Xiaomi’s move into EVs is totally sane

Xiaomi Corp’s plans to move into electric vehicles are big, bold and brave. They’re also entirely in keeping with the smartphone company’s business model of developing a brand rather than the hardware
it sells. After announcing earlier this month that it will join the long list of those wanting to make cars, the Beijing-based company put a price tag on them: as low as 100,000 yuan ($15,000).
According to the South China Morning Post, founder Lei Jun said that the first model will be either a sport utility vehicle or a sedan — ending any speculation that it could have been a sportscar or motorhome.
I’m stating the obvious when I predict that Xiaomi won’t be rolling any cars off its own production lines. In other words, it’s likely to embrace the looming business model of contract vehicle manufacturing — one that Tesla Inc’s Elon Musk has dismissed. Yet pure outsourced smartphones were also a rarity when Lei Jun decided to turn that sector on its head.
At the time that Xiaomi entered the handset business a decade ago, it was such a pioneer that early contract partner Foxconn Technology Group didn’t quite take the company seriously. Foxconn’s sales team was unsure how to handle this unknown walk-in customer. When they found out it was headed by Lei Jun, they became eager to work with him. By training a computer scientist, he became famous for leading software maker Kingsoft and later heading up internet company UCWeb. When he founded Xiaomi, the executive was a well-known angel investor and climbing up the ranks of China’s rich list.
Foxconn, meanwhile, was already making Apple Inc’s iPhone through its Hon Hai Precision Industry Inc unit. Its Hong Kong-listed mobile phone business, now called FIH Mobile, was stuck
making devices for struggling brands like Nokia and Motorola. Taking a gamble on Xiaomi wasn’t an obvious move for FIH at that time, but the advent of the Android operating system, cheaper phone chips, and commoditised touch screens — ditching the need for troublesome keyboards — paved the way for a fresh approach to the mobile phone business.
Xiaomi also gave up the traditional strategy of working with telecom operators and packing retail outlets with inventory. Instead, the company hung its shingle on the internet and shipped directly to consumers, allowing it to drastically cut costs and develop a more intimate relationship with buyers that fed back into development of future products.

—Bloomberg