In March 2023, Xiaomi Chairman Lei Jun reiterated that Xiaomi’s new energy vehicles (NEVs) would enter mass production in the first half of 2024. Fast forward to October 4, 2023, and reports indicate that Xiaomi’s EV, codenamed MS11, has received certification from the Bluetooth Special Interest Group (SIG). Furthermore, with ongoing news about hiring, site selection, and trial production, though the exact mass production date is yet to be confirmed, it is likely not far from Chairman Lei Jun’s commitment, potentially positioning Xiaomi ahead of Apple and Sony in launching new energy vehicles.

TrendForce’s Insights:

1. Extensive Preparation: Xiaomi’s Years of Investment in Automotive Components

With the transition to the era of new energy vehicles, there is a shift from traditional gasoline to electric power as the primary energy source. Additionally, the increasing demand for advanced driver-assistance systems has attracted numerous electronics and technology companies to enter the new energy vehicle industry. For instance, smartphone brands such as Xiaomi, Apple, and Sony have all announced plans to manufacture EV. Based on the progress reported by the media, Xiaomi may take the lead in commencing mass production of new energy vehicles in 2024, while Apple and Sony, the latter in collaboration with Honda, are likely to introduce their new energy vehicles after 2025.

To ensure adequate self-sufficiency and competitiveness, Xiaomi began laying the foundation early. Starting as far back as 2016, the company ventured into the field of LiDAR. Over the years, Xiaomi, along with its affiliated funds and investment entities, has made extensive investments in crucial components such as power batteries, electric propulsion systems, and electronic controls. These investments have covered more than 50 companies in the industry. Notably, in 2021, Xiaomi acquired DeepMotion, a startup specializing in autonomous driving solutions. Xiaomi’s investment strategy indicates it possesses the necessary tools to enter the new energy vehicle industry, including mastery of essential components and substantial capital resources.

2. New Energy Vehicles: High Costs, Low Profit Margins

The automotive industry is characterized by substantial capital investments, with a significant portion of revenue stemming from post-sale maintenance and services. Pioneering startups in the field of new energy vehicles, such as NIO and Li Auto, continue to grapple with financial losses. Although NIO’s President, Lihong Qin, expressed that “when a company does a series of things right, profitability will come naturally,” it remains to be seen whether Xiaomi, accustomed to the consumer electronics sector, shares the same level of patience.

Despite Xiaomi’s focus on profitability through smart driving software-related subscription services, the challenges are significant. Current limitations lie in the complexities associated with the responsibility for advanced autonomous driving systems beyond Level 3. The automotive industry currently prioritizes Level 2 automation, and according to data from the Chinese Ministry of Industry and Information Technology reveals that, by 2022, the penetration rate of Level 2 (L2) vehicles had already reached 34.5%. This high level of adoption indicates a highly competitive landscape, which may present challenges for Xiaomi’s business model. Xiaomi’s typical approach involves leveraging low-margin hardware to acquire users and generate traffic, with profits coming from its ecosystem of services, including advertising and internet-related offerings.

Moreover, new energy vehicles tend to have longer product lifecycles compared to smartphones. As a result, consumers with budget constraints tend to prioritize the tangible value of hardware. This implies that building acceptance for software subscription services may require a significant amount of time.

Xiaomi might have crossed the initial hurdles of entering the automotive industry. However, the challenges post-entry, as outlined above, will genuinely test whether the Xiaomi model can be as effective in the new energy vehicle sector as it has been in its traditional domains.

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Foxconn held its Tech Day on October 18, 2023, where Chairman Young Liu addressed the company’s stance and strategy in response to the high growth of the EV market in mainland China, which significantly impacts the global EV industry.

Liu began by discussing the prevailing trend of electric vehicles in China, emphasizing that while the focus has primarily been on the development of EVs, the business model has received limited attention. Foxconn’s approach in the EV industry centers on its Commissioned Design and Manufacturing Service (CDMS) business model, but Liu stressed that in China, CDMS alone is not permitted. Automakers in mainland China must engage in both manufacturing and sales.

Liu explained that the CDMS model doesn’t involve the creation of Foxconn’s own brand, a practice currently disallowed in mainland China. However, the competitive landscape is shifting, with fierce competition, particularly among domestic automakers. With an estimated 100 to 200 automakers in China, the market has become increasingly intense, prompting a focus on minimizing costs and investments. In this context, Foxconn’s CDMS model emerges as a viable solution, as investing in 100 automakers would be prohibitively expensive. Liu anticipates that China will eventually open up to the outsourcing model. While Foxconn isn’t currently engaged in EV manufacturing in mainland China, it’s gradually building relevant capabilities, preparing for the moment when outsourcing becomes permissible, enabling Foxconn to take a leading position.

Regarding the interest of Japanese automotive giants in Foxconn’s electric vehicles, Liu noted that their stance is clear. They consider themselves partners to established auto brands. Traditional automakers have traditionally covered all aspects, transitioning from internal combustion engines to batteries. However, in the age of electric vehicles, the shift can no longer be about the engine as a barrier to entry into the industry. Traditional automakers must now contemplate how to create value, which represents their most significant challenge.

Manufacturing, Liu noted, is no longer the source of value that traditional automakers can create. Instead, they should focus on marketing and services. It involves understanding how to leverage apps and scenarios to offer consumers unique experiences. Traditionally, brands like Mercedes-Benz stood for luxury, while BMW represented driving performance. In the era of electric vehicles, positioning needs to shift toward services rather than engine definitions.

