Huawei builds a hundred-billion-yuan unicorn in the automotive industry within five years.

On the eve of the Chengdu Auto Show, Huawei's Hongmeng Intelligent Driving system expanded again, launching the new M7 Pro and the debut of the Zhijie R7. Since then, the number of Hongmeng Intelligent Driving models has grown to six: the Wenjie M5 (configuration | inquiry), Wenjie M7, Wenjie M9, Zhijie S7, Zhijie R7, and Xiangjie S9 (configuration | inquiry), with cumulative sales exceeding 400,000 units. However, Hongmeng Intelligent Driving, an upgrade of Huawei's smart car selection model, has also faced skepticism from automotive industry leaders, questioning whether Huawei's excessive involvement will lead to the loss of the soul of automakers. Yinwang was incorporated against this backdrop. In January of this year, Huawei spun off the Huawei Intelligent Automotive Solutions BU (hereinafter referred to as the "Car BU") to establish Yinwang, a new company to inherit the BU's technology and resources.

Seven months later, Avita and Seres successively acquired stakes in Yinwang. According to the announcement, both automakers hold a 10% stake, and the transaction amount is 11.5 billion yuan. This calculation puts Yinwang's valuation at 115 billion yuan. Meanwhile, the profitability of Huawei's Automotive BU, once Huawei's only loss-making business, has drawn considerable attention. Recently, after a five-year investment period, the BU has begun to show signs of profitability. Data shows that losses of 7.587 billion yuan and 5.597 billion yuan are expected in 2022 and 2023, respectively, before turning a profit in the first half of 2024, with a net profit of 2.231 billion yuan. Other sources claim that Huawei's Automotive BU's revenue reached 10 billion yuan in the first half of this year. In response to this news, a Huawei Automotive BU insider told a reporter from the Times Weekly: "There's no official operating data yet, but it's certainly a significant increase compared to last year." Having overcome the twin challenges of scale and profitability, what lessons has Huawei's five-year automotive venture left for the industry? Can smart cars replace mobile phones as Huawei's new cash cow?

On August 26, on the eve of the Chengdu Auto Show, Huawei unveiled the new M7 Pro version. The R7, the second model co-developed with JAC Motors and the first coupe SUV under the Hongmeng Intelligent Driving brand, also made its debut. Since then, Huawei's Hongmeng Intelligent Driving model lineup has grown to six, including the Wenjie M5, Wenjie M7, and Wenjie M9, developed in partnership with SERES; the Zhijie S7 and Zhijie R7, developed in partnership with Chery; and the Xiangjie S9, developed in partnership with BAIC BluePark. These models range from SUVs to coupes. "Wenjie" means "to inquire" and "to explore." This is our first collaboration with SERES, and we're developing a full range of SUVs. Zhijie targets the mid-to-high-end and mid-range segments, including sedans and SUVs. The products will be differentiated and differentiated to meet the needs of different groups. Xiangjie targets high-end executives and can be used for both commercial and home use." In May of this year, Richard Yu, Executive Director, Chairman of the Device BG, and Chairman of the Intelligent Automotive Solutions BU, revealed in a media interview that the Zhixuan car developed in partnership with JAC is a very high-end model, far surpassing the Maybach and Rolls-Royce Phantom.

Data shows that in the first half of 2024, Hongmeng Intelligent Driving had cumulative deliveries of 194,200 vehicles. At the press conference, Hongmeng Intelligent Driving presented its latest results: the "Xingjie" (Wenjie) delivered 400,000 units in 2 years and 5 months, and the "Xingjie S9" (Xiangjie) received over 8,000 pre-orders in 20 days. However, Huawei did not release sales figures for its "Xingjie" models. Just five years after entering the automotive industry with the slogan "not manufacturing cars, but helping automakers build good ones," Huawei is one of the fastest-growing companies in the smart car industry. Sales volume is a crucial metric for automakers; without cost amortization through large-scale production, profitability is out of the question. Initially, sales of both the Arcfox Alpha S in HI mode and the Seres SF5 in Smart Car mode were not ideal.

Huawei officially entered the automotive industry in 2019, but it wasn't until 2022, when it partnered with Seres under the AITO brand and released the "Xingjie M5," "Xingjie M7," and "Xingjie M5 EV," with cumulative deliveries exceeding 76,000 units, that sales figures began to improve. A research report by Guosen Securities indicates that Hongmeng Intelligent Driving is the core model of Huawei's intelligent vehicle business. Sales in 2023 are expected to reach 90,000 units, primarily driven by the Wenjie model. In 2024, sales are expected to exceed 500,000 units, with Wenjie expected to exceed 400,000 units, Zhijie to exceed 70,000 units, and Xiangjie to exceed 30,000 units. "Reaching one million units is a milestone," Wang Yanmin, President of the Smart Car Business Unit of Huawei's Device BG, previously stated in an interview with a reporter from the Times Weekly that as a new energy brand, we must work with partners to achieve scale as much as possible, as only scale can bring greater efficiency gains.

Huawei's automotive business is primarily divided into two divisions: the Vehicle BU and the Huawei Device BG Smart Car Business Unit. Both divisions are under the leadership of Richard Yu, but are led by different teams. The Huawei Vehicle BU, established in May 2019, aims to be China's "Bosch," not only selling parts but also providing full-stack integrated solutions to automakers, including a standardized parts supply model and the HI model. In May 2021, Richard Yu took over Huawei's automotive division. While not building complete vehicles, he proposed a third business model: the Smart Car model, later renamed Hongmeng Intelligent Driving in November of last year.

