It has been fascinating to see videos showcasing Xiaomi’s SU7 EV sedan emerge over the last few days. The interior UX, in particular, looks fantastic. With BYD having entered India in 2021, and Xiaomi’s well-known expertise in product design and global distribution, China has emerged as a powerful player in the global EV space. Of course, with its prowess in hardware manufacturing, it was never a question of ‘if’, only ‘when’!

In parallel, the AI supercycle in the US is having positive ripple effects in hardware and robotics. Apple is expected to make significant progress in the next couple of years on the 1st gen Vision Pro. Meta is focused on rapidly improving the Quest 3, while it also collaborates on the Ray-Ban smart glasses. Zuck also recently spoke about developing a neural interface in the form of a wristband, which can read the signals your brain sends to hands and arms.

US startups are already going gun-ho on imagining new form factors to deliver AI capabilities to users. These include AI pins, AI necklaces, and desktop robots that turn your smartphone into a whimsical companion.

With massive investments going into the chips and infra layer in the AI cycle (read my post: ‘AI Musings #6: The Bull Run Is Just Beginning (90s Telecom Boom Vibes)‘), the resulting drop in compute prices and democratized access to it is providing tailwinds to hardware verticals whose adoption has been previously blocked by uncomfortable form factors.

With all this hardware action in the US and China, I believe it’s a matter of national importance that India now steps up its game in key verticals of consumer hardware, and avoids ceding this territory to overseas players.

In the mobile supercycle, I had a ringside view into how in smartphones, homegrown Indian companies like Micromax, Karbonn, Intex, and Lava didn’t end up investing in domestic manufacturing capabilities, playing the short-sighted game of buying stock hardware from Chinese OEMs/ ODMs, and just putting a sticker and packaging on it.

Further, even with a solid local software talent pool, these companies also under-invested in software, building only basic wrappers on top of stock Android. Essentially, Indian smartphone OEMs ignored both these key areas of competitive differentiation, diverting capital away from capex & R&D, and towards brand building and customer acquisition.

This strategy was found wanting when Chinese OEMs like Xiaomi and OnePlus aggressively entered the Indian market. Given their deep manufacturing and digital expertise in China, these companies had strong differentiation in both hardware and software. Plus, they had deep pockets to outspend Indian OEMs on marketing. Therefore, despite entering the Indian market much later and starting well-behind Samsung and Indian OEMs, Chinese smartphone companies managed to build strong local brands in a fraction of the time.

The end result is this – in Q4 2014, top 3 Indian OEMs Micromax, Intex, and Lava together had >30% smartphone market share. In Q4 2023, there are now ZERO Indian companies in the top 5 smartphone vendors!

Given the ambitious goals we are setting for the Indian economy over the next decade, and the national importance of critical technologies like AI, automotive, energy, space and defense, it’s important India doesn’t repeat the strategic mistakes of the mobile supercycle. It’s imperative that indigenous hardware capabilities get built during this next AI supercycle (and other constituent subcycles in AR/VR, EVs, space etc.).

From what I am hearing about all the foundational work already happening in semiconductors, automotive, space, and general manufacturing, this is totally doable if the Indian public and private sectors can come together, backed by an encouraging policy stance from the govt. We are already seeing early greenshoots of this in space tech, where ISRO is actively collaborating with Indian spacetech startups.

I want to throw out a challenge for Indian founders, asking them to be more courageous in picking tough hardware problems to solve. There is enough global capital available that is positive on India and in its chase for alpha, will be ready to back this courage.

Further, this is also the right time for Indian conglomerates like Reliance and Mahindra to step up in a meaningful way and drive INR capex in these critical sectors. In parallel, the govt’s policies should ensure that while hardware manufacturing attracts investments from all over the world, the strength of homegrown players also get built up in this supercycle.

China is a good example of leveraging foreign capital to strengthen its domestic manufacturing and digital capabilities. Technology indigenization is critical in this age of fickle geo-politics where everything from trade to currencies are being weaponized.

This current generation of Indian founders also have the benefit of home-grown role models like Sachin Bansal and Binny Bansal, who stood up to US and Chinese competition in eCommerce, ultimately ensuring a homegrown & enduring market leader like Flipkart continues to thrive to this day.

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