How domestic solutions for intelligent automobiles reshape the industry landscape from Huawei's perspective-EEWORLD

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(II) Huawei has a comprehensive layout of smart car business and is a rare player with full-stack development capabilities

As a domestic technology leader, Huawei has comprehensive core competitiveness in the field of smart cars. With the deep integration of the automotive industry and the ICT industry, Huawei has extended its ICT technology advantages to the smart car industry, and has made comprehensive layouts in five major areas: smart driving, smart cockpit, smart electric, smart networking, and smart car cloud. Overall, Huawei has a relatively complete layout in the fields of autonomous driving, vehicle sensors, charging facilities, and software ecology, and has mastered the core value chain. For this reason, Huawei's auto parts ecosystem partners are more concentrated in the cockpit and traditional auto parts links.

In the field of intelligent driving, Huawei has full-stack R&D capabilities on the technical side. Full stack refers to a capability model that solves global technologies in the problem domain. It is the result of the integration of technical capabilities in both horizontal and vertical directions. In a narrow sense, full stack = front-end/terminal + back-end. For the smart car industry, the full-stack solution can be understood as providing OEMs with a complete product portfolio, covering the architecture, system, component products, cloud platform, etc. for the safe operation of smart cars and smart services. The full-stack smart car solution provided by Huawei covers three layers: architecture, system, and key components. According to public information from Zhicifang and Huawei, the architecture layer is a new computing and communication architecture CCA, whose hardware is scalable and the software can be continuously upgraded through OTA. On top of CCA, Huawei proposed a cross-domain integrated software stack to build a sustainable profit model for car companies. The component layer includes more than 30 intelligent components such as lidar and AR HUD, which cooperate with various system applications. The system layer includes five major systems: (1) Intelligent driving: MDC intelligent driving platform + lidar and other sensors; (2) Intelligent cockpit: CDC intelligent cockpit platform + AR HUD + AI visual recognition + natural voice interaction; (3) Intelligent electric: VDC vehicle control platform + mPower (electric drive, charging and battery management system) + TMS; (4) Intelligent networking: on-board mobile communication module + T-Box + Ethernet gateway; (5) Intelligent car cloud: Octopus autonomous driving cloud service + Ocean connect car networking access service + entertainment service.

(III) Strong channel and R&D capabilities

Huawei Wenjie has rapidly realized the layout of automobile sales channels with the help of its mobile phone store network throughout the country. Wenjie has two types of terminal stores: user centers and experience centers (supermarkets). According to data disclosed by Electric Vehicle Observer, in a relatively short period of time, Wenjie has rapidly achieved a monthly sales volume increase from 3,248 units in April to 12,038 units in October through its huge sales outlets.

The total number of Huawei user centers + experience centers is considerable, higher than that of competitors such as Wei, Xiaoli, and Li Auto. According to the division of labor between Huawei and SERES, Huawei is responsible for sales, that is, taking orders and selling. SERES is responsible for delivery and after-sales. Specifically, in terms of terminals: Huawei is responsible for the sales showrooms of experience centers and user centers; SERES is responsible for after-sales and logistics, warehousing, and delivery of user centers. The investors of the experience centers are all from the original Huawei mobile phone system, while the investors of the user centers are recruited by SERES from the traditional automotive industry.

In terms of R&D capabilities, Huawei has outstanding strengths in perception and decision-making. The total number of patents in the field of automotive intelligence is similar to that of Continental, and higher than Baidu and Waymo. Combined with the review of autonomous driving patents in the Zhihuiya patent library from 2001 to the first half of 2020, Huawei has a considerable number of patents in the field of automotive intelligence, especially in the fields of chassis and wire control, indicating that Huawei has already laid out the chassis and wire control fields. According to data disclosed by Zos Automotive Research, in terms of the number of summarized patents, Huawei has as many as 10,666, which is about one-third of Bosch, similar to Continental, and significantly higher than Baidu and Waymo.

In terms of R&D investment intensity and the number of R&D personnel, since the establishment of Huawei's Intelligent Automotive Solutions BU, the cumulative investment has reached US$3 billion, and the R&D team has reached a scale of 7,000 people (Source: Huawei Investment Holding Co., Ltd. 2022 Annual Report). In contrast, the domestic intelligent driving leader, tier 1 Desay SV, invested RMB 1.7 billion in R&D in 2022 and had 3,494 R&D personnel.

