Last week took place the last of Xiaomi’s presentations, in which Lei Jun, CEO of the company and director of Xiaomi Automobile, announced all the details of the the company’s new electric vehicle, the Xiaomi SU7 in its three versions. And those details included prices, which were lower than expected.
The surprise was greatest when the company confirmed that some of the previous rumors and leaks, dismissed as implausible, were accurate. The Xiaomi SU7 started in the 215,900 yuan, or approximately 27,700 dollars. There will be more expensive versions, but even the most expensive remains below 39,000 dollars in exchange. Specifically, the Xiaomi SU7 costs 215,900 yuan, approximately 27,700 dollars, the Xiaomi SU7 Pro costs 245,900 yuan, approximately 31,500 dollars and the most powerful, which is the one we were able to see in Barcelona, the Xiaomi SU7 Max, 299,999 yuan, 38,500 dollars in exchange.
This led Xiaomi to create aA car that competes on certain technical points with the Tesla Model S or the Porsche Taycan but what competes in price with more modest models, like the Tesla Model 3. This is an extremely strong and risky bet on the brand’s part, and that’s why the price is what it is.
10 billion investment
What Xiaomi has done has little precedent in the automotive industry. The company developed a vehicle from scratch in three years
But for a company to do this with its first car is even more impressive. Obviously for that partnered with other companies that had experience, but it remains a notable achievement. This precipitation was not accidental. At Xiaomi they know that the electrification market is currently growing and they cannot wait many years to enter it, because the competition would be much stronger.
To perform this movement A very large investment of 10 billion dollars was made in a few years, which allowed him to successfully execute this strategy. But without sales, the movement would have been a failure. This is why the company played it safe when it came to setting the price.
What is an honest price
Xiaomi is a company whose first product wasn’t hardware. It wasn’t headphones, nor a cell phone or tablet. It was an operating system, MIUI, based on Android, one of the most popular interfaces in China. This makes The company will focus on profiting from the software of its terminals more than their sale even when it started creating cell phones.
Managers have talked a lot about Honest Pricing, i.e. set attractive prices for consumers so that sales are very high. The company would take, Maximum profit of 5% on each sale. These figures are far from the best in the sector, which are those of Apple.
This was the company’s philosophy for many years, and it explains why high-end cell phones could be sold for less than 500 dollars even in Europe a few years ago, when its main competitors were already selling them at a much higher price. The problem is that this cost control prevented access to the best components on the market, so the strategy was divided.
Xiaomi separated Redmi from its main mobile phone family to maintain this idea of offering good mobile phones at reasonable prices, with a reduced profit margin. But at the same time, it positions Xiaomi as a top mobile brand, capable of competing with Apple or Samsung. When it came to pricing their first car, they opted for a similar strategy.
Xiaomi is losing money
At Xiaomi’s presentation conference last week, Lei Jun seemed very confident that his new cars would sell well. The price was extremely attractive and bookings skyrocketed. In less than 5 minutes there were more than 50,000 reservations and in the first 27 hours, 127,000 reservations had been exceeded.
This means that future buyers of the Xiaomi SU7 have to wait up to seven months. The success in a country like China has been overwhelming, to which Xiaomi’s extensive store network has contributed. The company brought its cars to 29 stores across the country.with the ability to view the car, get in and even book a test drive.
But all this has a B side. Lei Jun confirmed on the stand that Xiaomi loses money with every sale of the Xiaomi SU7. He did not specify whether this assertion was based on the price set for the cars (which was ultimately decided hours before he took the stand) or on the price including launch gifts. And the director said that the first buyers would accept the paid products for free because they were the first. This includes a choice of paint, leather seats, an advanced audio system…
Risky but with potential
Xiaomi’s decision to enter the automotive market was one of the most striking in recent years, on par with what BYD or Tesla did a decade ago. It’s a pretty dangerous bet. because the amount of money needed to position yourself in an industry like this is enormous, but they also have a big advantage.
In the West, Chinese brands are often frowned upon by consumers, who consider them to be of poor quality. The reality is that a large share of cars sold in Europe are already made in China, and companies there have been learning from European companies for decades.
We ourselves have been able to see how in China brands like NIO, BYD and others are extremely common, and citizens themselves are starting to bet on these companies, leaving European companies aside, especially with the jump to electrification. Xiaomi wants a piece of this pie, and it has the brand, financial muscle and strategy to do it.
It will then be time to adjust prices, launch more expensive models and cheaper models, but this will be when a niche has been created in the sector. Xiaomi wants to reproduce with cars the movement that it achieved with great success with smartphones, integrate everything into a gigantic ecosystem that no other company in the world can currently reproduce.
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