Liu offered the analogy of televisions to illustrate his point. Sony was a leader during the cathode-ray tube era, but as the market transitioned to liquid crystal displays, the focus shifted to panels, and every brand became indistinguishable. Liu’s advice to potential Japanese automotive partners is to delve deeper into understanding the users, emphasizing that this will be critical in the age of electric vehicles.

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• [News] Foxconn Aims to Create AI Factory for Smart Cities and EVs with NVIDIA
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(Photo credit: Foxconn)

Chinese electric vehicle giant BYD is set to report impressive profits once again. The company announced on the 17th that it expects its net profit attributable to the parent company for the first three quarters of this year to be between CNY 20.5 billion and CNY 22.5 billion, an increase of 120.16% to 141.64% year-on-year. In the third quarter, the estimated net profit is set to reach CNY 9.546 billion to CNY 11.546 billion, representing a year-on-year growth of 67% to 101.99%. This quarterly performance mirrors the profitability achieved in the first half of the year.

BYD noted that the new energy vehicle industry continued its robust growth in the third quarter, with BYD achieving historic highs in new energy vehicle sales, maintaining its position as the world’s top seller of such vehicles. Looking at BYD’s monthly sales figures for the first three quarters of this year, the company consistently achieved record-high monthly sales. In September, BYD’s new energy vehicle sales exceeded 280,000 units, with cumulative sales for the first nine months reaching 2.0796 million units.

Furthermore, BYD mentioned that there was a “recovery in demand from Android customers” for its mobile parts and assembly business. BYD Chairman Wang Chuanfu previously stated, “We manufacture many phones, and most of Huawei’s phones are made by us.” This statement gained significant attention on social media. Subsequently, on August 29, the highly anticipated Huawei Mate 60 Pro was released and received a warm reception from consumers. This was followed by the releases of Huawei Mate 60 Pro+ and Huawei Mate X5, which joined the vanguard project.

BYD’s mobile parts and assembly business is primarily managed by its subsidiary, BYD Electronic. BYD Electronic also predicts strong profits, expecting its net profit attributable to the parent company for the first three quarters of this year to be between CNY 2.836 billion and CNY 3.116 billion, an increase of 129.29% to 151.93% year-on-year. The company stated that increased profits are mainly due to a rising proportion of overseas major customers, a rebound in Android customer demand, and continued rapid growth in new energy vehicles and new smart products, which have led to improved utilization of the group’s production capacity, further optimized business structure, and substantial profit growth.

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(Photo credit: BYD)

Foxconn’s annual Technology Day kicked off today at the Nangang Exhibition Center, following the tradition of celebrating founder Terry Gou’s birthday. Although Mr. Gou was not present at the event, NVIDIA CEO Jensen Huang made a surprise appearance, introducing the production version of Model B and highlighting its appeal to young couples.

Jensen Huang announced that he and Foxconn Chairman Young Liu are collaborating to establish an AI Factory. He shared hand-drawn sketches, emphasizing that they are adopting a novel approach to software development, enabling computers to create software based on human preferences and experiences. To ensure a computer’s ability to learn effectively, it must have access to abundant data from which it can derive valuable insights and experiences..

He unveiled the vital role of robust computers in facilitating AI learning. With NVIDIA’s assistance, Foxconn may collect enough data for AI to process shape network models, paving the way for innovative intelligence.

Jensen Huang then emphasized that this groundbreaking system is set to empower any factory or company, with Foxconn’s cutting-edge electric vehicle Model B enabling interaction between drivers and passengers. The AI Factory will offer a wide array of tools, including software solutions, to enhance the overall quality of life.

Chairman Liu reiterated their determination to bring AI Factory into fruition, backed by three core platforms: Smart City, Smart Manufacturing, and Smart EVs, all of which are driven by the innovative AI Factory.

Huang noted that these efforts will all be fueled by AI intelligence, ultimately creating substantial value. In a light-hearted tone, he concluded, “Let’s meet at the night market!”

Adding an interesting twist to the day’s events, Foxconn’s Tech Day featured three Foxconn N7 electric cars in deep blue, light blue, and white. Notably, the white vehicle showcased a handwritten message from Jensen Huang that read, “To Young and my friend at Foxconn, beautiful and amazing EVs! Jensen Huang.”

(Photo credit: Foxconn’s Stream)

In an event held on October 18, 2023, Foxconn Chairman Young Liu unveiled the company’s latest electric vehicle, MODEL N, demonstrating Foxconn’s comprehensive vertical integration capabilities. He also encouraged traditional automotive companies to harness Foxconn’s strengths for their future endeavors.

Chairman Young Liu expressed his excitement at the event, saying, “I am so excited to show off our latest EV model. This is MODEL N. With this new EV, we demonstrate a full range of vertically integrated capabilities. Traditional automotive companies, yes, I’m talking to you-can tap in all of these.”

He highlighted Foxconn’s achievements in the automotive industry over the past three years, including the introduction of various eye-catching products such as high-end sedan, passenger crossover, SUV, compact pick-up, commercial bus, and commercial van.

Chairman Liu emphasized that Foxconn’s CDMS (Commissioned Design and Manufacturing Service) business model provides the automotive industry with total and bespoke solutions. This business model significantly reduces costs and shortens time to market, which are critical factors for the future success of EV.

During the event, attendees had the opportunity to explore Foxconn’s electric logistics vehicles in the morning. In the afternoon, they were introduced to LEO, Foxconn’s Low Earth Orbit satellite. This satellite has already been packed and is scheduled to launch next month.

Chairman Liu mentioned that, before this, two of Foxconn’s CSO would setp onto the Tech Day stage to share their insights and perspectives on the EV and semiconductor industries.

(Photo credit: Foxconn’s Stream)