HONG KONG, March 31 (Reuters Breakingviews) - Xiaomi (1810.HK) is test-driving a risky strategy. The Chinese smartphone maker on Tuesday said it will invest $10 billion over 10 years to expand into smart electric vehicles. Its formidable founder, Lei Jun, has ample resources and an impressive track record, so his automotive aspirations ought to stand a better chance of success than peers.
It’s worth taking Lei’s plan seriously. The entrepreneur has already built an $83 billion electronics giant from scratch and is one of China’s most revered business leaders. He will also become chief executive of the car company in addition to running Xiaomi, calling the new undertaking the “last major entrepreneurial project” of his life.
Deep pockets and a wealth of experience will also help. Xiaomi has close to $12 billion in cash reserves, and its annual operating cash flow alone could cover the initial investment of 10 billion yuan ($1.5 billion) twice over. Earlier efforts to establish supply chains and technical know-how for smartphones offer a template for success; and those core products could mesh nicely with smart-car software systems, too.
Nor is this a short-sighted reaction to the current electric-vehicle mania. There is evidence that Lei has been mulling this route for some time. Xiaomi has invested in 10 companies with related technology and specialties over the past eight years, according to Daiwa. It has also registered a number of relevant patents, per Chinese media reports.
However, a head start only gets them so far. Consumers will still need to take a leap of faith to buy a car from a company better known for its phones, nifty air purifiers and rice cookers. Building up a credible brand with quality products will be hard work, and there is little room for error on the road, where mistakes can cost lives. Meanwhile Lei could be spread thin, particularly if he also continues to push into other new areas such as virtual banking.
Along the way, the company will face competition from more mature and sophisticated carmakers. In private, these veterans voice doubts that their potential newer rivals, such as Xiaomi, Haier and Huawei, present a serious threat. If anyone can prove them wrong, it’s Lei. If he falters, though, other technology titans with pretensions as carmakers will take heed.
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- China’s Xiaomi on March 30 announced plans to invest $10 billion in a new smart electric-vehicle business as the group expands beyond its core smartphone business. Separately, the company also plans to release a self-developed computing chip.
- The firm will initially invest 10 billion yuan ($1.5 billion) in the unit, with the remainder to be invested over the next 10 years, according to a company filing published on the Hong Kong stock exchange.
- Chief Executive Lei Jun, who will also head the smart electric-vehicle unit, said the division will be the "last major entrepreneurial project" of his life.
- The company’s Hong Kong-listed shares rose by around 6% to HK$27 by 9:30 a.m. (GMT 0230) on March 31.
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