Xiaomi “fever”

  ”Born to have a fever” Xiaomi is moving from its mobile phone main position to the current hottest electric car manufacturing.
  According to Xiaomi’s plan, the first phase of investment is 10 billion yuan (approximately US$1.565 billion), and US$10 billion will be invested in the next 10 years. The first model will be mass-produced in 2024. This plan is one year earlier than Apple’s electric car mass production plan.
  Can Xiaomi outperform its old rival Apple and other automakers on the car track?
  From the perspective of Tesla and Apple-the former has only made profits for the first time by selling “carbon emission reduction” credits to other car companies after its establishment 17 years ago, the latter intends to use disruptive battery technology to build its own unique competition from Tesla Advantage. In contrast, what cards does Xiaomi have to play?
  At present, Xiaomi has deployed dozens of smart car companies in an “investment-driven” approach, but the technical route is still unknown. Some investors bluntly said that the lack of core technical capabilities makes Xiaomi do not have an advantage in car building.
  In addition to technology, Xiaomi’s best “price-performance ratio” may not be applied to electric vehicles. The so-called “large mobile phones” on the road must be safe and brand-endorsed.
  And safety and brand are not obtained overnight. Tesla invested about 1.5 billion US dollars in technology research and development last year, and invested more than 20 billion US dollars in the past ten years. This kind of investment intensity and technology accumulation are hard for Xiaomi.
  More importantly, the latest three quarterly reports show that Xiaomi’s mobile phone business is suppressed by Apple and Honor, and its growth is weak.
  This is also the “candle burning at both ends” that the industry is worried about, and Xiaomi’s capital flow will face a major test. Recently, the secondary market has expressed “worries” about this.
  I hope that Xiaomi’s “car building” is the result of careful consideration, rather than a “fever” for a while.

  third quarterly report of Xiaomi, the mobile phone sales ranking as its main business has declined both domestically and overseas. This allows the market to vote with its feet again. The first-line stock price of 19 Hong Kong dollars is only one step away from the IPO price of 17 Hong Kong dollars. Since 2021, Xiaomi’s stock price has fallen by more than 40%, and its market value has shrunk by more than HK$340 billion.
  With the lack of main business strength, Xiaomi seems to regard car building as a second growth curve. This new track requires huge investment and a long time period. The initial investment is 10 billion yuan, and the investment in the next 10 years is 10 billion US dollars, and it will be zero income until 2024. The market is more skeptical of Xiaomi’s car manufacturing, because Xiaomi’s car manufacturing has no advantages in safety and reliability compared with traditional car companies, and the software technology will be suppressed by Apple for a long time. Some investors said that instead of taking car manufacturing as the second growth curve, Xiaomi is more reliable than cultivating the already eye-catching smart home.
  At present, the market is divided on Xiaomi’s long and short positions, but regardless of whether it is long or short, Xiaomi is valued on the basis of hardware.
  Perhaps the issues discussed in the article are all issues in the development of Xiaomi. To completely dispel the doubts of investors, only time can be used to answer them. A thorough understanding of these issues can enable investors to more clearly discover where the risk boundaries of investing in Xiaomi are.
There is Apple, there is glory inside, and the main business of mobile phone sales under the red sea is weak.

