China's Xiaomi wins state planner nod to make EVs amid glut in autos

Xiaomi Corp (1810.HK) has won the approval of China's state planner to manufacture electric vehicles (EVs), said two people with knowledge of the matter, marking a major step towards the smartphone maker's goal of producing cars by early next year.

The National Development and Reform Commission (NDRC), which regulates new investments and production capacity in China's auto industry, gave the nod for EV manufacturing to Beijing-based Xiaomi earlier this month, said the people. Xiaomi's venture is only the fourth since end-2017 to win NDRC approval, Reuters reports.

While NDRC's nod brings Xiaomi closer to mass production of EVs more than two years after it first announced the plans, the venture still needs clearance from the Ministry of Industry and Information (MIIT), which assesses new automakers and models for technical and safety requirements.

And it would be entering China's car manufacturing sector at a time when the world's largest auto market is wrestling with a series of issues, including a capacity glut and slowing demand that have stoked a bruising price war and hit supplier margins.

Xiaomi had pledged a $10 billion investment over a decade in the automobile business and set a goal of mass producing its first cars in the first half of 2024. But there were doubts if the timeline could be met as the NDRC has been cautious in approving new EV production plans of companies because of concerns on overcapacity and slowing demand in the sector.

Tesla Inc's (TSLA.O) plan to expand its Shanghai plant had yet to win the nod to go ahead, Reuters reported in June. And industry sources have previously told Reuters U.S. luxury EV maker Lucid Group (LCID.O) is keen to make cars in China but has been advised that the possibility was low.

Reuters was not immediately able to determine why NDRC granted approval to Xiaomi. Its EV plant has been marked by the Beijing municipal government as an important industrial upgrade project.

Xiaomi, which owns the world's third largest smartphone brand by shipments, did not immediately respond to a request for comment. The NDRC and MIIT also did not immediately respond to faxed requests for comment. The sources declined to be named as the matter is private.

While it awaited the approvals, Xiaomi has forged ahead on the venture, completing construction of factory facilities capable of producing 200,000 EVs annually in Beijing, according to a report in state-run newspaper Beijing Daily in July.

Xiaomi plans to produce about 100,000 EVs next year, said one of the sources. It has also accelerated hiring workers for its EV plant since last week as it prepares a production ramp-up in December, two Xiaomi workers, who did not wish to be named because of the sensitivity of the matter, told Reuters.

Challenging times

The severity of the challenges facing Xiaomi is evident in the automobile factory utilisation rates in China.

Chinese factories, including those making combustion engine cars, were capable of producing 43 million units annually at the end of 2022, but their utilisation rate was just 54.5%, down from 66.6% in 2017, China Passenger Car Association data showed.

But Xiaomi, which reported an 18.9% drop in its latest quarterly revenue in May, has its own compulsions for foraying into EVs.

It is making the shift to diversify away from its main smartphones business amid slumping demand for gadgets. China's smartphone sales fell 4% year-on-year in the second quarter of 2023, reaching the lowest Q2 sales figure since 2014, according to consultancy Counterpoint.

Xiaomi plans to use the thousands of stores it has as showrooms for its electric cars, Reuters previously reported.

CEO Lei Jun, who has said Xiaomi's foray into EVs will be his last major entrepreneurial project, posted on Saturday pictures of people holding a banner saying 'Fighting for Xiaomi Auto" on his personal Weibo social media account.