Huawei's collaborations with automakers primarily follow three paths: the components model; the HI model, with Changan Automobile's Avita as its partner, though Yu Chengdong revealed that Deep Blue Auto, Lantu, and Mengshi will also adopt similar partnerships in the future; and the Smart Car model, with partners including Seres, Chery, BAIC, and JAC. While the Smart Car model has achieved impressive sales, it has sparked industry debate about the soul of the car. In June 2021, SAIC Group Chairman Chen Hong admitted at a shareholders' meeting that SAIC would find it difficult to accept a single supplier providing a complete solution. That would make the supplier the soul, while SAIC would become the body. Such an outcome is unacceptable to SAIC, which must maintain its own control over the soul. Meanwhile, in January of this year, Changan Automobile Chairman Zhu Huarong asked, "Why doesn't Changan Automobile partner with Huawei on the Smart Selection model, but rather the Hi model? First, Changan's strategy is to have its own brand in the automotive industry, not someone else's. Second, Changan must adhere to national industrial policies. I believe other models are problematic."

Against this backdrop, Huawei initiated plans to divest its Automotive Business Unit (ASBU) and registered a new company, Yinwang. Its primary business areas include intelligent driving solutions, intelligent cockpits, intelligent automotive digital platforms, intelligent vehicle cloud, AR-HUD, and intelligent headlights, assuming control of Huawei's Automotive Business Unit's technology and resources. Yinwang is considered the new entity behind Huawei's Automotive Business Unit (ASBU). Huawei hopes to establish a tie-up with automakers by selling a portion of its Automotive Business Unit's equity and acquiring Huawei Technologies. This will allow Huawei to attract capital from automakers to alleviate operational pressures while allaying concerns among partner automakers about potential competition and the fear of "losing their soul." According to Economic Observer, the formation of Yinwang and the introduction of shareholders were personally decided and overseen by senior management. Clearly, Huawei is attempting to build an open technology platform with diversified ownership. Recently, Changan Automobile's Avita and Seres have successively invested in Yinwang. Sources close to Huawei revealed that Dongfeng Motor and FAW Group are also pursuing investment opportunities.

In addition, Chery, BAIC, and JAC, the three other automakers that form the "Four Realms" alongside Seres, are also potential investment targets. Richard Yu previously publicly stated that he had extended equity invitations to all three. Industry attention will focus on when Yinwang will introduce new shareholders, the transaction price, and the size of its stake. Initially, Huawei's senior management planned for the Automotive BU to "not set a profit target for six years," but investment in the department has steadily increased. In August 2022, Huawei's founder and senior management wrote in an internal forum, stating that they were "shifting from pursuing scale to pursuing profits and cash flow, prioritizing survival as the primary goal, and shrinking and shutting down all marginal businesses." They also specifically mentioned that "smart car solutions require reducing R&D budgets and strengthening commercial closed-loop systems." Richard Yu once revealed at a public event that Huawei's automotive business is its only loss-making and cash-burning business. Huawei invests over a billion dollars annually in R&D, employing 10,000 direct and indirect R&D personnel, 70% of whom are working on intelligent assisted driving. With continued investment in the automotive business, profitability has become a heavy burden hanging over Huawei's head. According to the 2023 annual report, Huawei's intelligent automotive solutions business generated revenue of 4.737 billion yuan, with cumulative R&D investment of 30 billion yuan since its inception. "In the first three months of this year, the Smart Car business turned a profit, and Huawei's intelligent automotive solutions business is close to breaking even. I expect to achieve a return to profitability and healthy, positive development starting in April," Richard Yu stated at the China Electric Vehicle 100 Forum (2024) in March of this year.

To accelerate monetization, from May to July, Huawei transferred the trademarks of its three brands, Enjoy, Smart, and Ask, to partner automakers. Among them, the Wenjie trademark had the highest value, valued by an appraisal firm at 10.2 billion yuan, but ultimately, Seres secured the deal for 2.5 billion yuan. During a recent livestream, Richard Yu expressed his regret. He explained that the 2.5 billion yuan sale of the Wenjie trademark to Seres was required by national laws and regulations, requiring the brand owner and manufacturer to be the same company. "We've invested heavily in Wenjie, and this brand is worth at least tens of billions of yuan." Meanwhile, Huawei's automotive division is experiencing a performance inflection point. According to disclosures, Yinwang's revenue for 2022, 4.7 billion yuan, and 10.435 billion yuan in the first half of 2024 will be -7.587 billion yuan, -5.597 billion yuan, and 2.231 billion yuan, respectively.

In Richard Yu's view, the current landscape of the smart car industry is remarkably similar to that of the smartphone industry over a decade ago. "Ten years ago, I was in charge of Huawei's terminal business. My deepest impression at the time was that many giants would have difficulty surviving such fierce market competition or major industry changes." Richard Yu believes that 2025 will be a watershed year in the era of smart electric vehicles. This may also mean that 2025 will be a critical juncture for Huawei's automotive business. As for whether smart cars can replace smartphones as a new cash cow, "it depends on their market share," Zhang Xiaorong, director of the Deep Technology Research Institute, told the Times Weekly. According to IDC's latest quarterly mobile phone tracking report, Huawei's market share in China's smartphone market reached 18.1% in the second quarter of 2024, ranking second. "Cash cow businesses have a high market share but are growing slowly. Considering Huawei's mobile phone market share, we expect Huawei's automotive business to have significant room for growth." Zhang Xiaorong stated that this is a long process, and Huawei is accelerating this process by reshaping its "friend circle" in the smart car industry through partnerships with automakers and investments in smart car technology companies.

Reprinted from Sina Auto

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