  Smartphones account for 61.26% of Xiaomi’s revenue, and this main position is absolutely indispensable. Since Xiaomi’s listing, institutions have mostly valued it by mobile phone hardware manufacturers, and mobile phone shipments directly affect the buy and sell ratings.
  This week, after Xiaomi released its report card for the third quarter of fiscal year 2021, the stock price was voted with feet the next day, closing down 6.96% to close at HK$19.26. The most direct reason for the market’s pessimism towards Xiaomi is that Xiaomi’s mobile phone shipments have declined both globally and domestically. The global ranking returned to the third position from the second place in the second quarter, and the domestic ranking dropped from the third place in the second quarter to the fourth place. The world is under the influence of iPhone13, while the domestic market is due to the Honor mobile phone squeezing into the top three with a market share of 17.3%.
  The three quarterly reports show that the revenues of Xiaomi’s three major businesses, smartphones, IoT and consumer products, and Internet services, accounted for 61.26%, 26.82%, and 9.40% of revenue, respectively. As the absolute main source of revenue, Xiaomi is absolutely indispensable in the main position of smartphones.
  In the era of smartphones, selling hardware to make software has become Apple’s logic to win, and Xiaomi’s external voices and a series of operations show that it is also following this logic. But it is undeniable that mobile phone sales are still the absolute main source of Xiaomi’s income, otherwise “selling hardware to make software or even making ecological money” is just a “story”.
  Xiaomi has always been called an Internet company, but the market valuation is more of a hardware company. Xiaomi still makes money by selling mobile phones very hard. And its “main cost-effective” label has also restricted profit margins. And since Xiaomi went public, institutions have mostly valued it by mobile phone hardware manufacturers, and mobile phone shipments directly affect the buy and sell ratings.
  The current Xiaomi has Apple outside and glory squeeze inside. In addition to its own poor competitive landscape, the overall smartphone environment is also relatively ordinary and lacks imagination under the Red Sea. The industry generally recognizes that smartphone shipments have reached their peak in 2017, and weak shipment growth in the future will become the norm.
  ”Xiaomi’s stock price fell sharply, showing investors’ concerns about the decline in the market share of mobile phones, and it is still unknown whether this decline can be improved in the fourth quarter. The expected annual target of 200 million mobile phones may not be achieved. The biggest problem now is the uncertainty brought by Honor. This will have to wait until the end of the year to see how Honor’s staying power is.” Financial blogger @小米 Chief粉 Tesla, who focuses on IoT platforms and hardware R&D, commented on The weekly said.
Xiaomi’s cars do not have an advantage in safety and long-term development is trapped by Apple’s suppression

  The field of smart electric vehicles is a veritable red sea. In addition to its lack of safety and reliability compared with traditional car companies, Xiaomi has also been suppressed by Apple in terms of automotive software technology. Apple has achieved success in both software and ecology, while Xiaomi is still struggling with how to keep the declining mobile phone market.
  In what way does Xiaomi respond to the peak of smartphones? “Building a car” is interpreted by the market as a response.
  Since Xiaomi announced its entry into the field of smart electric vehicles in March of this year, news about Xiaomi’s car manufacturing has been constantly refreshed. The third quarterly report shows that Xiaomi’s smart electric vehicle team has more than 500 members. The financial report also reiterated that Xiaomi’s car is expected to be mass-produced in the first half of 2024. Lei Jun also shouted “all the accumulated record and reputation, fight for Xiaomi cars.”
  It is undeniable that smart electric vehicles are one of the biggest outlets at the moment, and the opportunity cost of missing this market is very high.
  For a long time, not only mobile phone manufacturers such as Apple and Xiaomi are keen on building cars, but many car companies are also interested in building mobile phones.
  ”Mobile phones and smart cars are very closely related, and only then will the two cross-border each other. In the future, it is very likely that the car will be a mobile’mobile phone.” Xiaomi’s long-term follow-up researcher and financial blogger @粮厂 Researcher Will told reporters. In his opinion, it is not surprising that Xiaomi chose to build a car. Moreover, Xiaomi’s advantage lies in the combination of software and hardware, and its retail channels analyzed by the outside world can also be logically analogous to traditional car 4S stores, and it is reasonable that users with a monthly life of over 500 million can constitute the potential purchasing power of Xiaomi cars in the future.
  But as far as Xiaomi is concerned, the difficulties it faces in building cars are also real. “First of all, the process of building a car is very complicated, and the investment is also huge. From the perspective of hardware, the difficulty of mobile phones to cars needs to be’upgraded’. Secondly, Xiaomi does not have technical advantages in fields such as driverless driving. Although Xiaomi You can integrate resources through investment, but how to internalize resources into your own technology is also full of challenges. Third, building a car will cause great consumption of personnel and various resources, whether this will affect the concentration of energy The existing main business is also worth thinking about.”@粮厂Researcher Will told reporters.
  Following this line of thought, the reporter found that cars are much more complicated than mobile phones in terms of the supply chain alone. For example, the number of Apple suppliers is between 700-800, and the number of core suppliers is about 200. The number of parts for traditional fuel vehicles reaches about 30,000, which is a hundred times that of smart phones. This is one of the reasons for the relatively high complexity of the automotive supply chain.
  From the perspective of professionals in the automotive field, smart electric vehicles do not change their essence as a car. For cars, safety and reliability are still the most important. Cui Dongshu, secretary-general of the Travel Federation, told the “Red Weekly”. “Compared with vehicle companies such as Tesla in the United States and BYD in China, new energy vehicles need more systematic capabilities. Xiaomi has not shown a particularly strong advantage in this regard, and the industrial technology highlights are not outstanding. The lack of core technical capabilities makes consumers more worried about whether Xiaomi’s cars have development potential. Xiaomi does not have the advantage in terms of safety and reliability.”

