Xiaomi has become the latest smartphone maker to delve into electric vehicles. The Chinese company announced Tuesday that it is investing $10 billion over the next decade in a electric vehicle subsidiary.
This comes months after US smartphone maker, Apple accelerated its push for electric cars.
Xiaomi said in a stock market filing that the new unit will be led by billionaire co-founder and CEO Lei Jun, with an initial investment worth 10 billion yuan, ($1.5 billion). Lei announced his intention to lead a new standalone division.
While Xiaomi did not reveal funding details of the plan, a source told Bloomberg that the company could invest up to 100 billion yuan in the project, depending on the progress, and the company will contribute about 60% of the envisioned sum and plans to raise rest of the funds.
“We have a deep pocket for this project. I’m fully aware of the risks of the car-making industry. I’m also aware the project will take at least three to five years with tens of billions of investment,” Lei said, adding that Xiaomi is not planning to invite outside investors to the party.
Electric vehicles are becoming a growing choice of divestment for tech companies recently.
In January, Apple intensified its search for a partner, courting carmakers including Hyundai. Apple has an automotive program known as Project Titan, which has been in the pipeline since 2014, with the iPhone maker targeting 2024 to produce passenger electric vehicles with a breakthrough battery technology.
Like Apple, Xiaomi is one of the world’s biggest smartphone producers and it also makes a range of gadgets including home security cameras, electric shavers and toothbrushes, light bulbs, watches and scooters.
The Beijing-based company is joining the electric vehicle frenzy where Tesla, Nio and Volkswagen are already flexing muscle. Tencent and Geely Automobile Holdings Ltd. are also said to be teaming up to build electric cars. EV sales in China may climb more than 50% this year alone as consumers embrace cleaner automobiles and costs tumble, research firm Canalys estimates.
The big players already dominating the EV market means Xiaomi will have to face tougher competition.
It took Elon Musk 17 years of struggle to turn the fate of Tesla into a sustained fortune-making company, which means, the gadgets and mobile device making company may take longer.
Its move however, underscores increasing interest in the industry as world leaders push to implement Paris Climate Accord.
“This industry is on the cusp of a $5 trillion market opportunity over the next decade,” Dani Ives, an analyst at Wedbush Securities wrote on the transformation of electric vehicle. “GM, Ford, and Volkswagen all jumping into the deep end of the pool on electric vehicles, it speaks to the massive pent up demand globally around electric vehicle technology on the horizon.”
The source said Xiaomi will outsource car assembly to contract manufacturers, a model it uses for its smartphones
Tech companies strategizing to grab a share of the new energy market are upping their partnership ante with carmakers. The strategy cuts the cost for them as it means capitalizing on the huge potential market for software application such as autonomous driving.
A source told Bloomberg that Lei led a review of the EV industry’s potential several months ago and a final decision to enter the arena was made in recent weeks. Xiaomi has already hired engineers to work on software to be embedded in its cars, the person added.
Xiaomi has risen to the top of China’s smartphone market, running internet services and making a range of cut-price home gadgets from rice cookers to robo-vacuums, as US’ sanctions brought its Chinese counterpart Huawei on its knees.
With idle fortune of 100 billion yuan cash at its disposal, the company aims a shot at a new adventure – electric vehicles. Lei said it will be “the last startup project in my career.”