This article is reproduced from the autocarweekly public account.
Author: Financial Street Lao Li
On May 24th, Huawei once again issued a statement that it is not involved in car manufacturing. In addition, Huawei also stated in this statement that “To date, Huawei has not invested in any car company, and will not invest in any car company in the future, let alone hold shares or participate in holdings. Any discussions about Huawei building cars or investing in the car manufacturing industry are rumors and should not be believed.”
Huawei’s statement caused a second-market earthquake in the Huawei car concept stocks. As of the close, half of the Huawei car concept stocks’ share price fell, among which GAC Group and Xiaokang shares fell by 4% and 6%, respectively. Chang’an Automobile and BAIC Blue Valley, which have a deep cooperation with Huawei, were directly hit by the decline limit.
In Lao Li’s view, the earthquake in the second market is not worthy of attention and does not represent the industry’s trend. Regardless of whether stock prices rise or fall, the company’s fundamental situation of Huawei car concept stocks in the market has not changed in the past six months. A shares have always emphasized value speculation. Huawei cars have been hyped by the market many times as a recent hotspot, especially Chang’an Automobile and Xiaokang shares, whose stock prices have risen sharply and many friends have made a lot of money.
The second market’s rise is not unfounded, and Huawei’s denial at this time is not a rash decision. Earlier, there were media reports that Huawei wanted to acquire or invest in BAIC Blue Valley. Some industry researchers around Lao Li also conducted research some time ago. Some middle-level officials in BAIC Blue Valley said that Huawei did have contacts with Blue Valley, but the negotiations did not reach the final result, and the contents of the negotiations were not disclosed. Few people in the high-levels of both sides knew about this.
The industrial action quickly spread to the second market. Subsequently, many researchers pointed out that even if Huawei and BAIC could not reach an agreement, they might also go to talk with Chang’an, or even invest in Xiaokang. When Lao Li wrote about Chang’an earlier, he also mentioned (“After Huawei Ningde era blessing, how high can Chang’an fly?”). If Huawei entered Chang’an through joint venture, it would undoubtedly be a benefit to Chang’an’s stock price, but this is also just a hypothesis. It is understood that at the current stage, Huawei and Chang’an are more engaged in business cooperation. Huawei sent a group of people to Chang’an to learn about vehicle development, and Chang’an also sent many engineers to Huawei to learn about ICT. However, in fact, both sides have reservations in the cooperation, as the information related to the core content of the enterprise is not easy to disclose too much.
Competition and cooperation have always been a problem that Huawei and car companies cannot solve and cannot be solved in the short term. The business world is based on the company’s core competitiveness. The core competitiveness of smart electric vehicle companies is technology, and the core competitiveness of the smart electric vehicle industry is electrification, intelligence and networking.
# Huawei’s Plan in Smart Electric Vehicles Industry
Huawei started its business in the B-end industry, but facing the massive market of smart electric vehicles, Huawei has a clear positioning: Huawei doesn’t build cars, but only acts as an ICT supplier. In Huawei’s smart car planning, its goal is to be a software and hardware solution provider for “end-cloud-management.”
This market has great potential. It can be imagined that in the era of intelligent AI and interconnectivity, everything related to automotive software and hardware cannot be separated from Huawei. In simpler terms, Huawei can surround car manufacturers by controlling software and hardware, just like Bosch and Continental did in the past.
Ideal vs. Reality
However, in this round of intelligent transformation, car manufacturers also sensed the change and finally had the opportunity to break away from traditional suppliers. Geely established Eico, bypassing Bosch and Continental while self-developing chips and trying to control the upstream industry chain. After a brief relationship with Mobileye, Tesla spent three years establishing its own software and hardware capabilities. Its self-developed “FSD” chip and software system firmly controlled the core technology.
Large domestic and foreign automakers have shifted their focus from emphasizing early-stage design and manufacturing to emphasizing ICT capabilities. Among the new forces in China, NIO develops chips, Xpeng develops software, and SAIC Group Software Center has become an independent subsidiary SAIC Zero Bundle Software Co. Ltd., specializing in developing future automotive software.
Therefore, Huawei’s plan to unify the smart EV industry is not easy to achieve. Business has its own rules, and nobody can truly monopolize the automotive market. Even the world’s largest automaker, Toyota, has a yearly market share of only 10%.
There Is More Than One Way to Make Money in the Automotive Industry
Huawei has been constantly exploring development paths in the smart EV industry. From smart network connectivity to smart electric, it’s an exploratory process. Finding partners and cooperation methods is also a way of exploration.
