Source | Bohu Finance (bohuFN)

Xiaomi's product launch this year felt increasingly like a tech-themed Spring Festival Gala.

Even before the launch event, Xiaomi 15 was trending on Weibo multiple times. Lu Weibing tweeted that the only task after rehearsal was to delete slides, but the event still lasted over three hours. The high level of engagement and the abundant content made the main event across the ocean, also known as the "Tech Spring Festival Gala", pale in comparison.

Although Xiaomi started as a mobile phone manufacturer, and its mobile phone business still bears the responsibility of supporting the company, mobile phones were no longer the focus of attention at the launch event. Before the event, Xiaomi announced the debut performance of the SU7 Ultra prototype at the Nürburgring Nordschleife: an official lap time of 6 minutes, 46 seconds, and 874 milliseconds, making it the fastest four-door car in the world.

Viewers flooded the chat with comments praising its coolness, and Lei Jun announced a pre-sale price of 814,900 yuan at the event. This price surprised many. Before the event, Bohu Finance collected predictions from automotive media, most of which focused on a price range of 500,000 to 600,000 yuan. Even after the price announcement, a Weibo hashtag "#Lei Jun's Prediction of Xiaomi SU7 Ultra Price Questioned#" trended.

This has never happened before at a Xiaomi launch event. Typically, after attending such events, the most common comment is that "Xiaomi (with its low prices) is going crazy." Pricing a car beyond everyone's expectations is not only due to the product's own capabilities but also reflects Xiaomi's determination to aim high at this moment.

01 The Window of Opportunity for Aiming High

As a domestic brand originating from the mobile phone business, Xiaomi cannot make a splash like Apple by unveiling a mature product that surpasses the market. Instead, it chooses to follow the mass line, attracting fans through its user interface (UI) and winning the market with cost-effectiveness.

Frankly, in an era dominated by counterfeit products and the "Coolpad-Huawei-Lenovo-ZTE" alliance, adopting a slogan of enthusiasm and a guideline of cost-effectiveness was not a wrong choice. Relying on this strategy, Xiaomi once held the top spot in China's market share.

A rapidly growing market also provided brands with the best window of opportunity to aim for the high-end market.

In 2007, at the iPhone launch event, Steve Jobs quoted Alan Kay, a Turing Award winner: "People who really care about software should build their own hardware."

There are two benefits to building one's chip. First, it can create product differentiation because self-developed SoCs can optimize software support, enhance software and hardware collaboration, and provide a more stable user experience. Second, self-developed SoCs can effectively reduce procurement costs, creating a pricing advantage.

In other words, the ability to integrate software and hardware is the key to differentiated competition.

Huawei was the first domestic manufacturer to notice this. In 2006, HiSilicon began developing its mobile phone chips. In 2009, HiSilicon launched its first mobile application processor (AP), named K3V1. In 2013, after several iterations, Huawei's first Kirin chip, the Kirin 910, was unveiled, equipped with Huawei's self-developed Balong 710 baseband.

Also in 2013, Huawei acquired Texas Instruments' OMAP chip business in France and established an image research center based on it, allowing Huawei HiSilicon to optimize photo processing from the hardware level. In 2015, the Kirin 950, using a 16nm FinFET process, was born. The Mate7 equipped with the Kirin 950 became an absolute hit that year, creating history for domestic flagship phones priced above 3,000 yuan, with global sales exceeding 7.5 million units.

Soon after, Xiaomi also partnered with Spreadtrum in 2014 to establish Pinecone Electronics. In 2017, they launched their first chip, the Surge S1. However, in subsequent iterations, the Surge S2 underwent four tape-outs within a year, all of which failed, temporarily shelving Xiaomi's chip-making plans.

Building a SoC chip from scratch requires huge capital investment and tolerating a long payback period. Xiaomi, which had only been established for a few years, could not afford it.

However, the market only gives brands a few years to aim high. After Huawei was sanctioned, several domestic Android vendors chose to launch their high-end strategies, attempting to fill the gap left by Huawei. Screens are getting bigger, specifications are becoming more balanced, there are more self-developed chips, and prices are rising.