  At present, the field of smart electric vehicles is also worthy of the name of the Red Sea. There are mainly four mainstream factions in the market, namely, new car manufacturers, smart phones, Internet giants and traditional car companies. The latest news is that Apple will launch a fully autonomous car in 2025, and Morgan Stanley’s point of view is that Apple’s entry into autonomous driving may have a negative impact on most other electric vehicles.
  It can be seen that, in addition to the lack of safety and reliability advantages compared with traditional car companies, Xiaomi has also been suppressed by Apple in terms of car software. Because Apple has achieved success in both software and ecology, Xiaomi is still struggling to keep the eroded mobile phone sales market.
Insufficient technological attributes, burning money to build cars, whether it will win the market in the future is still unknown

  In the car market, and the company lacks technical advantages, Xiaomi, which started late, is burning money vigorously. Whether Xiaomi’s hard-earned cash flow can support the company’s presence in smart electric vehicles remains a question mark. At least until 2024, the auto business is a high investment and zero revenue generation for Xiaomi.
  Due to the lack of vehicle platform design and manufacturing capabilities and the accumulation of auto-driving related car technology, current new car-making forces, such as Weilai and Xiaopeng, have adopted an foundry model similar to that of Apple mobile phone manufacturing. This way, on the one hand, you can use the powerful automobile manufacturing capabilities of traditional car factories to quickly realize the mass production of vehicles; on the other hand, it can also be adopted or self-developed in the fields of three-electric system, autonomous driving, or cooperate with third-party suppliers. To increase control over key components or capabilities.
  Xiaomi also has a similar idea. Before announcing the production of cars, Xiaomi’s capital has already deployed in the field of smart cars. According to incomplete statistics, as of the end of September 2021, Xiaomi has invested in a total of 62 companies in the field of smart cars, including 17 smart driving, 13 smart electric, 6 smart cockpits, and 22 companies are new investments in 2021. . Although vigorous investment is a layout method, it also exposes Xiaomi’s technological shortcomings.
  Attached photos: Autonomous driving-related companies invested by Xiaomi

Source: Tianyancha, China National Finance Securities

  When it comes to technological DNA, Xiaomi has been criticized. In the eyes of the outside world, Xiaomi does not rely on innovative technologies to lead the world to gain the market. Instead, it gains the market by imitating and following and focusing on cost-effectiveness. Therefore, it is not optimistic about the capabilities of the company. For example, the current self-developed capability of Xiaomi’s main chip is relatively weak. Although Xiaomi launched its self-developed S1 processor in 2017, it faced difficulties in the follow-up and did not continue to launch new products. In contrast to the development history of smart phones, the appearance and supply chain are very easy to be imitated. In contrast, the core reason why Apple’s profits exceed the sum of all its competitors lies in the self-developed A-series chips, iOS system, and the creation of an application ecosystem and high-end brand.
  Regarding the question of whether Xiaomi has a technological DNA, Cai Jianjun, a senior expert in the TMT industry of Nomura Research, told Red Weekly: “A successful technology company should not only focus on its technology itself, but emphasize the integration of technology application and business. Xiaomi is able to break through in the mobile phone market. The ultimate product is inseparable from the support of technology and technology. But if you want to talk about hard-core technology and core technology, Xiaomi really has no breakthroughs at present. The hard-core technology of mobile phones and terminals is nothing more than Operating system, chip, sensor and other stuck neck technologies, these Xiaomi has explored but have not made breakthroughs. On the contrary, Huawei has done a good job. Therefore, if you use hard-core technology to judge, then Xiaomi lacks technology genes. Therefore, we must answer this question. , We have to return to the problem itself.”
  With the car manufacturing market influencing and the company’s own lack of technological advantages, Xiaomi, which started late, chose to burn money to catch up. In the third quarterly report, the company emphasized that there is enough cash and cash flow to support the company’s car manufacturing business, and Xiaomi Automobile did not consider a separate listing for financing.
  As we all know, building a car is an extremely expensive business. Take “Big Brother” Tesla as an example. The company will achieve full-year profitability in 2020, the first profit in 17 years since its establishment. But what makes it profitable is not by selling cars but by selling carbon emission credits to other car companies. In addition, Tesla’s research and development intensity has basically been above 10% over the years, far exceeding the average level of 5% of traditional car companies.
  In contrast, how much money Xiaomi can burn and how much research and development it can make is worth pondering.
  The financial report shows that on September 30, 2021 and June 30, 2021, the company’s cash and cash equivalents were 32.6 billion yuan and 31.9 billion yuan, respectively. As of the end of 2020, the cash balance on Xiaomi’s account was approximately RMB 108 billion. Xiaomi’s estimated investment of 10 billion yuan in the initial stage of car manufacturing and 10 billion U.S. dollars in the next 10 years, whether Xiaomi’s hard-earned cash flow can support the company’s position in smart electric vehicles and what impact it will have on the overall development and operation remains to be seen. Put a question mark. At least until 2024, the auto business will be a high investment and zero revenue generation for Xiaomi, and it will also face fierce competition from other automakers.
  In the early stage, due to the need to build cars, the high salaries and investment expenditures were all included in the company’s management and research and development expenses before income was generated. It can be seen from the third quarter report that Xiaomi’s management and R&D expenses have continued to soar. This quarter, when the company’s revenue growth rate is less than 10%, R&D expenses have increased by 40% and management expenses have increased by 50%.
Xiaomi is deeply involved in the valuation game, the second growth curve, building a car or not as deep as smart home