3. Scenario analysis of Huawei’s Tier 1 joint venture reshaping the intelligent driving landscape

(I) Huawei and OEM form joint ventures to strengthen cash flow capabilities in the short term and significantly reduce development resistance in the medium and long term

Huawei and OEM formed a joint venture, which is expected to supplement considerable cash flow in the short term. Compared with the operator business and enterprise business, although Huawei's terminal business has the lowest gross profit margin, it has a strong ability to create cash flow. Through channel sales or direct sales models, Huawei can sell terminal products in the consumer market, thereby realizing large-scale rapid capital recovery. With the decline in terminal business revenue, Huawei's operator business and enterprise business revenue accounted for the tower, and these two businesses usually have a long collection cycle, resulting in Huawei's cash turnover days continuing to grow in recent years. Huawei's operating net cash flow was 96.3 billion yuan, 74.7 billion yuan, and 88.8 billion yuan in 2017-2019, and it fell to 17.9 billion yuan in 2022 (Source: Wind). This time, Huawei and OEM formed a joint venture, which is expected to supplement Huawei's automotive business with considerable cash flow in the short term through the capital increase of OEMs and other shareholders, and support subsequent R&D investment. In the medium and long term, the establishment of this joint venture has more clearly determined the industry positioning of tier 1, which is expected to significantly reduce the resistance to the development of Huawei's automotive business and increase OEM's acceptance of Huawei's automotive products. At present, Huawei has three different forms of cooperation with different car companies: one is as a supplier of automotive software systems and intelligent ecosystems, providing Huawei HiCar with a variety of car apps; the second is as a supplier of overall solutions for software, hardware and intelligence, providing comprehensive cooperation on software and hardware products; the third is the HUAWEI Inside full-stack solution, providing a full set of HI solutions including Hongmeng car machines and self-developed in-vehicle computing chips.

After Huawei's automotive business further clarified its position as tier 1, the ecological structure of OEM partners has a profound impact on the business expansion of the new company. In the early stage, Huawei's automotive OEM partners were concentrated in car companies such as Seres and Changan. Whether more OEMs will join the new ecosystem in the future remains to be seen. Therefore, we make two types of scenario analysis: (1) The cooperating OEMs are "1+5", namely Changan, Seres, Chery, BAIC, JAC, and FAW; (2) In addition to the "1+5" structure, other mainstream OEMs are also actively joining in.

(II) If the in-depth cooperation with Huawei's OEM is limited to 1+5, the initial impact on the industry structure will be relatively small

If Huawei's deep cooperation with OEMs is mainly Changan and Seres, Chery, BAIC, JAC, and FAW (which we can refer to as the "1+5" structure), the initial impact on the industry structure will be relatively small. At present, Changan is the only OEM shareholder of Huawei's tier 1. According to public information, Seres, Chery, BAIC, and JAC, the four partners of Huawei's Hongmeng Intelligent Driving, are also the negotiation partners of Huawei's tier 1. This is because Huawei also hopes that FAW will join. According to our calculation framework, if Huawei's deep cooperation with OEMs is mainly the "1+5" structure, the initial impact on the industry structure will be relatively small. The calculation assumptions are as follows: (1) Huawei's in-vehicle products are mainly installed in some models of the "1+5" OEM structure. It is assumed that 50% of the total sales of "1+5" OEM cars in 2030 will be equipped with Huawei's in-vehicle intelligent products. (2) OEMs that are not in the "1+5" structure do not use Huawei's in-vehicle intelligent products. (3) The penetration rate of L1/L2/L2+ will continue to change over time, the penetration rate of high-level intelligent driving will continue to increase, and the price of intelligent configuration will have a downward trend in the medium and long term. Based on the above framework, we estimate that the potential market space of Huawei's tier 1 in 2030 is about 18.1 billion yuan, and the total market space shared by other tier 1s is about 159.8 billion yuan, and Huawei's tier 1 market share is about 10.2%.

(III) If Huawei's OEM cooperation covers more mainstream OEMs, the impact will be far-reaching