Xiaomi made a cheap Ferrari EV. Who needs Porsche?

Economic Times

2 days ago

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Watching the launch last week of Xiaomi Corp.'s luxury electric sport utility vehicle, the YU7, stirred up two strong emotions: wonder at its impressive technology, and deep foreboding for the future of Western automakers.The YU7 is the complete package — a stylish and tech-laden SUV with up to 835 kilometers (519 miles) of driving range, all for an affordable price. The entry-level version costs just RMB 253,500 ($35,400).Xiaomi scores few points for design originality — the YU7 looks like a cross between a Ferrari Purosangue and a McLaren, while its first model, the sporty SU7 sedan, bears a striking resemblance to the Porsche Taycan. Even so, these are astonishing achievements for a smartphone company that entered the automotive industry just four years ago. I was not in the least surprised the YU7 received almost 300,000 orders within one hour.While the YU7 directly competes with Tesla Inc.'s Model Y in China and isn't available in the US or Europe for now, Western premium and luxury automakers with far higher sticker prices should fear the increasingly sophisticated EVs China is churning out.How will they compete once the growling combustion engines that define their brands disappear? Investors appear confident Ferrari will retain its cache. Indeed, it's fortunate that China accounts for less than 10% of the Prancing Horse's global sales, because the V12 Purosangue starts at around $430,000 and once customized costs far more.Porsche and Germany's other premium automakers don't appear as resilient. Offering a fake V8 engine noise as Mercedes-Benz Group does on the electric hypercar concept it teased last week won't suffice.Electrification, automated driving and digital connectivity are turning autos into cellphones on wheels. Hence consumer electrics companies like Xiaomi and Huawei Technologies Co. are pushing into the EV marketand thereby offering seamless digital ecosystems, making Apple Inc.'s failure to develop a car appear like an even bigger omission.The danger for luxury automakers is their products become commoditized. Rapid acceleration, a chief selling point of Western sportscar brands, is now commonplace in EVs: Xiaomi's cars have achieved some blistering lap times at the Nürburgring (the industry's benchmark). Meanwhile, China's faster innovation and product development cycles threaten to make manufacturers that can't iterate as quickly appear old hat. Consumer perceptions are also changing. In China at least, luxury is increasingly about offering advanced software, voice recognition and artificial intelligence. However, customers aren't necessarily willing to fork out a lot for these features.'An Apple Watch can do everything better: It can do a thousand more things; it's a lot more precise; it can measure your heart rate. But nobody would pay $200,000 for an Apple Watch,' Bugatti-Rimac Chief Executive Officer Mate Rimac said last year, explaining why sales of the more than $2 million electric Nevera hypercar have been disappointing and why Bugatti's new $4.5 million hypercar, the Tourbillon, offers analogue instruments and a hybrid powertrain to retain exclusivity.Although EV sales are booming in China, the very top segment of the market remains comparatively small, in part because consumers can get good quality tech and interior comforts at much lower price points. (Geely's high-end EV brand Lotus Technology Inc. has been forced to pivot to hybrids rather than remain in its small niche, while Nio Inc. has moved downmarket with its Firefly and Onvo sub-brands.)I've been impressed by some of BMW AG's EVs, and it's expected to build on that foundation with its upcoming Neue Klasse technology. But other Western manufacturers' products often aren't good enough considering how much they cost. Mercedes-Benz Group AG is reportedly struggling to sell the $160,000 electric version of its iconic G-Class SUV, the G580, due in part to the 3085-kilogram (6,800-pound) vehicle's limited range and towing capacity; this has added to the German manufacturer's lengthening roster of EV flops. Eye-watering depreciation of luxury EVs like the Porsche Taycan is also deterring customers.No wonder Lamborghini doesn't plan to launch its first EV until the end of the decade, while Ferrari NV is reportedly delaying its second EV until at least 2028 (the first will go on sale next year after a protracted launch).But there are risks in feet-dragging: Imagine what Xiaomi, Aito, Maextro, BYD Co.'s Yangwang and their ilk will be capable of in five years?Porsche CEO Oliver Blume has said he doesn't consider Xiaomi to be a competitor and claims to be 'very relaxed' about its achievements on the racetrack. 'Customers who love the sportiness, the driving dynamics of Porsche stick to the brand,' he told analysts in March.Nevertheless, the Stuttgart-based automaker seems to have accepted its best days in China are over. Rather than cut prices, it's closing around one-third of its local dealers after the comparatively expensive electric Taycan and Macan failed to sell well. And Blume isn't ruling out giving up on selling EVs in China entirely.For now, the US is essentially off-limits to Chinese EVs due to a combination of import duties and cybersecurity rules. And while European tariffs aren't as high, Chinese luxury brands have made only limited inroads here so far.Consumer loyalty to long-established brands, the slower pace of electrification, and the difficulties of establishing sales and service networks offer Western automakers some protection at home. But in emerging markets — which Chinese automakers are now aggressively targeting — it's a different story.Ultimately, the only way for luxury automakers to sustainably defend their premium pricing in the era of electric and software-defined vehicles is to show they can exceed the best that China can offer. From what I saw last week, that'll be a very tall order.