Lei Jun, founder and CEO of Xiaomi, has revealed the driving force behind his bold foray into the electric vehicle (EV) market, pointing at the US sanctions.
During a compelling three-hour speech, Lei revealed that the threat of U.S. sanctions in 2021 was the catalyst for this strategic pivot, according to a report by SCMP.
In the waning days of the Trump administration, Xiaomi found itself on a U.S. Department of Defense blacklist, accused of having ties to the Chinese military. This listing barred American investors from holding Xiaomi stock, sending shockwaves through the company. Lei recounted the urgency of the moment, describing how he convened an emergency board meeting to address the existential threat posed by the sanctions.
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Although the company secured a rare legal victory and had Xiaomi removed from the blacklist within four months, the incident left an indelible mark on Lei. Like several other Chinese companies relying on the US market, the incident underlined the need for diversification of business operations and passion for execution.
Unlike Huawei, which faced crippling sanctions that cut off its access to essential components and software, Xiaomi remained free to source the latest Qualcomm chips and bundle Google services with its smartphones. This crucial distinction allowed Xiaomi to maintain its competitive edge against global giants like Apple and Samsung.
Venturing into the EV Market
In March 2021, just two months after being blacklisted, Xiaomi announced its ambitious plan to launch an EV subsidiary. Lei declared this move as “the last major entrepreneurship project” of his life, committing US$10 billion of Xiaomi’s own funds over a decade to build the EV business. Eschewing venture capital, this decision highlighted Xiaomi’s confidence and determination to steer its destiny independently.
The investment includes a substantial 5.5 billion yuan (US$756.3 million) to construct a sprawling EV factory in Beijing. This HyperFactory, covering 718,000 square meters, began double shifts in June to ramp up production capacity, aiming to hit an annual delivery target of 120,000 vehicles.
Navigating a Saturated Market
China’s EV market is a battleground of intense competition, with start-ups and established automakers jostling for dominance and driving down prices. Xiaomi, a latecomer to the scene, has leveraged its aggressive pricing strategy to quickly gain traction.
The company’s SU7 sedans, launched in March, have already seen over 30,000 deliveries. With a starting price of 215,900 yuan, Xiaomi is selling these vehicles at a loss to carve out market share swiftly. Lei expressed confidence in meeting the minimum annual target of 100,000 deliveries by November.
Xiaomi’s EVs are equipped with advanced technology, including chips from Qualcomm and Nvidia, as well as its own in-house designed S1 mobile system-on-a-chip and C1 image sensor. This technological prowess aligns with Xiaomi’s strategy of offering high-quality, affordable products, a hallmark that has defined its success in the smartphone market.
Xiaomi’s response to U.S. sanctions is part of a broader trend among Chinese companies seeking to mitigate the impact of geopolitical tensions. Huawei, for instance, has invested heavily in developing its own technology stack, including the HarmonyOS operating system and proprietary Kirin chipsets, to reduce its dependence on U.S. suppliers.
Similarly, Alibaba and Tencent have expanded their cloud computing and financial services to diversify revenue streams and insulate against potential sanctions.