Xiaomi originally chose CATL as a tier 1 battery supplier for its EV unit, but has reworked its strategy to reduce costs.

(Image credit: Xiaomi founder and CEO Lei Jun's Twitter.)

Xiaomi's electric vehicle (EV) division has chosen CALB and CATL as the tier-1 and tier-2 suppliers of power batteries, respectively, local media outlet Jiemian said in a report today, citing insiders at the Chinese smartphone giant.

Previously, Xiaomi had made CATL the tier-1 battery supplier for its EV unit as CALB faced a lawsuit from CATL, according to the report.

As previously planned, Xiaomi's cost for sourcing a battery pack from CATL started at RMB 80,000 ($11,000), accounting for about 50 percent of the vehicle's cost, the report said.

However, as the patent dispute between CALB and CATL came to an end, Xiaomi adjusted its supplier selection to reduce costs.

On August 3, CALB made an announcement that Chinese intellectual property authorities invalidated two of CATL's patents. This means that CALB's batteries in dispute are unblocked and can be offered normally to the market to compete with rivals including CATL, Jiemian said.

After Xiaomi's cars are launched and sales expand, the proportion of batteries supplied by tier-1 and tier-2 suppliers will be adjusted based on sales, according to the report.

Xiaomi's EV business may also bring in other battery makers such as BYD in the future to further drive down battery costs, the report noted.

However, BYD's sources said that Xiaomi's automotive division is currently absent from its current power battery supply list.

CATL's power battery installed capacity in July was 13.47 GWh, ranking first with a 41.79 percent share, according to China Automotive Battery Innovation Alliance (CABIA).

BYD's power battery installed capacity in July was 9.35 GWh, ranking second with a 29.01 percent share.

CALB installed 3.20 GWh of power batteries in July, ranking third with a 9.93 percent share.

Xiaomi's EV business will rely on software, not hardware, to make money, Jiemian quoted an insider at the company as saying.

In order to maintain Xiaomi's cost-effective edge, Xiaomi's EV business will keep its component margins at around 1 percent, with future profitability relying mainly on software and eco-services, the source said.

Xiaomi announced on March 30, 2021 that it's joining the car-making bandwagon, saying it would invest RMB 10 billion yuan in the first phase of its automotive business and expects to invest $10 billion over the next 10 years.

Xiaomi's first EV model will be a LiDAR-equipped sedan, with a premium version priced at more than RMB 300,000, local media outlet LatePost reported on September 2 last year.

($1 = RMB 7.2868)

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