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00:00And Xiaomi shares have touched a record high after strong initial orders for its new $35,000 SUV intended to compete with Tesla's Model Y in China. The company says it got over 289,000 pre-orders for the YU7 within an hour, and that exceeded analyst's expectations. The new model is going to be a test of demand for Xiaomi cars after a fatal crash, which involved a different model sparking scrutiny from Chinese authorities. Let's get to Bill Russo now. He is founder and CEO of Auto Mobility, a global strategy consulting and investment advisory firm. Bill, thanks for joining us. I just want to start by getting your reaction to those numbers. I mentioned more than 200,000 pre-orders in a matter of minutes. When you see numbers like that. So what do you think? That's right. Yes. Xiaomi is a different type of a disruptor. They're not just an EV company. They're creating a fully integrated digital ecosystem value proposition, which in China, the world's biggest digital economy, resonates very, very well. They're bringing the smartphone mindset to the vehicle and treating the car as a smart terminal. The S7 sales have been impressive. They sold north of 270,000 units in just over in about 14 months. This model is actually the second model, which has that impressive opening in terms of preorders. There's an even larger segment of the market. So I think you're going to see a pretty strong positive momentum for this for this company going forward. Yeah, these are good ideas that Xiaomi is putting forward, but almost certain to inspire imitators as well. So it can demand for the YU7 be sustained. And what's a very competitive Chinese market? Yeah, I think, first of all, if you copy hardware, that's one thing. But this is not a hardware only company. This is a device company. They have an ecosystem of shout mi users of other smart devices that number in the hundreds of millions. There's more than 600 million devices that carry a show me logo. This is a well-accepted consumer electronics brand entering a new space, one of significant size. The biggest computer that you're going to interact with on a daily basis is actually going to be the one with wheels on it. That's the car. They recognize this opportunity. They've entered it. And in one year with one model, they're outselling Tesla in China. So do you anticipate that Xiaomi might add some more models after this, or do you think that just going to focus on doing, you know, a couple of models, but very, very well? I think the way you attack a market is don't overly complicate things. I think go to the big segments they've done that now with a sedan, the C7, now the Y7, which is an SUV, a bigger segment. So when I say they sold north of 270,000 units, expect even more volume for the YU7. I think that's one thing that they've learned from Tesla is don't don't oversupply the market with too many different variants. But that doesn't mean you can't enter other segments. There are other product configurations that are possible for me to enter. I think this is just the beginning of their journey to become a global company. All right. So I mentioned competitors a moment ago out of Xiaomi. Competitors come up with strategies to counter what is a fairly compelling, you know, ecosystem of cars, phones and other devices. Well, the main competitors for them in China are going to be BYD, the largest new energy vehicle company. I'd say BYD's not a digital native. I think BYD's claim to the market is going to be through super scaling the hardware and trying to compete by presenting as a smart terminal like interior configuration, which is what Xiaomi is doing. But BYD's ability to compete is going to be based on their scale and their ability to price aggressively. The other big competitor for them is going to be AITO or the Harmony Alliance, which is Huawei's ecosystem. Huawei is the other device maker that is competing in the space and there are other smart device companies, but none as capable as Huawei is in terms of delivering the total hardware and software integrated human machine interface type of a solution. So I'd say those are the two main competitors, BYD and Huawei. For Xiaomi. And conspicuous by its absence in that list a Tesla. What can Tesla do to improve its competitiveness in China? Yeah, well, Tesla is the pioneer. Obviously they have software based and I think as pioneer you get consideration. But Tesla's business in China has been under pressure. They're down. Just to give you a number. The market for new energy vehicles in China is the only growth segment in the market. It's 40% higher this year than it was last year. But Tesla's sales this year are down about 8%. So that tells you that Tesla's model lineup is aged. The Model three launched in 2020, the Model Y in 2021. So they lack the freshness of companies like Xiaomi. And quite frankly, they don't have the digital ecosystem localized in the way that Chinese consumers want them. So I think these smartphone companies, these smart device companies jumping into the automotive industry with hundreds of millions of people that use their smart devices, that's a highly relevant value proposition in this market. Well, as you've been speaking, we've been showing some of the market share of China's