The rise of Chinese electric vehicle (EV) manufacturing has been well documented and BYD has risen to become the brand with the world’s largest unit sales count. With a forecast 6.5 million units for 2026, this will eclipse the likes of Tesla by over three times their expected two million units. However, the success of Xiaomi points to a more interesting point – they are not an auto manufacturer by heritage but a consumer electronics maker. They are better known for household electronics like intelligent speakers, TVs, smart air fryers and mobile phones. What right do they have to be producing such successful EVs?
The answer probably lies in the fact that in many ways an electric car with all its connectivity, advanced sensing and software puts it closer to consumer electronics than most in the car industry would like to admit. With significantly less moving mechanical parts, the mechanical engineering heritage of the traditional manufacturers is devalued. An electric car may have as little as 20 to 25 moving parts in their drivetrain. A gasoline car may have as many as 100 parts in the engine alone and well over 1,000 moving parts in total. The manufacturing skillsets are totally different and with Chinese innovation in consumer electronics, they are well set to keep producing better cars quicker and cheaper than the West.
Market forecasters expect unit sales in 2025 of about 20 million EV units globally. China will produce more than 60% of those units; BYD alone over 25%. Less mechanical engineering challenges and way fewer moving parts means better reliability, cheaper running costs and likely great longevity.
It is really hard to see where the future lies for traditional auto makers even if they wholeheartedly adopt EV. According to the European Commission, there are almost 14 million people employed in the European auto industry. Manufacturing (direct and indirect) accounts for 3.5 million jobs, with sales and maintenance a further 4.5 million. The impact of EVs, combined with autonomous driving, puts many of these jobs at risk. The combination of entrenched views in Europe, a lack of labour flexibility and general intransigence make the outlook bleak for a manufacturing sector that is starting to look far more like a new strand of consumer electronics than anything else.
How can Xiaomi develop products so fast? This new model sold out 10,000 units online in just 10 minutes. Where does this kind of brand and product hype exist in the world of autos? It is surely an indicator of the consumer electronics nature of evolving autos; way less competitive than at first thought and a market that lends itself well to the classic Chinese fast follower advantages. What is even more mind-boggling is that when the car was previewed last year, the expected price point was well over $100,000; the launch price just a few months later is $75,000 – top-quality consumer electronics with costs trending down.
Post-Covid, the Chinese have been taking market share in foreign markets at an astonishing pace. This should perhaps not come as a surprise – there have been many technologies copied in the past and surpassed by the sheer manufacturing prowess of the Chinese. Mobile phones are a case in point. Go back to 2007, just before the iPhone was launched by Apple and Nokia had unit sales of 437 million or an almost 50% global market share. Blackberry also had meaningful penetration – 20% of the market in 2009. Neither company was able to hold on in any way. This was not just about the launch of smartphones and their competitive threat; it was far more about the ability of the incumbent players to re-engineer and develop new products rapidly and cheaply enough.
This type of competitive threat will be even more difficult for the traditional ICE auto manufacturers. A typical model cycle for the European auto makers is seven years – in today’s world that is a lifetime or, perhaps more accurately, a life sentence! Xiaomi Automobile (the auto division of Xiaomi) was formed in 2021; the company received a permit to produce vehicles in August 2022 with production of the first vehicle, the SU7, in December 2023. The consumer electronics culture is just faster and cheaper. Many in the EV industry think that EV production will be totally commoditised over a relatively short space of time.
The bulls for Western world manufacture will cite the moat around AI, FSD and robotaxis. However, DeepSeek has shown clearly that the West’s advantage in AI is not as big as was thought. The only true advantage for any ‘value add’ will come from the network effect, one of our key disruption lenses. If a small number of companies control significant portions of the autonomous fleet then they will have a data edge that will set them aside and create a significant competitive advantage. But why can’t this advantage accrue to a company that already has the platform positioning like Uber? It makes sense to us that the Western world should focus on network benefits and maybe consider, for example, a Tesla/Uber combination rather than attempt total self-world dominance. Manufacturer and brand is definitely not the answer. Oh, and look out, both BYD and Xiaomi have distinct business units, backed with billions of dollars of R&D spend, working on a humanoid robot. I wouldn’t bet against them winning this war either.
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