The mobile phone market, which has hit an innovation bottleneck, has begun to doubt innovation. Consumers are tired of iterative products that pile up specifications but offer little in terms of experience, so they invest in Apple, which has independent chips, systems, and ecosystems. In an era when mobile phones have transitioned from fashion icons to daily durables, Apple captures 80% of the mobile phone market's profits.

Even with the popularity of the small-screen flagship Xiaomi 14, the average selling price (ASP) of Xiaomi mobile phones has remained around 1,000 yuan for the past five quarters. According to Canalys data, in the second quarter of 2024, Xiaomi's global high-end market share was 2%, with a year-on-year increase of 71%, ranking after Apple (62%), Samsung (22%), and Huawei (9%).

Having missed the window of opportunity, Xiaomi's only chance lies in automobile manufacturing.

02 Automobiles, Mobile Phones, and Major Household Appliances

At the beginning of the year, Lei Jun gave Lu Weibing three tasks: first, mobile phones and operating systems; second, the expansion of the global market; and third, the rise of major household appliances. Lei Jun himself focused on the automobile manufacturing business.

The goals directly target three main growth curves: smart devices centered on mobile phones, tablets, and wearable devices; home smart devices centered on major household appliances; and mobility smart devices centered on automobiles.

While aiming high with mobile phones is the overt strategy for brand elevation, major household appliances form the covert strategy, and cars are the main thread, with the 800,000-yuan SU7 Ultra being the key.

Although the ASP of mobile phones has not increased significantly, the stable small-screen flagship series over the past few years has allowed Xiaomi to comfortably raise the starting price from 3,999 yuan to 4,495 yuan. Major household appliances have also become the largest increment in the IoT business over the past few quarters. According to Wang Xiaoyan, Vice President of Xiaomi Group, Xiaomi's Mini LED TV series ranks first in online sales in China, and Xiaomi's air conditioners rank fourth.

Starting with the SU7 at the beginning of the year, Xiaomi has been breaking perceptions in automobile manufacturing. The Xiaopeng G6 was widely regarded as a "Xiaomi-style" car due to its model, price, and cost-effectiveness.

However, Xiaomi chose to benchmark Tesla in creating an electric sedan, investing significant effort in building an intelligent driving team and setting the price at over 200,000 yuan. The reason is not hard to guess; Lei Jun is well aware of the difficulty of elevating a brand from low to high. Unlike mobile phones, as a major consumer good, consumers conduct more detailed inspections and evaluations when purchasing cars, and a well-established brand image will be more deeply ingrained in people's minds.

As the technological icon following mobile phones, smart cars align with Xiaomi's overall AIoT strategy and can also help Xiaomi establish a high-end image.

Therefore, you can see that after officially announcing its foray into automobile manufacturing, Xiaomi has assembled over 3,400 engineers with R&D investments exceeding 10 billion yuan. Lei Jun himself chose to test drive over 170 car models, writing a 200,000-word test drive notebook. He also obtained a racing license and personally tested engineering vehicles.

As a century-old industry, the automobile sector has moments that are more suitable for showing off strength, with the Nürburgring Nordschleife being one of them. As a sacred place for automotive engineers, the official lap time rankings at the Nürburgring are more like a pantheon of cars, and being listed among them is a career aspiration for automotive engineers. In the past, most of the names on this track belonged to gasoline vehicles.

Xiaomi spared no effort in building a prototype car to serve as a spearhead to break into the high-end market. The results were evident; on social media, both traditional automotive media personnel and those newly joined by the wave of new energy vehicles were cheering for Xiaomi. Correspondingly, the SU7 Ultra, with its all-carbon parts and high-horsepower three-motor configuration, smoothly raised its price to 814,900 yuan.

Overseas, the CEO of Ford also praised Xiaomi, stating that he had been driving a Xiaomi SU7 for six months and had no intention of changing cars. It can be said that in the dimension of aiming high, Xiaomi has taken the most crucial step, and the rest depends on whether it can maintain the current momentum.

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