Why Xiaomi Succeeded At Making Electric Cars But Apple Failed

Apple spent 10 years and $10 billion on Project Titan — the codename for its electric car initiative. In the end, Apple shut down Project Titan with very little to show for its efforts. Xiaomi is a smartphone manufacturer in China that decided to build an electric car. Compared to BYD, which sold 4 million vehicles with plugs last year, Xiaomi is just a blip on the radar screen.

But Jim Farley, the CEO of Ford, brought one of its SU7 sedans to Detroit for 6 months of testing. When it was time to return the car to China, Farley said he didn’t want to part with it. Readers may recall that another SU7 — a prototype known as the SU7 Ultra — set a new lap record for 4-door sedans at the Nurburgring earlier this year, hitting speeds of more than 200 mph on the straights. High praise from Farley, and record setting performance in Germany. Clearly, Xiaomi has built a “compelling electric car,” as Elon Musk begged manufacturers to do a decade ago.

Which raises the question, why did Xiaomi succeed where Apple failed? The New York Times dug into that question earlier this year, and the answer reveals a great deal about what it will take for companies to be successful in the auto manufacturing business in the future and how that business is changing.

The first conclusion that Times reporters Meaghan Tobin and Claire Fu came to was that the “ability to succeed where Apple could not shows how thoroughly China has come to dominate the supply chain for electric vehicles. Chinese companies have mastered electric vehicle manufacturing. By tapping that infrastructure, Xiaomi was able to get components quickly and cheaply.”

Xiaomi & Government Subsidies

Many people complain that Chinese EV manufacturers have benefited from billions of dollars in government support. That level of government assistance has helped them gain control of the supply chain, down to the very minerals inside the batteries of electric cars — car batteries. That in turn has made it possible for BYD and CATL to become the biggest electric battery makers in the world. Those complaints are typified by a comment to the Times story that said, “China has a near slave workforce which are forced to live, sleep and eat in company dormitories 24/7. Their lives revolve around long work shifts and manufacturing output. They have no civil rights under the Chinese government. Their economy isn’t like ours with capitalist freedom. This is why they can dominate any industry they target.”

Such comments are heard frequently when talking about China, but they ignore a couple of important items. First, the US has subsidized many industries by allowing them to avoid the costs of cleaning up the toxic messes they leave in their wake. Such measures are now seen as government overreach. Second, the US invented lithium-ion battery technology, solar panel technology, and computer chip technology via government subsidies, but never followed up on them, preferring to allow others to capitalize on those early breakthroughs. To complain now that others have taken that ball and run with it while the US was mesmerized by horizontal drilling techniques and fracking the Earth to a faretheewell is disingenuous at best.

Third, the US is pretty good at using government to promote new industries when it wants to. The proof is in the $90 billion this failed administration has promised to tech billionaires so they can dominate artificial intelligence. But doing so will require something the US has chosen to de-emphasize — education. As another Times commenter put it, “The supply chain is a long chain of human ingenuity and relations. It is not a mechanical robot who produces [cars]. The US does not have the educated and motivated laborers to do this kind of job, quickly on a large scale.”

Our national preference for ignorance will do more to hobble the US economy in the future than any supposed assistance the Chinese government gives to its domestic manufacturers. In fact, China operates on a much more rigorous form of capitalism than the US ever thought about. It does not bail out those who fail; they simply go out of business. It doesn’t get any more efficient in the allocation of capital than that, though the results can have brutal consequences for those who fail.

Xiaomi Is More Than A Car Company

But there is more to the story. Xiaomi is not primarily a car company. It makes a number of electronic devices, from robot vacuum cleaners to air conditioners. All of them, including the SU7, share the Xiaomi operating system and are controlled by the company’s app. “The SU7 is, in some ways, just another gadget. It can use data collected from other devices about a driver’s daily routine to determine the best time to charge the car’s batteries,” the Times reports. “Xiaomi has really started infiltrating your home,” said Gary Ng, an economist with Natixis Corporate & Investment Banking. “Everything is linked together, and this is something other companies couldn’t do.”

Xiaomi’s experience gained in the manufacture of many consumer products has allowed it to surpass many traditional automakers in China. It makes it possible for the company to bring new models to market quickly and focus on making software that they can continually update, said Stephen W. Dyer, head of Asia Automotive at AlixPartners, a consultancy.

Intense competition at home has pushed many Chinese carmakers to explore export markets in order to absorb some of their excess production. It is just a matter of time before Xiaomi begins to sell its cars outside of China, said Cui Dongshu, secretary general of the China Passenger Car Association.

Xiaomi’s popularity as a maker of all kinds of consumer electronics gave it a deep well of knowledge about Chinese consumer preferences. On the first day SU7s were delivered, buyers could go to Xiaomi’s app store and get accessories to personalize their cars — things like analog clocks for their dashboards or a row of physical switches that attach to a touchscreen panel. “The strength of the brand puts Xiaomi ahead of a lot of their competitors,” said Tu Le, a managing director of the consultancy Sino Auto Insights. “That’s what it takes to sell cars globally, because it’s not just a consumer product, it’s an emotional product.”

For any sales professionals, that last thought is telling. People buy on emotion and justify their decision later with facts. A company that understands that first principal of sales has a big head start on the competition. Xiaomi found a way to make that connection; Apple did not. And thereby hangs a tale.