Alain Lam - CFO of Xiaomi | Podcast | In Good Company | Norges Bank Investment Management

Hello Nicolai, thanks for having me.

Well, thanks Nicolai. Thanks for the question, and good to be here. So, first of all, Xiaomi is still a very young company. We just turned 16. We were founded on April 6, 2010. And since then, we have done a lot as you mentioned. But ultimately, I think we think of ourselves as a global technology company. Obviously we have smartphones, we have a lot of smart devices. Plus recently we have smart electric vehicles and we are into manufacturing. But underlying all of these is our technology, whether it is our operating system, our semiconductors, our AI. I think those are the stuff that we built underneath all of our ecosystem, right? I think we built a pretty comprehensive what we call a human, time, car, time, home ecosystem ranging from all your personal devices to all your home devices and now with your mobility solutions. So that's where we are, but you know we've achieved quite a bit over the last 15 years. Obviously last year we had over 450 billion RMB in terms of sales and we have achieved pretty good profitability.

We actually started off building the operating system for smartphones and that was in 2010 when we founded the company. We wanted to do an operating system on top of the Android ecosystem and then try to offer it to smartphones. But eventually we decided to get into the smartphone ourselves, right? And our first smartphone, which we called Xiaomi One, we sold it at 1999 RMB in China. And that became a huge success because as you remember back in the days there were a lot of products out there that were low quality but high prices.

So we launched our first smartphone in 2011. So one year after we founded.

Yeah, because at that time I think the supply chain is obviously quite advanced in China but the problem in the market at that time was there was a lot of expensive products with very low quality, right? And the philosophy for the company is that can we do a smartphone that is much better quality and we can offer to users at much more affordable prices. And that's something that you see permeated in the history of our products, right? We try to offer very high quality solutions to our users at affordable prices.

Well, I mean, at the beginning, I think there's still a lot of reliance on foreign technologies. But over the last 15 years, for a smartphone, frankly, most of the content now is localized. You can find local solutions for that in most of our components.

It is important because the local, frankly speaking if you think about the foreign products a lot of them are more standardized solutions off the shelf, right? Whereas the local partners are willing to work with you developing products that are more customized to what we want. And as a result it's not just faster but it's also our ability to offer much more customized solutions that fit better into our smartphone, that fit better into what we want. And as a result, we go to market, we are able to offer products to our customers as an offer something that they really want.

Well, I think there was such a big leap between 15 and 17 that we think that it's beyond one generation in terms of improvement from our Xiaomi 15 to our Xiaomi 17 and hence we name it Xiaomi 17. And the innovation comes when you look at the smartphone, I don't have one with me right now unfortunately but it offered a back panel, right? So instead of having a front panel like most smartphones do we actually offer the back panel as well so you can use both sides effectively. And that's something that has proven to be very groundbreaking and a lot of our users like it.

It is important because I think in this world a lot of our users like intelligent solutions, right? So think about air conditioners, think about washing machines, think about refrigerators. The technology has existed for 30, 50 years but that hasn't changed for a long time, right? So what we offer to our users is smart solutions. Now you can upgrade your software over the air in your devices, right? As opposed to buying a new machine, right? And a lot of our users value that. Plus the fact is can you make your whole lifestyle, whole ecosystem much smarter by connecting everything together so that they can do things for you. Not just using your smartphone as a remote control but smart intelligence solutions that they understand who you are, they understand your behavior and they can try to offer customized solutions for you every day.

Yeah, for example, a smart lock, right? And many people now install instead of a traditional lock, a smart lock, right? Not just you can look at who's outside of your door, who's delivering stuff to you, you can offer specialized password for people to enter your apartment so that you don't leak your secrecy. But also, if you interconnect it with other devices at home, for example, when you open your smart lock, your AC will automatically be switched on, right? That you don't have to do anything extra, right? And those are the smart solutions that we like to think that our users need and obviously that become very popular feature among our users.

Correct. We decided to get into the car industry in 2021 and then we launched our first car in 2024.

So a little bit over less than three years we launched our first car, we designed it and then we built a factory as well. So China speed.

So look, at the beginning, the car industry to us is not that foreign. Xiaomi as a company has already invested in some of the EV manufacturers in China before. So we have an experience of seeing them develop, helping them develop over time. But then we decided to do it ourselves and as you know we've done a lot of due diligence in the industry the moment we decided to get into this industry. And I think the ultimate conclusion I should say is that if you believe that a car, an EV, is going to be another piece of consumer electronics and that's something that we have a lot of experience in whether it is managing the software hardware integration whether it is managing the supply chain. I think those are the stuff that we have experience working with so many consumer electronics products before. I mean obviously car is a little bit of a different animal because you need to consider about safety, but again I think the supply chain in China has been relatively well-developed on the EV industry. So as we go into that what we said was look can we spend 10 times more investments to build the first car, right? I think that's also a very important philosophy as well is instead of going into all these different directions making multiple cars we decided to spend all of our efforts on one single car.

