Huawei revs up a new way to feed the beast

Ecarx Holdings.

30/01/2024 01:02

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, Jan 30 (Reuters Breakingviews) - Huawei is
revving up its auto business. It could help rustle up cash for
research into semiconductors, artificial intelligence and more,
after geopolitical tensions and U.S. sanctions lopped 28% off
total revenue between 2020 and 2022. But its cars venture must
navigate those same potholes.
    The company founded by former military engineer Ren Zhengfei
is better known for mobile phones than automobiles. The Huawei
Investment and Holding group’s last annual report even states
“Huawei doesn’t make cars”.
    Yet it has invested at least $3 billion in its Intelligent
Automotive Solution unit, and by 2022 some 7,000 researchers
were honing technology for internet-connected electric vehicles,
including an operating system, lidar, cameras and digital keys.
In China, Huawei-branded showrooms display models developed
alongside manufacturers such as Seres  601127.SS . The pair’s
Aito M7 SUV, launched in September, attracted 80,000 orders in
50 days, Bloomberg reports.
    The auto segment clocked a mere 2.1 billion yuan ($296
million) in sales in 2022 – less than 1% of the group’s top
line. However, it could still help Ren to drive funding. In
November, Huawei announced it will carve out the unit’s core
technology into a new business, selling around half of it with
Chongqing Changan Automobile  000625.SZ  and related entities
owning 40%. It has asked others including Mercedes Benz
 MBGn.DE  and Volkswagen’s  VOWG.DE  Audi if they’re interested
in taking a small stake in the venture, which could be worth up
to 250 billion yuan, sources told Reuters.
    True, that sum sounds outlandish at more than 100 times
historical sales; U.S.-listed ECarx  ECX.O , which develops tech
for connected cars, trades at 5.2 times on that multiple. Only
fast, turbocharged growth could justify the price tag.
    Fuelling the top line may be tough too: domestic demand for
cars, including electric models, is growing more slowly than in
the past. Meanwhile, Huawei’s reputation abroad has been
tarnished since it was caught in the crosshairs of U.S.-China
tensions, and partner Changan’s connections – co-investor and
parent China South Industries makes military equipment – would
also deter Western buyers.
    The company has at least found a niche closer to home,
working with not only Changan and Dongfeng-backed Seres, but
also BAIC  1958.HK , Chery Automobile and JAC. Unlike
international marques, these state-owned behemoths and their
mostly Chinese customers won’t worry about Washington’s views of
the company; if anything they might prefer to buy from their
compatriot. They were also slower to adopt cutting-edge tech
themselves, and need support. Some, such as Chery, are major
exporters, and could eventually open roads to friendlier albeit
less lucrative foreign markets like Russia.
    A loyal, local clientele will help Ren to accelerate into
autos, but it won’t be an easy ride.
    Follow @KatrinaHamlin on X
    
    CONTEXT NEWS
    China’s Huawei has asked Mercedes Benz and Volkswagen’s Audi
if they are interested in buying small stakes in its smart-car
software and components firm, Reuters reported on Dec. 11,
citing three people with knowledge of the discussions.
    The new smart-car software and components firm is set for a
valuation of up to 250 billion yuan ($34.7 billion) after it
sells stakes to investors including Changan Auto, Reuters
reported on Nov. 29, citing sources.
    Huawei said on Nov. 26 that it will spin off its
four-year-old Intelligent Automotive Solution business into a
new company which will house the unit’s core technologies and
resources. Partner Chongqing Changan Automobile and related
parties will own up to 40% of the new firm, a Changan Auto
statement showed on the same day. Neither Changan Auto nor
Huawei disclosed financial details.

 (Editing by Antony Currie and Oliver Taslic)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ 
katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))