biggest TV makers on the screen as well. And you noticed this as well, that the market is becoming more and more concentrated and fewer of them, fewer hands, you know, like the likes of ... Do you see further consolidation taking place here and how many big car brands are we going to end up with in China? Yeah, well, first of all, there are you know, historically there have been over 100. We're probably down to as we look at the market right now, ten companies generate 80% of the new energy vehicle sales. Five companies, which includes Tesla, generates 60% of the new energy vehicle sales. In BYD, the leader generates about one third of all the new energy vehicle sales. So important to note that this is already a very concentrated market. It will consolidate because you can't run a business on very low volume in this industry and survive for very long. But there are going to be two lanes of those survivors. One lane is the hardware. Commoditized is the ones who basically can only compete if they can price aggressively at scale. They're not going to necessarily differentiate themselves with software and technology. But you've got another lane, and that lane exists in China. Xiaomi is in that lane, always in that lane. Frankly, Tesla's trying to compete in that lane and others like Xpeng and NIO are struggling to generate the same volumes as what we've seen from Shanghai. But they're going to differentiate with electronics and human machine interface smartphones on wheels. That will be the two lanes of competition and we'll see consolidation in both lanes. I want to get your views too, on opportunities offshore for some of these Chinese EV makers. I mean, we see the US Europe putting up barriers to protect their domestic car industries, but here in Australia where I am, there is no longer a domestic car industry and we're starting to see a few Chinese models on the roads now. How much growth is there offshore in markets such as Australia, Mexico, others? Huge. One out of every five cars that are made in China are actually being sold outside of China. And as I've said before, if you put a dam on a river, it doesn't stop the flow of the water, it just reroutes it. In China, instead of going to the US, instead of attacking Europe directly, they'll go to the emerging world. That's the global South and Asia. I would put Australia in that category. It will be Central Asia, Middle East, Latin America. China is going aggressively to those places. There were 5.9 million exports from China last year. We're going to see a number of somewhere around six and a half million this year. The penetration of electric vehicles into that number is about one third this year. So China is going to go to the world with affordable electrified mobility. And I think we're going to see more and more of that, in particular in the emerging world where affordability matters more. Well we've seen Xiaomi come to the fore with had innovative ecosystem that we've talked about. So what are the next developments in the EV space that you're looking out for? Any, any manufacturers with an edge and any particular area such as battery or range or anything like that, you are watching out for it. Okay, let's take the super scaler in the EV Lane, which is, which is BYD. BYD makes its own batteries, is highly vertically integrated and can compete aggressively on price just simply because they have the highest cost component vertically integrated and they have the scale economies to compete on price. BYD is significantly pushing on exports. They increased their export volume by about 200,000 units this year. The now the number two made in China exporter. But you've got companies like Chery. Chang An, SAIC with ... ... all aggressively moving into those global markets, in particular to the what we call the emerging world global South, Middle East, Latin America. And I would put Australia in that target zone. The markets without high barriers, with tariffs to entry. That doesn't mean China is not going to Europe. I've been to Europe three times this year. There's very strong pull coming from the European market for affordable electric vehicles, and Chinese companies are building their beachhead. They're going to start from Eastern Europe. The tariffs don't stop China. It actually just reroutes the water not from made in China, but from building factories in the region. So we'll see factories buy it from BYD being built in Hungary, in Turkey, and plans for capacity expansions in Southeast Asia and eventual plants from from Mexico and Brazil. So the Chinese companies are going global. They're going to do it with localized production. There's precedent for this. The Japanese, the Koreans, you know, all the global auto industry went global, not with building everything in the country. That's how you start. Eventually you go global with factories around the world.

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Xiaomi's New SUV Gets 289,000 Orders in an Hour

Bill Russo, Founder and CEO of Automobility, shares his analysis of China's EV sector on Insight with Haslinda Amin. Russo speaks after Xiaomi Corp.'s shares rose 8% to a lifetime high in the wake of strong initial orders for its $35,000 sport utility vehicle, the YU7. (Source: Bloomberg)

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