared with those companies that build cars with PPT or tape measure.

Musk said a long time ago:

One thing that people must remember in the history of the American automobile industry is that so far only two car companies have not gone bankrupt, and they are Ford and Tesla.

On the other hand, if you look at the global car sales list, Toyota, Volkswagen, Honda, Ford, Mercedes-Benz, etc. at the top are all companies that have been decades or even a century old. It is precisely because the automobile industry is the indicator of a country’s industrial capabilities. The best representative, coupled with the ability to drive huge market scale, industrial chain and employment, makes the automobile industry very different from other industries, with profound national imprint and geographical factors. This is an external factor for automobile companies to be able to build a long-lasting business.

This is different from the logic of Apple and Samsung destroying Nokia and Motorola in the smartphone industry, and Huami OV catching up from behind, because there are too many influencing factors other than products and technologies.

This is an industry that is both fast and slow, both death and evergreen.

Lei Jun said that Xiaomi Auto was his last entrepreneurial venture, and it is indeed difficult to find a career that is more complex, difficult, challenging, and highly rewarding than car-making. Lei Jun, who had early financial freedom, initially chose to start a business again to make smartphones because the sense of accomplishment of being an investor was far inferior to starting his own business, especially if he joined the automobile industry.

The height of the Xiaomi brand is currently determined by the selling price and market share of mobile phones, and in the future it will be determined by the performance of Xiaomi cars. This is why Xiaomi’s first car is defined in this way: a car for drivers, a not cheap car, and an intelligent car. These three points respectively indicate the attitude towards making cars. The needs of the Xiaomi brand, and the essence of the Xiaomi brand.

If we use more clichéd and easy-to-understand words to describe Lei Jun’s entrepreneurial venture and Xiaomi’s investment, it is actually: the right time, the right location, and the right people.

One of the most successful entrepreneurs in China, with a huge amount of cash and resources in hand. In China, where the new energy supply chain and technology are very mature and have huge development potential, smartphones and peripheral businesses are facing growth difficulties, as well as the transformation of new energy and China. In the transformation stage of automobiles from big to powerful, they have devoted themselves to the car-building movement.

The logic is simple and tight.

In the plastic greenhouse of fate, every cabbage that has been sprayed with too many pesticides once had a dream of becoming a pollution-free organic vegetable.

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