Huawei doesn’t make cars, but it has more drama than making cars.

Although Huawei does not make cars, the tricks it plays and the noise it makes are no less than those that make cars.

Following the HI model, smart selection model, and Hongmeng Zhixing, Huawei decided to spin off the car BU business unit and establish a joint venture with Changan. As soon as the news came out, Changan Automobile's stock price stopped immediately.

At the press conference of Zhijie S7, Yu Chengdong said that he had sent cooperation invitations to Thalys, JAC, BAIC, and Chery, and named FAW Group, known as the eldest son of the Republic, to join. As soon as this statement came out, FAW Jiefang and FAW The share prices of Fuwei's two listed companies hit the daily limit.

If we extend the timeline, Huawei and Changan are not the first CP combination of Internet/technology companies + car companies in the industry. Long before that, SAIC and Alibaba established Zebra, and Changan also established Wutong Automobile Alliance with Tencent. , but no matter the depth of technical cooperation, the scope of customer coverage, or the profound impact on the industry, it cannot be compared with Huawei this time.

It is more like an attempt by China's automobile industry to "concentrate its efforts on big things" in the smart electric era.

01 

The car BU spin-off is not the spin-off of Huawei’s entire automotive business

A not-so-cold knowledge is that the split car BU is one of the largest automotive intelligent solution providers in China, with a team size of more than 7,000 people at its peak. After the establishment of the joint venture, Auto BU's five major business departments responsible for R&D and products were all separated, including smart driving, smart cockpit, smart car digital platform, smart car cloud, AR-HUD and smart car lighting departments.

Among them, the intelligent driving team has the largest scale and influence. At its largest, the smart driving team had more than 5,000 people, developing full-stack smart driving software and hardware. The ADS 1.0 solution it created will be the industry leader when it is launched in vehicles in 2022. The ADS 2.0 launched this year further realizes advanced capabilities such as high-precision map removal and universal obstacle detection, and has performed well in private AEB tests. ——With its blessing, the smart driving version accounted for 60% of orders for the new Wenjie M7.

The smart cockpit team has inherited Huawei’s human-computer interaction capabilities accumulated in the 3C field. The Hongmeng cockpit launched has powerful voice interaction and a UI with smooth animation and clear levels. It is known as the “car-machine ceiling”.

The remaining main products of the smart car digital platform, smart car cloud, and smart car lighting departments are iDVP smart car digital base, Octopus autonomous driving cloud service, AR-HUD and smart headlights that will be equipped on Wenjie M9, etc.

Judging from the results, most of Huawei's business segments involving smart car 2B will be packaged into joint ventures, but not all of Huawei's automotive-related businesses will be split.

The Sanden team responsible for electrification solutions will be integrated into Huawei Digital Energy (at the same level as the car BU) in 2021, and will be managed by Hou Jinlong, President of Digital Energy. Its main products include DriveOne all-in-one motors, 800V high-voltage powertrains, etc. , customers include BYD, Xpeng, and Ideal.

The smart car/Hongmeng Zhixing business, which is deeply involved in helping car companies build good cars, belongs to the terminal business BG, which has stronger 2C attributes and is directly managed by Yu Chengdong. The split of 2B's car BU will not affect Yu Chengdong's dominance over Hongmeng Zhixing.

02 

Auto BU is gaining momentum, but cash flow is more important than anything else

This year, driven by Huawei's main business, Huawei's automobile-related business has shown a momentum of fierce growth: two and a half months after the launch of Wenjie M7, the number of large-scale orders exceeded 100,000; Chery, BAIC, and JAC have in-depth cooperation with Huawei. The X industry continues to advance; more car companies choose to import Huawei's smart driving and smart cockpit solutions.

A spin-off just when the business is picking up and about to realize its potential may not seem like the best time. Some Huawei Auto BU employees also expressed confusion [1]. But this move is a step-by-step step for Huawei Automotive BU under the highest action plan.

In August last year, Ren Zhengfei delivered a speech titled "The entire company's business policy must shift from the pursuit of scale to the pursuit of profits and cash flow." In this speech that the outside world almost only remembers as "let the cold pass on to everyone", Ren Zhengfei proposed that Huawei's "basis of survival must be adjusted to center on cash flow and real profits", and named Che BU that "smart car solutions cannot To launch a complete front, we must reduce scientific research budgets and strengthen commercial closed loops.”

