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Why are automakers making a reverse move into the mobile phone industry, as tech companies cross over to build cars?

2022-06-17

Why are automakers making a reverse move into the mobile phone industry, as tech companies cross over to build cars?

Mobile phone companies transitioning into the automotive industry only need to focus on finding hardware solutions, as the pool of available software talent is already far larger than that of automotive firms. Conversely, automakers typically have a stronger emphasis on hardware expertise, with far more hardware engineers than software developers. Meanwhile, tech giants like Xiaomi, Huawei, and ZTE are forging increasingly deep ties with the auto industry. At the same time, some carmakers are quietly expanding their presence in the tech sector—specifically in the mobile phone space—to strengthen their foothold in this competitive arena.

Recently, the State Administration for Market Regulation released a public notice regarding the equity acquisition case of Hubei Xingji Shidai Technology Co., Ltd. (referred to as "Xingji Shidai") acquiring shares in Zhuhai Meizu Technology Co., Ltd. (referred to as "Meizu Technology"). According to the disclosed information, Xingji Shidai has already signed agreements with Meizu and the shareholders involved in the transaction, planning to acquire 79.09% of Meizu Technology's equity. Data from Qixinbao indicates that Xingji Shidai was established in September 2021, and its suspected actual controller is Li Shufu, Chairman of Geely Holding Group, who holds a 57.8452% stake.
It’s not just Geely that’s entering the mobile phone market—NIO has also indicated that the company is still in the very early stages of market research regarding smartphone manufacturing. Meanwhile, Tesla has been repeatedly rumored to be preparing to launch its own line of self-developed phones. Moreover, BYD ventured into the mobile phone manufacturing industry as early as 2003, and today, mobile-related businesses have become one of the company’s three core operations. Compared to the rapidly growing new-energy vehicle market, the smartphone sector has long ceased to be a blue ocean opportunity. According to data from research firm Canalys, total smartphone shipments in China during the first quarter of 2022 reached 75.6 million units—down 18% year-on-year. Among the top five smartphone manufacturers, only Honor and Apple managed to achieve year-on-year shipment growth, while Vivo, Oppo, and Xiaomi all experienced declines exceeding 20% compared to the same period last year. Although the industry generally believes that the technological barriers in mobile phones are significantly lower than those in automobiles, creating a truly outstanding product that resonates with consumers remains no easy feat. NIO Chairman and CEO William Li once remarked that making a phone may seem relatively simple, but developing a high-quality device that truly wins user favor is an immense challenge. So, why are automakers like Geely and NIO choosing to "diversify" into the smartphone market instead of focusing solely on their core automotive businesses?
McKinsey data reveals that Chinese consumers place greater emphasis on the intelligent experience, with over 80% of Chinese consumers considering autonomous driving and smart connectivity features highly important to them. However, compared to tech companies, most traditional automakers excel more in sophisticated mechanical engineering than in complex software development—traits such as precision mechanics rather than intricate coding. Despite this, traditional automakers like Volkswagen, Toyota, Geely, and BYD are actively working to address their software shortcomings. Yet, even today, these established players have made remarkably limited progress in the software domain.
In 2019, Volkswagen established Car.Software, a software division comprising several thousand employees, to strengthen its in-house software capabilities and empower the MEB electric vehicle platform. However, currently, the MEB platform products—highly anticipated by Volkswagen—are still regarded as not sufficiently intelligent in China, performing notably weaker compared to new automotive brands like Tesla, NIO, Xpeng, and Li Auto. Meanwhile, at Apple’s WWDC2022 keynote event held in early June, Apple Senior Manager Emily Schubert unveiled the next-generation Apple CarPlay in-vehicle system. Notably, more than 14 automakers—including Land Rover, Jaguar, Porsche, Mercedes-Benz, Audi, Lincoln, Acura, and Infiniti—have already partnered with Apple to integrate this cutting-edge technology into their vehicles.
Notably, the new-generation CarPlay system is no longer a simple screen-mirroring solution—it now enables the display of critical vehicle data such as dashboard speed, fuel (or electric) level, engine RPM, and temperature. Additionally, it allows users to control in-car features like air conditioning, seat adjustments, and even the radio—functions that were traditionally tightly controlled by automakers themselves. Some analysts argue that this software predicament has effectively led automakers to "sell their souls" to Apple. For certain traditional automakers committed to in-house development, the mobile industry isn’t just another business unit—they see it as an opportunity to drive innovation back into automotive R&D. As one Baidu smart cockpit software engineer put it: "Currently, most car infotainment systems are essentially Android-based platforms adapted for vehicles, meaning the underlying technology remains highly compatible with smartphones. This makes it easy for mobile software talent to seamlessly transition into automotive software development. Even in areas where there’s still a gap—such as MCUs and automotive-grade software—these professionals can quickly retrain and adapt after receiving the necessary education and training."