If working with giant automakers is not viable, then Huawei looks for small partners who are willing to accept cooperation. Among many car companies, Huawei has found a group of automakers that can complement each other and have a strong interest in cooperation, such as state-owned enterprises BAIC Group and Dongfeng Motor, and automakers Changan Automobile and GAC Group. There are also new forces such as BAIC BJEV and NIO. Unlike the giants, if these businesses can establish a win-win cooperation with Huawei in intelligent network connectivity, it’s also a good choice.# Huawei’s strategy in the automotive field is to increase the volume by empowering its partners. Although it has many partners, the sales of these companies still have a lot of room for improvement. Huawei adjusts its strategy in many ways, and empowers these car companies with Huawei’s resources. The typical empowerment model is upstream and downstream cooperation.
The upstream empowerment mainly includes components and “Huawei Inside”. The supply logic of components is not different from that of ordinary Tier 1. Car companies can choose to install components from the Huawei MDC product line according to their needs. “Huawei Inside” is to take the intelligent electric vehicles that use Huawei’s complete automotive solution, add the Huawei intelligent car “HI” logo to enhance the product’s user awareness, such as the Alpha S Huawei HI version of BAIC’s Arcfox.
“Huawei Inside” has formed a certain brand effect. Some Arcfox dealers in Beijing said that more than 50% of Alpha S orders are for the Huawei HI version. However, not all car companies can afford “Huawei Inside”, and not all users will buy “Huawei Inside”.
To solve the car sales problems of cooperative car companies, we still need to help car companies increase sales from the end. “Huawei Select” has emerged. The concept of “Huawei Select” is similar to Xiaomi Youpin and Netease Yanxuan. Some partners who have strategic cooperation with Huawei will enter this channel, and Huawei will empower everyone through online and offline retail networks.
Xiaokang Co. became the first car company to eat crab in the “Huawei Select”. Although Huawei is the supplier of the electric parts of Sailing SF5 and the HiCar cockpit parts, but so far, it has not seen significant improvement in sales. SF5 sold less than 200 vehicles in the first quarter of this year. Starting from April, SF5 entered Huawei flagship stores for sales. The “Huawei Select” logo is now at the tail of the vehicle. There were also rumors that SF5 sold more than 3,000 vehicles in the first two days of going on sale at Huawei Select. However, Xiaokang Co. has issued a risk warning, saying that the number of new car model orders is not equal to the actual delivery quantity.# Huawei’s Smart Selection Strategy
On the surface, Huawei’s Smart Selection strategy seems to kill two birds with one stone: it can solve the sales problems of cooperative automakers and the survival problems of Huawei-authorized mobile phone retailers under the sharp decrease of Huawei mobile phone. This is achieved by revitalizing Huawei’s online and offline channels through the automobile market. As Yu Chengdong says, “Huawei now has 12 flagship stores in the world, and another 5 are under construction, with more than 5,000 high-end experience stores and over 60,000 retail and service outlets, which is totally unmatched by auto brands.”
Huawei’s sales target for new cars in 2022 is 300,000, and Yu Chengdong is very optimistic about the future of Huawei Smart Selection. However, there are still great differences of opinion among researchers. Researchers with financial backgrounds mostly believe that Huawei’s sales target of 300,000 units can be achieved, while researchers with automotive backgrounds believe that it is impossible.
The core of the difference lies in different analytical logics. Many financial researchers believe that market demand is rigid. With the increase of Huawei’s stores, the sales will also increase. There was even a funny analysis in the market: “NIO’s network channel at the end of the year is 366, while Huawei has 1,000. If Huawei’s store can match NIO’s sales volume, with an average of one vehicle a day per store, the annual sales will reach 365,000, surpassing Tesla. With Huawei’s speed of store expansion and R&D capabilities, the cooperative partners will have to launch at least three new models a year to achieve an ultimate sales target of 1 million units per year”.
Automotive researchers analyze from top to bottom. They believe that rigid demand does not exist in the market. In China, only 1 million new energy vehicles (passenger and commercial) were sold in a year. Huawei aims to sell 300,000 cars, accounting for 30% market share. Its cooperative partners are not volume-oriented enterprises. In specific implementation, not all automakers are as soft as XPENG. Automakers will inevitably offer the most favorable policies through their own sales networks. Therefore, the sales target of 300,000 units is unrealistic.
After nearly five years of exploration and the wisdom of many senior executives, Huawei’s two commercial models gradually formed: one is to help automakers build good cars, such as collaborations with Changan, BAIC and GAC, which are based on a strengthened version of the traditional OEM-Tier1 cooperation model. The other is to help automakers sell cars, such as collaborations with Xiaokang Shares. Yu Chengdong is the leader of the collaboration with Xiaokang, and his execution ability is well-known in the industry. The problem with these two models is that Huawei does not have full control over car manufacturing.
Huawei only cares about sales and profits. Whichever model is feasible, they will choose it. However, compared with helping automakers build good cars or sell cars, car manufacturing is the simplest, most tortuous and most helpless mode for Huawei. It is Huawei’s ultimate mode.
In the business world, the most basic rule is trustworthiness, and the most untrustworthy thing is promise.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.