Huawei’s smart car solution BU (referred to as “car BU”) has independently announced a significant development.
On the evening of November 26th, Changan Automobile released a statement stating that it had signed a “Memorandum of Investment Cooperation” with Huawei. Through negotiation, Huawei plans to establish a company (referred to as the new Huawei company) engaged in the research, design, production, sales, and services of automotive intelligent systems and components. Changan Automobile intends to invest in this new company and engage in strategic cooperation.
This is undoubtedly a major announcement, confirming the independent spin-off of Huawei’s car business unit, with Changan Automobile becoming the first car manufacturer to invest.
On November 27th, Changan Automobile’s stock price opened limit-up, closing at 19.56 yuan per share, up by 10.01%. The market value reached 194 billion yuan, accumulating a 17.9% increase over the past five trading days and a 31.19% increase over the past 30 trading days. On the same day, 12 institutions, including China Life Insurance and Guotou Ruijin Fund, visited Changan Automobile for on-site research. It is evident that both the market and institutions are paying close attention to Changan Automobile.
In relative terms, Ceres, which has long been considered to have the deepest cooperation with Huawei, did not become the first company to invest. Although it issued an urgent statement on the evening of the 26th stating that its relationship with Huawei has not changed and that it has received an invitation for cooperation, its stock price still came under pressure.
On November 27th, Wenjie again announced good news about new orders for the M7, stating that the orders had exceeded 100,000 units. Yu Chengdong, Executive Director and Chairman of the Intelligent Car Solutions BU at Huawei, also expressed support for Wenjie on Weibo.
While Huawei’s car ecosystem is bringing in more powerful partners, it also needs to stabilize its alliances.
Changan Automobile is the first to invest in Huawei’s Car BU.
Changan Automobile’s announcement reveals that Huawei will establish a target company with business scope including automotive intelligent driving solutions, intelligent car cabins, smart automotive digital platforms, intelligent car clouds, AR-HUD, and intelligent car lights. Huawei will inject related technologies, assets, and personnel into the target company dedicated to the business scope. Specific business scope and loading plans will be determined in the final transaction documents.
In this transaction, Changan Automobile and its affiliates plan to invest in the equity of the target company, not exceeding 40%. The specific equity ratio, amount of investment, and duration will be negotiated separately by both parties.
After the investment, Huawei, in principle, will not engage in businesses that compete with the new company’s business scope. In other words, Huawei is separating from its car BU and has signed a non-compete agreement.
The announcement states that the new company aims to become a world-class leader in the automotive intelligent driving system and components industry. As an open platform serving the automotive industry, it will open up equity to existing strategic partner automakers and other investors with strategic value, becoming a diversified company in terms of equity.
Both parties commit to long-term cooperation and strategic coordination with the target company. Components and solutions within the business scope are generally provided to end customers by the target company.
In the literal sense of cooperation, Huawei’s new company is more involved as a supplier of components and solutions in cooperation with Changan Automobile’s complete vehicles.
An official from Changan Automobile’s Investor Relations Office confirmed to a reporter from Time Weekly: “At the same price, we will prioritize products from the newly established Huawei company.”
However, regarding whether Changan’s models will enter Huawei’s sales outlets, whether the HarmonyOS system will cover all Changan models, and other details about future joint development of new models, the official told a reporter from Time Weekly: “Currently, we haven’t delved into such detailed details. Further discussions are needed to finalize these matters.”
At the same time, she also confirmed to the reporter from Time Weekly that Changan Automobile is currently mainly playing the role of an investor.
Huawei’s Car BU requires more partners for profitability.
Why did Huawei choose this timing to spin off its car BU business and bring in car manufacturers for investment?
During the signing ceremony, Xu Zhijun, rotating chairman of Huawei, said: “Huawei insists on not building cars but leveraging its own ICT technology advantages and marketing capabilities to help car manufacturers build and sell good cars. We will continue to fulfill our commitments to customers and partners, jointly promote the rise of the automotive industry.”
