Xiaomi crash spotlights smartphone-on-wheels hype

By Katrina Hamlin

HONG KONG, Oct 14 (Reuters Breakingviews) - Ford Motor F.N CEO Jim Farley's favourite rival is back under the spotlight. A fatal accident in the early hours of Monday involving one of Xiaomi's 1810.HK electric sedans erased as much as 9% of the $164 billion Chinese manufacturer's market value before it recovered somewhat. It's the second time one of its vehicles has suffered a high-profile, deadly crash this year. That exposes the risks of the smartphone maker's recent shift of adding smart cars to its line-up. Yet for now at least, the fallout looks manageable for boss Lei Jun.

The car, identified as a Xiaomi SU7 Ultra via footage from the scene, hit another vehicle before catching fire in the early hours of Monday, according to media outlet Yicai. Visuals showed passers-by trying and failing to free the driver, Bloomberg reported, which sparked fears over the safety of the car's electronic door system.

Lei's foray into electric cars has quickly become a growth engine. Analysts forecast the unit's revenue will roughly triple to $14 billion this year, accounting for around a fifth of the overall company's top line, per Visible Alpha, despite only selling its first car last year. The business is on the cusp of turning profitable too, analysts at Bernstein wrote last month.

Xiaomi's perceived ability to avoid deadly flaws will have a direct impact on purchase decisions at a time when the fledgling marque is still establishing itself. Lei also aspires to take his cars overseas, with plans to enter Europe; going head to head with veterans like BMW BMWG.DE on their home turf will be even harder if would-be buyers doubt the car's credentials.

The timing is awkward in other ways, too. Chinese regulators are tightening controls over the sector to curb rampant overcapacity and safeguard standards. Yet it's too early to say whether Xiaomi was to blame for the tragedy. The driver, who passed away, is suspected of driving under the influence of alcohol, according to a police statement. Even if the car was at fault, earlier crises have shaken drivers' faith only in the short term.

Toyota Motor 7203.T, for example, recovered from its infamous faulty braking scandal, which led to then-President Akio Toyoda apologising before the U.S. Congress in 2010. Two years later, Toyota was once again the world's largest automaker by sales. And Xiaomi isn't the only carmaker confronting questions over door designs. Last month U.S. regulators opened an investigation into Tesla's TSLA.O Model Y doors, while Chinese watchdogs published draft rules demanding mechanical release systems.

Though the incident flashes a warning for investors, Xiaomi has a good chance of navigating the aftermath.

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CONTEXT NEWS

A Xiaomi SU7 Ultra electric car was involved in a fatal crash in the Chinese city of Chengdu in the early hours of October 13, according to a report from media outlet Yicai, citing images from the scene. A statement from local police added that the driver, who passed away, is suspected of driving after consuming alcohol.

Footage from the incident showed people tried to assist but were unable to reach the driver, Bloomberg reported on October 13, sparking concerns over the car's electronic door system.

Xiaomi's Hong Kong-listed shares fell as much as 9% in intraday trade before closing down 5.7% at HK$49.08 on October 13.

Xiaomi's EV unit is becoming a growth engine