  After Xiaomi announced the news of car-making, the market did not value Xiaomi’s car-making expectations. The stock price continued to fall, and investors and institutions were also very divided. Even investors who pay attention to Xiaomi feel that compared to smart homes, it is difficult to build a car to become Xiaomi’s second growth curve.
  Back to the capital market, in the face of Xiaomi’s 40% drop in market value this year, investors and research institutions have great disagreements.
  After Xiaomi announced the news of building a car in March, the market did not value Xiaomi’s car building expectations, and the stock price continued to fall. After Xiaomi released its three quarterly reports this week, some agencies lowered their ratings and others raised their ratings. During the interview, there are investors told reporters bluntly “Millet down too hard,” and said not willing to say and do not concern the company, “has been badly beaten up, do not say!”
  For millet continued concern Investors said that Xiaomi’s background is indeed insufficient, but it can only be accumulated by time, and Xiaomi can also make money from ecology if time is enough. “There is still a difference between Xiaomi and Lenovo. Lenovo has not paid much attention to R&D for historical reasons. However, Lei Jun was born in R&D after all, and he would not underestimate R&D. However, in the first five years, Xiaomi mainly emphasized software R&D and despised hardware R&D, thinking that he had mastered the Internet. Dafa looked down on the manufacturing industry, so it made mistakes, but now it is changing.” Finance blogger @小米第一粉Tesla told Red Weekly.
  But as mentioned in the previous article, Xiaomi’s financial report is a hardware company that sells mobile phones, so both the market and research institutions are based on this valuation.
  Yuan Wei, an investor who has in-depth research on Internet business models, told Red Weekly, “Xiaomi’s model Costco supermarket is a very successful company based on its cost-effective and inexpensive route. So in my opinion, Xiaomi The future direction of power does not necessarily have to go in the direction of high profit margins. But it needs to build an ecosystem and make breakthroughs in core technology innovation.” In his view, Xiaomi’s second growth curve should come from smart homes or electric appliances. Automobiles, due to the lack of first-mover advantage in the field of electric vehicles, lack of core technology, and fierce competition, it is very difficult for Xiaomi to stand out. Relatively speaking, it may still have more advantages in the field of smart home. It is easier to succeed in this field and it is more likely to become the second curve.
  The third quarterly report shows that Xiaomi’s AIoT and consumer products account for 26.82% of revenue, making it the second largest business after smartphones. From 2016 to 2020, the revenue CAGR of Xiaomi IoT and consumer products will reach 53%. The number of connected devices on the company’s IoT platform (excluding smartphones and laptops) reached 400 million, an increase of 33.1% and 6.8% year-on-year and quarter-on-quarter respectively; the number of monthly active users of the Mijia APP increased to 59.9 million, a year-on-year increase of 39.0%, quarter-on-quarter An increase of 6.0%; the number of monthly active users of the artificial intelligence assistant “Xiao Ai” exceeded 100 million for the first time, a year-on-year increase of 34.1% and a month-on-month increase of 3%. The “2020 China Smart Home Ecological Development White Paper” shows that by the end of 2019, China has become the world’s largest IoT market. Among the 1.5 billion cellular network connected devices in the world, 960 million units come from China, accounting for 64%. China will become the world’s largest smart home. Consumer countries in the home market.
  Perhaps the authorities are fans of the bystanders. Judging from the current investment and external publicity, Xiaomi seems to regard car building as the company’s second growth curve. The main business is weak, and whether Xiaomi can successfully break through by building a car will only have time to give the answer.