Yu Chengdong, Executive Director and Chairman of the Intelligent Car Solutions BU at Huawei, stated: “We have always believed that China needs to create an electrified and intelligent open platform that involves the entire automotive industry, a platform with a ‘locomotive.’ We are deepening cooperation with Changan and will also work with more strategic partner automakers to explore new models of open and win-win cooperation, seize the opportunities of the electrification and intelligence transformation of the automotive industry, and realize the dream of the rise of China’s automotive industry.”
Beneath these grand goals is Huawei’s increasingly substantial investment and the urgency to achieve its profitability target by 2025.
At the end of 2022, Yu Chengdong stated at an internal meeting that Huawei’s car BU aims to achieve profitability by 2025. According to Huawei’s 2022 annual report, since the establishment of the car BU, the accumulated investment has reached $3 billion, and the research and development team has grown to 7,000 people. However, the revenue of Huawei’s car BU during the same period was $2.1 billion in 2022 and $1 billion in the first half of 2023, with no mention of profitability. Considering the investment, it is evident that profitability is still a long way off.
“To achieve profitability means Huawei needs to help car manufacturers sell 1 million cars. This pressure is significant, but we are confident in achieving it. We hope that both the Smart and Hi models will gain traction, with the Smart model possibly having a larger volume. Regardless of which model succeeds, we can make it happen,” Yu Chengdong previously said in an interview.
From the current perspective, relying solely on Wenjie to sell 1 million cars before 2025 would be a tremendous challenge, prompting Huawei to choose to bring in more partners. At the recent Guangzhou Auto Show, Yu Chengdong also stated that, in addition to Wenjie and Zhijie, two more “jie” (Chinese for “boundary”) models are about to be launched, coming from BAIC Motor and JAC Motors.
Independent TMT analyst Fu Liang told a reporter from Time Weekly: “Huawei’s car BU faces significant pressure for profitability, and so far, the investment and manpower are enormous. It also needs a powerful large-scale car company with funds, strength, and brand appeal to participate more in the co-construction of Huawei’s car.”
At the same time, the impressive performance of Huawei’s Hongmeng Smart Drive and the heated discussion of AEB (automatic emergency braking) battles in the market have made more automakers see the significant impact of automotive intelligence on the market.
After the AEB test by the CarDeng app boosted the popularity of Huawei Avita and Wenjie, a video of Zhijie’s Smart Park Assist also recently went viral. A user who watched the video commented, “When I saw Zhijie backing up like an experienced driver when the oncoming vehicle didn’t yield, I was shocked.”
But why did Changan Automobile become the first to invest?
Firstly, Changan Automobile is one of the four major automotive group companies in China, with a history of 161 years and 39 years of car manufacturing experience. It has 12 manufacturing bases and 22 factories worldwide.
Moreover, in recent years, Changan Automobile has accelerated its transition to new energy and has a more open attitude towards cooperation. It cooperated with CATL to build a battery factory producing “Golden Shield” cells, signed a cooperation agreement with NIO to focus on the battery-swapping system, signed a cooperation agreement with Klaus Zyciora, the former Global Head of Design at Volkswagen, established a right-hand drive car production line in Thailand, and held a launch event in Thailand on the evening of November 27.
It has also had extensive cooperation with Huawei. Since 2019, Changan Automobile has signed strategic cooperation agreements with Huawei. They have jointly developed the high-end brand Avita, and its subsidiary Changan New Energy has also signed an agreement with Huawei.
At the signing ceremony, Zhu Huarong, Chairman and Party Secretary of Changan Automobile, said: “Changan Automobile and Huawei will leverage their respective advantageous resources and cooperate deeply with strategic partner automakers. By achieving in-depth synergy and strategic cooperation, we will accelerate the large-scale commercialization of intelligent technology, enabling users worldwide to enjoy a first-class intelligent experience. We will promote the development of China’s intelligent automotive industry towards scale, intensity, and sharing, enhance the resilience of the automotive industry chain and supply chain, promote the high-quality development of China’s automotive industry chain, lead breakthroughs in core technologies, and help Chinese automotive brands become world-class.”
