Xiaomi Enters Electric Vehicle Market With US$10 Billion Commitment

HONG KONG—Chinese electronics giant Xiaomi Corp. became the latest tech company to launch a foray into China’s burgeoning electric vehicle market, pledging $10 billion over the next decade to the effort.

Xiaomi Chief Executive Lei Jun will lead the new stand-alone subsidiary focused on electric vehicles, the company said Tuesday. It will spend an initial 10 billion yuan, equivalent to about $1.5 billion, to launch the new company, expanding its investment in the coming years.

Xiaomi’s entrance into electric vehicles makes it one of China’s most high-profile tech companies to date to join the increasingly crowded market for such automobiles. Xiaomi’s status as a popular consumer brand with a rapidly expanding global footprint, could give it an edge over its many rivals, though new entrants into the car market face significant hurdles.

Mr Lei appeared late Tuesday before a cheering theatre of spectators in Beijing following the announcement. He told the audience that he had deliberated for months with the company’s board about whether Xiaomi should enter the electric vehicle market. He said he ultimately decided that the company’s deep cash cushion gave him the confidence to move forward.

“We have accumulated a lot of wisdom and experience and it’s time for us to try the waters,” Mr. Lei said.

Mr Lei offered scant details on how or when any Xiaomi vehicle would come to market, and didn’t disclose whether it had enlisted an outside manufacturer for the effort. Last week, Chinese car maker Great Wall Motor denied a report that it was working with Xiaomi on electric vehicles.

China is the world’s largest electric vehicle market, and Xiaomi joins a crowded field of companies looking to compete in the business. Sales of electric vehicles have been booming since industry champion Tesla Inc. began building its high-end cars in Shanghai in late 2019. Domestic rivals include NIO Inc.—whose soaring stock has made it one of the world’s most valuable auto makers—as well as Li Auto Inc. and Xpeng Inc.

In January, search-engine giant Baidu Inc. disclosed that it was entering the electric vehicle market with partner Geely Automobile Holdings Ltd. Apple Inc. has been seeking partners to build electric vehicles since late last year, though talks to do so with South Korea’s Hyundai Motor Group broke down in February.

Xiaomi is betting that its entry into electric vehicles will build on its resurgent success in smartphones. In the fourth quarter, the company became the world’s third-largest smartphone maker behind Apple and Samsung Electronics Co., occupying that spot for the first time ever. Booming sales in China, India and Western Europe have fueled its rise, while troubles at its Chinese rival Huawei Technologies Co. have sent customers flocking to its cut-rate devices.

The details of Xiaomi’s electric-vehicle effort came toward the close of a roughly two-hour new product launch hosted by Mr Lei in Beijing on Tuesday. In addition to smartphones, Xiaomi sells an array of consumer devices, and Mr Lei spent most of the event revealing a grab bag of new gadgets, including an internet-connected air conditioning unit, a home humidifier and a new laptop.

Only at the very end did Mr Lei discuss Xiaomi’s electric-vehicle plans. As an image of Mr Lei with his arm around Tesla CEO Elon Musk flashed behind him, the Chinese CEO said he had been a Tesla owner since 2013, and long had an interest in the technology.

“I hope that one day there will be a Xiaomi car on each and every street,” he said.

The U.S. and Chinese governments should take action to lower future borrowing, as a surge in their debts threatens to have “profound” effects on the global economy and the interest rates paid by other countries, the International Monetary Fund said Wednesday.

In its twice-yearly report on government borrowing, the Fund said many rich countries have adopted measures that will lead to a reduction in their debts relative to the size of their economies, although not to the levels seen before the Covid-19 pandemic.

However, that is not true of the U.S. and China, which will continue to see a surge in borrowing if current policies remain in place. The Fund projected that U.S. government debt relative to economic output will rise by 70% by 2053, while Chinese debt will more than double by the same year.

The Fund said both countries will lead a rise in global government debt to 98.8% of economic output in 2029 from 93.2% in 2023. The U.K. and Italy are among the other big contributors to that increase.

“The increase will be led by some large economies, for example, China, Italy, the United Kingdom, and the United States, which critically need to take policy action to address fundamental imbalances between spending and revenues,” the IMF said.

The IMF expects U.S. government debt to be 133.9% of annual gross domestic product in 2029, up from 122.1% in 2023. And it expects China’s debt to rise to 110.1% of GDP by the same year from 83.6%.

The Fund said there had been “large fiscal slippages” in the U.S. during 2023, with government spending exceeding revenues by 8.8% of GDP, up from 4.1% in the previous year. It expects the budget deficit to exceed 6% over the medium term.

That level of borrowing is slowing progress toward reducing inflation, the Fund said, and may also increase the interest rates paid by other governments.

“Loose US fiscal policy could make the last mile of disinflation harder to achieve while exacerbating the debt burden,” the Fund said. “Further, global interest rate spillovers could contribute to tighter financial conditions, increasing risks elsewhere.”

A series of weak auctions for U.S. Treasurys are stoking investors’ concerns that markets will struggle to absorb an incoming rush of government debt. The government is poised to sell another $386 billion or so of bonds in May—an onslaught that Wall Street expects to continue no matter who wins November’s presidential election.

While analysts don’t expect those sales to fail, a sharp rise in U.S. bond yields would likely have consequences for borrowers around the world. The IMF estimated that a rise of one percentage point in U.S. yields leads to a matching rise for developing economies and an increase of 90 basis points in other rich countries.

“Long-term government bond yields in the United States remain elevated and sensitive to inflation developments and monetary policy decisions,” the Fund said. “This could lead to volatile financing conditions in other economies.”

China’s budget deficit fell to 7.1% of GDP in 2023 from 7.5% the previous year, but the IMF projects a steady pickup from this year to 7.9% in 2029. It warned that a slowdown in the world’s second largest economy “exacerbated by unintended fiscal tightening” would likely weaken growth elsewhere, and reduce aid flows that have become a significant source of funding for governments in Africa and Latin America.

An unusually large number of elections is likely to push government borrowing higher this year, the Fund said. It estimates that 88 economies or economic areas are set for significant votes, and that budget deficits tend to be 0.3% of GDP higher in election years than in other years.

“What makes this year different is not only the confluence of elections, but the fact that they will happen amid higher demand for public spending,” the Fund said. “The bias toward higher spending is shared across the political spectrum, indicating substantial challenges in gathering support for consolidation in the years ahead, and particularly in a key election year like 2024.”

Xiaomi Enters Electric Vehicle Market With US$10 Billion Commitment

Chinese smartphone giant joins crowded but burgeoning automobile market.

Says U.S. and China, which will continue to see a surge in borrowing if current policies remain in place.