Xu Haidong, Deputy Chief Engineer of the China Association of Automobile Manufacturers, believes that automakers venturing into smartphone manufacturing is a practical decision driven by real-world considerations. By leveraging mobile phones, companies can not only enhance the human-vehicle interaction experience but also accelerate their digital transformation. As automotive intelligence and connectivity continue to deepen, cars are now being endowed with a new attribute—acting as mobile smart terminals—beyond their traditional roles in transportation and mobility. Zhao Fuquan, Director of the Tsinghua University Automotive Industry and Technology Strategy Research Institute, predicts that cars will become the largest platform of the future, ultimately evolving into the most dominant mobile device.
Under the new attribute, cars will share certain similarities with smartphones. By entering the smartphone market, automakers will be able to create a closed-loop ecosystem for mobile devices. Li Shufu believes: "Smartphones are rapidly evolving, portable mobile devices that serve as a platform for validating electronic products and fostering software innovation. They not only enable users to quickly embrace cutting-edge innovations but also allow automakers to seamlessly transfer safe, reliable technological advancements into automotive systems—facilitating close interactions between in-car and mobile device software. Looking ahead, cross-industry collaboration to build robust user ecosystems and legally establish competitive advantages for companies has become an undeniable trend. Moreover, smartphones can connect seamlessly with vehicle-to-everything (V2X) networks and satellite internet, opening up a wealth of diverse consumer scenarios, strengthening the broader ecosystem, and ultimately delivering a more convenient, intelligent, and fully interconnected multi-screen lifestyle experience to users."
Li Bin stated that smartphones have now become the most important device for NIO users to connect with their vehicles. Apple is currently quite closed off to the automotive industry—for instance, while NIO’s second-generation platform vehicles come standard with UWB technology, Apple hasn’t opened up its interfaces, leaving NIO in a rather passive position. As cars increasingly adopt the attributes of smart mobile devices, automakers need to better understand consumers' evolving demands in this space. "Most automakers aren’t active participants in the broader ecosystem; they still prefer to define products using their traditional models," explained Shen Qun (pseudonym), an investor at an autonomous driving company, to our reporter. "In contrast, smartphone companies are key players in this ecosystem—they know far more clearly what consumers truly want."
Xiaomi founder Lei Jun and Meizu Technology founder Huang Zhang are both avid users of social platforms, often mingling effortlessly with users in online communities. Moreover, venturing into the smartphone market could help automakers share the costs associated with software development and ecosystem building. According to PwC's report, "Building Software-Driven Automotive Enterprises," software has already become the cornerstone of differentiation and competitive advantage in modern vehicles. The report also highlights that, over the next decade, as consumer expectations rise and innovative features continue to emerge, automotive software development costs are projected to surge by 83%.
PwC Strategy&, China Automotive Consulting Business Partner Jiang Yiming pointed out that establishing equitable partnerships with competitors, suppliers, and technology companies will help reduce technological complexity, bridge talent gaps, and cut project costs by 35% to 60%. Shen Qun told reporters that automakers are now set to invest more in software talent than they previously did in automotive hardware R&D personnel. For instance, brands like Volkswagen and Toyota may be able to support software teams of over 10,000 members—but how many players in the industry can actually match that scale?
Shen Qun believes that, when comparing companies of similar size, automotive firms naturally have fewer software talents than mobile phone companies. When mobile phone companies pivot to enter the automotive industry, they typically only need to seek out hardware solutions—meaning the pool of available software talent is already far richer than what automotive firms can tap into. Conversely, in the automotive sector, the situation is reversed: hardware expertise vastly outweighs software expertise. From a business perspective, after automakers start expanding their software capabilities, they’ll inevitably need new revenue streams to support their growing teams. Moreover, at the ecosystem level, mobile phones are already ahead of the automotive industry; mobile phone software teams often gain access to cutting-edge technologies well before their counterparts in the auto sector.