Yu Chengdong supports “Wenjie.”
Regarding the sudden entry of Changan Automobile into Huawei’s car BU, Ceres, which has the deepest cooperation with Huawei, immediately responded.
On the night of November 26th, an internal source from Ceres told a reporter from Time Weekly: “There is no doubt that Ceres is the most profound partner in cooperation with Huawei.”
Late on November 26th, Ceres separately published a situation statement on its official website, firstly welcoming Huawei’s establishment of an independent company for equity opening in the field of car intelligent systems and components. It marks a milestone in promoting the creation of an open platform for the electrification and intelligence of China’s automotive industry.
Secondly, Ceres emphasized that it is Huawei’s deepest, broadest, and largest whole-vehicle partner. According to the relevant provisions of the long-term strategic cooperation agreement signed by both parties, this strategic adjustment of the car BU does not affect the long-term strategic partnership relationship between the two parties. It does not affect the supply relationship of components to Ceres, nor does it affect the continuous provision of products and services to AITO Wenjie vehicle owners and potential users.
Finally, Ceres stated that it has also received an invitation to jointly invest in the target company and participate in the creation of an electrified and intelligent open platform. It is actively studying the relevant matters related to investment and cooperation.
However, this statement’s impact on the market is still limited. On the morning of the 27th, Ceres fell sharply by 7.31% at one point, gradually climbing after the midday, finally closing slightly up by 0.11%.
Not only did Ceres issue a clarification in a separate situation statement, but on November 27th, both Ceres and Wenjie promptly released a poster announcing the breakthrough of 100,000 units in orders for the M7. Yu Chengdong also openly supported Wenjie on Weibo.
Wenjie stated that the new M7 had exceeded 100,000 units in orders. Since its launch on September 12th, the AITO Wenjie new M7 had accumulated over 100,000 orders in two and a half months, breaking an industry record. In addition, the AITO Wenjie M9 recently made its public debut at the Guangzhou Auto Show, and the number of blind bookings has also exceeded 30,000 units.
Yu Chengdong said on Weibo: “Today, AITO Wenjie’s new M7 has reached a new milestone, with over 100,000 orders in just two and a half months since its launch. Thanks to the support and love of consumers! Hongmeng Smart Travel is currently the most comprehensive, close, and in-depth mode of cooperation between Huawei and car manufacturers, with the most advanced Huawei intelligent car innovation technology, offering the best intelligent experience. Ceres is the earliest and deepest partner among the car companies in our Hongmeng Smart Travel mode. Huawei will continue to work with Ceres to bring more and better products and services to consumers, creating one milestone after another!”
On the evening of the 27th, another manufacturer in the Hongmeng Smart Travel model also issued a statement expressing its willingness to join but had not received an invitation for joint investment from Huawei.
On the evening of the 27th, JAC Motors also issued a statement, stating that since starting strategic cooperation with Huawei in 2019, communication has been close, and the scope continues to expand. This adjustment of Huawei’s platform strategy in the car field does not affect the subsequent cooperation between the two parties. Regarding the relevant matters of Huawei’s plan to establish an independent company for automotive intelligent systems and components, the company pays close attention and actively discusses matters related to participating in investment and cooperation with Huawei.
At the same time, on the evening of the 27th, JAC Motors issued an announcement on the Shanghai Stock Exchange, providing further clarification on the statement on the official website of JAC Group. In 2019, the company started strategic cooperation with Huawei, but substantial progress has not been made so far, so there was no relevant information disclosure in the early stage. In addition, the company has not received an invitation for joint investment from Huawei and has not participated in investment and capital cooperation-related matters.