Under this guideline, CheBU's financial performance is too eye-catching. According to Huawei's financial report, as of 2022, the cumulative investment in Auto BU since its establishment has reached 3 billion US dollars (approximately RMB 21.4 billion), with an average annual investment of more than 70 small goals. However, the business revenue in 2022 is only 2.077 billion yuan. Revenue only contributed 0.3%, and the input-output ratio was extremely low.

At the same time, affected by the external environment, Huawei's revenue and net profit will continue to decline in 2021 and 2022, and net cash flow will drop to 176.3 billion yuan in 2022, which is difficult to support a cost center with an annual investment of nearly 10 billion.

In this context, splitting off the car BU and introducing external investment is a natural choice to pursue cash flow and profits. According to Reuters information, the valuation of Auto BU after the split may reach 250 billion yuan[2], which means that Huawei will sell no more than 40% of the equity of the joint venture, which will not only relieve it of the burden of raising Auto BU alone, but also exchange for massive amounts of resource. This will provide sufficient ammunition for Huawei's more profitable main business.

03 

Get investment certificate in exchange for industry platform status

Before the split, the reason why Auto BU was unable to make a profit was that, on the one hand, the technical solutions it provided were too expensive, and on the other hand, the auto companies were worried about their soul: such a company with full-stack smart electric vehicle solutions, independent car manufacturing It is difficult for car companies to trust a technology company with only a layer of window paper to hand over its backing.

This makes large car companies deeply afraid. Therefore, they are generally conservative in cooperation with Huawei, and most of them only choose the most basic parts supply model. The car companies that choose to cooperate in depth with the car BU either have obvious shortcomings in strength, or the new brand needs to rely on Huawei to build momentum. This makes the HUAWEI Inside mode (HI mode) promoted by Auto BU relatively slow to penetrate the automotive industry and has been unable to increase in volume.

Before 2023, there were only two models that cooperated with Auto BU in HI mode and eventually went into mass production, the BAIC Polar Fox Alpha S HI version and the Changan Avita 11. The former once made Huawei's intelligent driving capabilities out of the circle, but now Monthly sales including the non-HI version (which is 70,000-120,000 yuan cheaper than the HI version) are only over 1,000 units. Avita 11's performance is slightly better, but only around 2,000 units.

After Yu Chengdong took over the car BU in 2021, he hatched the smart car selection model that Huawei and car companies were deeply involved in, which led to the birth of the "x world" series of brands. However, even if the smart car selection model and the HI model are added together, cooperation with Huawei So far, the sales volume of its models is less than 200,000. In the Chinese passenger car market with sales of more than 20 million units a year, this figure is Others.

Winning more car company customers and mounting more mass-produced cars is the prerequisite for the survival of Auto BU, but before that it must gain the trust of car companies.

Spinning off and absorbing investment from car companies is a key step to break the situation - before this, all Huawei left to car companies were the car-making ban issued by Ren Zhengfei and Huawei's experience of regretting after it stopped making mobile phones for a long time, but with real money in equity With the investment, Huawei has formed a binding interest with the car companies, leaving behind a legally binding clause that "Huawei will not engage in business that competes with the business scope of the joint venture company."

Only by introducing in-depth benefit sharing can Huawei Automotive BU get rid of the self-promotion in a small circle and truly move towards an industry-wide technology platform.

A similar case in history is United Electronics, established in 1995. This supplier is dominated by Bosch and led by SAIC, and has absorbed shares from FAW, Dongfeng and other auto companies. It has long played a relatively important role in the process of "market exchange for technology" in the Chinese auto industry. A neutral industry platform technology company, it has exported a large number of talents and common technologies to the entire automotive industry.

With Huawei's technical strength and appeal, its move to split the car BU may leave a mark on China's automobile industry: the joint venture between state-owned car companies and foreign-owned car companies has accelerated the modernization of China's auto industry; with Huawei The joint venture will accelerate the intelligence of Chinese automobiles.