Yeah, look, I think as we look into this car industry in the EV industry as well, we think that there are certain things that are core to the EV technology that we want to own and develop ourselves, right? The rest we can have our suppliers work with us on that. But things like the electric motors is something that we've spent real efforts on. Things like how do you pack the battery? Things like smart driving, assisted driving, etc. Those are the stuff that we spend real time on developing our proprietary technology. The rest of it I think we can rely on other people to supply us with the industry solutions.

At the beginning probably around 3,000 people to develop the first car which is as you know in this industry probably 10 times more than other peers in terms of developing the first car because our chairman has the philosophy that we want to spend a lot of effort initially to catch up with our peers.

Yeah, yeah, yeah, because look, I think obviously we are very new entrant to the EV business but obviously at the same time we already have a very established brand in China. We have a lot of loyal users of our products. We have over 180 million people in China that are using our smartphones every day. And at the beginning when we decided to develop a car, to develop an EV, a lot of our users saying that if Xiaomi wants to make a car we'll buy it, right? So 20 plus percent of our initial buyers haven't even test driven the car, haven't even seen the car in real life, right? They just see us launching the car and they put an order in. So that's a testament to the loyal user base that we've built up, they're loyal to the brand and they know that we're going to make the best products for them.

Well, I think it goes back to our philosophy, right? If you look at our mission, we want to build amazing products with honest prices to let everyone in the world enjoy a better life through innovative technology, right? It's a long sentence, but we want to build amazing products. We want to offer these products at what we call honest prices to our users and we want to do a global business and we want to be innovative. So I think all these features are what users really value these days. And over time we've also made the coolest products, we make a lot of friends with our users, we stay engaged with our users, listen to the feedback and try to change our product based on these feedbacks. So those are the stuff that we built a very good rapport with our users over time and that's how they are loyal to our brand. They know that whenever they walk into our store, whenever they buy one of Xiaomi products, they are getting the best pricing possible.

Some similarities, a lot of differences obviously. If you look at the phone industry, before 2024 we did not have a first smartphone factory. So before that we were all using outsourcing it to the Foxconn of the world, the BYD of the world and other suppliers to make the phones for us. So we are more responsible for the design, for some of the basic technology, for some of the technology and also for the branding and the marketing of the products. For the car business, we also undertook the task of building an entire new factory in Beijing, right? And so that is a new experience for us, that's our first real large scale factory that built our own car. So that's the difference, right? I think that's the one key difference between how we entered into the car business versus how we entered the smartphone business. But there's a lot of similarities because increasingly the software drives the hardware in the EV just like in the smartphone. And a lot of it is, in smartphone we stack up a lot of chipset into a very small form factor, in the car is similar we have to stack up a lot of components and other things into a form factor. But increasingly more important, especially in the EV world, the software becomes very important. How do you manage battery power? How do you manage the software to drive the car in a safe manner? I think those are very important similarities with the smartphone business. Obviously managing the supply chain is also very important. We have a lot of suppliers that are the same between the smartphone business as well as the EV business. And that's why there's a lot of cross collaborations. I think people trust the engineers of Xiaomi that we can build something that is world-class and that is very popular with the users.

Look, we still look up to a lot of the traditional OEMs. We still think that there's a lot of things to learn from them. The way that they build the brand, the way that they build the drivetrain, the way that they give people a real good driving experience. Those are the stuff that we still look up to a lot of the European OEMs. What we think that they are lacking are number one, I think the smartness of the car. I think they try to implement a lot of the smart features into the car right now. I think in that sense they are probably behind what we are seeing in China right now. And then second is kind of the whole NEV, the new energy vehicle development, right? I think a lot of the focus were on electric at that time but really I think when we look at our EV we call it smart electric vehicles, right? And I think that some OEMs may look at electric too focused on electric but let's focus on smart, right? I think that's one thing that the users right now really want especially given the Xiaomi advantage is how do I link it with all of our ecosystem products. How does it work better with my smartphones? How does it work better with my IoT devices? Things like that that I can create not just an EV but also a smart life ecosystem beyond the EV.

No, I think a lot of people are learning, right? I think a lot of people are studying how the Chinese EV development has become so advanced. We have obviously received quite a lot of European OEMs who come to visit us, who want to have experience sharing with us, not just we sharing with them but they also share with us. It depends on how serious they are and I think you already seen a couple of the European collaboration with the Chinese players as well, right? So I think that's going to be helpful in driving the industry forward.

He said he couldn't get rid of it after 6 months of driving it.

Apparently. I haven't spoken with him in person, but apparently based on what he's been saying in public, he loves our car.