What does the Auto Industry and Mobile Industry have in common? They are both gigantic, the global automotive market is around 2.9 trillion USD, while the global mobile phone market is around 0.5 trillion USD. They both have some of the most iconic brands in the world, like Apple, Samsung, Huawei or BMW, Tesla, Toyota.

What else? In this article we will talk about the converge of these 2 gigantic industries, where we see manufacturers trying to enter the other industry. You might wonder what are you talking about? The only mobile manufacturer that tried to build a car was Apple and wasn’t going anywhere; Samsung is only building cars in Korea but through a joint venture with Renault; and none of the auto manufacturers have ever thought about building phones right? Now if you look at the global market you are absolutely correct, but when you look at China, the story is completely different. On the mobile side there is Huawei that is already building cars, just not with the Huawei logo on it, but AITO is designed and sold through Huawei; there is Xiaomi working on launching their first car in 2024 and a draft design has been leaked a week ago; on the auto side, there is Geely that acquired Meizu, a top 10 mobile manufacturer in the world until 2021; and then there is NIO that wants to launch their NIO phone within a year. So in this article, we are going to walk through each of these 4 cases, to understand where they stand today, how serious they are and the reasoning why they want to enter into a brand new field.

First of all, the most advanced case is Huawei. For years Huawei has announced that they will not produce their own car. This is simply because, Huawei is a tier 1 automotive supplier who wants to keep it that way, so that they can maximize their profits by providing software like the Operating System, Autonomous Driving solution and Connected car solution to all potential auto manufacturers. Also, Huawei has supported AVATR and ARCFOX through their electric drive system DriveOne. Huawei claims that DriveOne is the industry’s first hyper-converged power domain solution that integrates seven mechanical and power components – Micro Control Unit (MCU), Motor, Reducer, DC Converter (DCDC), On-board Charger (OBC), Power Distribution Unit (PDU), and Battery Control Unit (BCU). However, Huawei has gone even further then being a tier 1 supplier, or the so-called “Huawei inside” model, even though they do not publicly announce it, it’s just a matter of fact. Through the collaboration with Seres, Huawei is designing the car, assembling it in Seres’ factory, using the AITO brand and selling it through the 780 Huawei experience centers and 200 customer centers around China. So basically, without building a factory nor a single new show room, by just simply displaying the car besides their smartphones and other gadgets, AITO already has a massive sales, marketing and aftersales network around China. In my previous article about the Chinese Auto market I have already talked about AITO and their strong growth trend. So does that guarantee Huawei’s success in the Auto Industry? Of course not, it still has to compete with all the other EV manufacturers and it all comes down to the product itself in the long run. Another challenge that Huawei will be facing is the sanctions from US, so far it doesn’t seem to harm the Auto business since automotive chips are still using only up to 40nm technology, but let’s see what the future brings.

So the largest Chinese mobile manufacturer is already selling cars, how can Xiaomi, the second largest Chinese mobile manufacturer stay put. It is no news that Xiaomi is also designing their own car and planning to launch it in 2024. How serious are they? Well Xiaomi CEO Lei Jun has announced in public in early 2021 that EV will be his last venture project before retirement. He will lead this project personally and bet his own fame on it. What does Xiaomi have that Apple doesn’t to succeed? Well, its actually the low profit margin they have, yes, the low profit margin is actually a main reason why Xiaomi can succeed in an area where Apple can’t. One of the main reasons Apple doesn’t want to sell cars is not because they can’t build one, it’s because of the low profit margin of selling a car will diminish the profit margins of Apple and hence destroy the value of their shares. But Xiaomi doesn’t have that issue, cause they are famous for selling value for money products and they anyway have the 5% margin target which is in line with the automotive industry. So how far is Xiaomi from launching a car? Well, Xiaomi has already secured the land for a factory in Beijing and claim to have built a team of 1800 employees in the Auto Business unit. According to their financial report, in the first 9 months of 2022 they have already invested 1.86 bn RMB, which is roughly 0.28bn USD, into R&D. Even though that is not a whole lot for an auto manufacturer it does show that Xiaomi is serious about it. At the same time, Xiaomi has invested into automotive related companies recently, such as 3D imaging start-up DeepMotion in order to expand into the autonomous driving and connected technology sector, as well as other tech companies in the field of Lidar, Autonomous parking and so on. How much money will Xiaomi be able to bet on EVs and will they succeed? The next 2 years will tell us.

While the top 2 Chinese mobile manufacturers are planning to enter the EV world, to search for new revenue streams and expand their ecosystem, the auto manufacturers also have their own plans.

When Geely acquired Meizu last year, it wasn’t a huge surprise since rumours have been around for some time already. Although Meizu is no longer an industry leader in the mobile phone industry selling only 1 million phones in 2021, it was a suitable and large enough target for Geely to develop a dedicated phone for Geely customers and expand its ecosystem. It is very clear that Geely has no plans to enter the crowded mobile phone market and revive Meizu to become a top mobile brand. Instead, Geely wants to develop it’s holistic ecosystem that includes both the car and the phone. Imagine the synergies that Geely can create, no matter it’s for Lynk & Co, Lotus or Zeekr, all of their customers will get a phone for free that will seamlessly connect with the car, be used as a car key, and run all the apps and data on your car exactly as on your phone. That is quite attractive for the tech-savvy Chinese customers.

Although the organic growth of Geely has been really stagnating in the past years, it has become a major automotive player worldwide by acquiring Volvo Cars, Lotus, London Electric Vehicle Company and Proton. None of these brands were at its prime when they were acquired by Geely, but through turning around Volvo Cars and listing it through an IPO & Polestar through a SPAC, Geely has gained the cash flow to further invest into other brands and they are now doing the same with Lotus. Will the acquisition of Meizu as a strategic investment become another text book example? Well, the chance of success is for sure higher than turning around Volvo Cars in 2010.

Unlike Geely who acquired a mobile manufacturer, NIO wants to do it ground up, just like they started building cars since 2014, you just have to applaud NIO’s entrepreneurship. So why does NIO want to build a phone when their cars are not even making profits yet? Well the logic is similar to Geely that NIO wants to improve the customer experience and control the ecosystem themselves. Not so long-ago NIO CEO William Li revealed that before the US sanctions against Huawei, 50% of NIO customers use Iphone, 40% uses Huawei. Today after the sanctions more and more NIO customers are using Iphone, but Apple is not collaborating with NIO to develop use cases through Ultra Wide Band technology, like the way Apple has been working with BMW to turn Iphone into a car key. Hence NIO started its own journey to develop its phone, to meet all the needs, not just turning a phone into a car key. This is not just a marketing message; NIO has already registered the NIO phone brand in Dec 2022. Even though NIO Phone is still at an early R&D phase, but according to some reports, they have already hired hundreds of experts in Shenzhen in this field. So if NIO can create an EV company in 2014 when the whole EV industry just started in China, who says they can’t build a premium phone with all the mobile phone know how and experience there is in China’s Silicon Valley?

Will the mobile manufacturers succeed in gaining a significant share in the auto market or will the auto manufacturers defend their revenue by including their own phone into the ecosystem, and satisfy the customers digital needs. We will have to wait and see!