2024-08-19
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Author: Eastland
Header Image｜Visual China
The best of the "new forces" are all "car-making factions", and they have built/purchased bases and obtained qualifications (National Development and Reform Commission, Ministry of Industry and Information Technology), saying goodbye to the OEM model:
On May 19, 2020, the Ministry of Industry and Information Technology's "Announcement on Road Motor Vehicle Manufacturers and Products" (332nd batch) listed "Xpeng Motors" as a newly admitted pure electric car manufacturer; (the production base is located in Zhaoqing, Guangdong)
On June 15, 2023, the Ministry of Industry and Information Technology's "Announcement on Road Motor Vehicle Manufacturers and Products" (372nd batch) listed "Beijing Ideal Auto" as a newly approved pure electric (including extended-range) manufacturer; (production bases are located in Changzhou and Beijing Shunyi)
On December 8, 2023, the Ministry of Industry and Information Technology's "Announcement on Road Motor Vehicle Production Enterprises and Products" (378th batch) listed "NIO Automotive Technology" as a newly approved pure electric passenger vehicle manufacturer; NIO's "2023 Third Quarter Report" disclosed: it acquired two production bases (located in Hefei) in the JAC asset package for 3.16 billion.
The operating entity of Nezha Auto, Hozon Auto, obtained the production qualification issued by the Ministry of Industry and Information Technology as early as 2018.
Xiaomi has achieved its goal in one step - it will obtain the qualification to produce pure electric vehicles in July 2024 (Ministry of Industry and Information Technology's "Announcement on Road Motor Vehicle Production Enterprises and Products - 385th Batch").
Production qualifications are not scarce: the announcement (the 372nd batch) that Ideal Auto obtained access showed:
615 automobile manufacturers applied for new product access! 192 companies applied for new energy vehicle products, including 156 pure electric vehicles, 23 plug-in hybrid vehicles, and 13 fuel cells; 836 automobile companies applied for product changes and expansions, with 9,255 automobile products! #“Rolling” away 90% is still too much#
Qualification is a threshold, but for players with a little bit of ability, it is not the basis for "making" or "not making".
Huawei's Intelligent Automotive Solutions BU (hereinafter referred to as the Car BU) was established in May 2019. It is positioned as a supplier of incremental components for intelligent connected vehicles, providing OEMs with product solutions such as intelligent driving and Hongmeng cockpit, and aims to be the "Bosch of the smart electric vehicle era."
Until the "2022 Annual Report", Huawei clearly emphasized the positioning of the automotive BU.
In 2022, the Wenjie series, which adopts the smart car selection model, delivered more than 75,000 vehicles.
In March 2023, Huawei once again issued a "resolution not to build cars", which was reportedly signed by Ren Zhengfei himself and was valid for five years.
In 2023, Smart Car delivered more than 90,000 vehicles.
Huawei is an outstanding representative of the “no-making” school.
In fact, Baidu’s philosophy is similar to Huawei’s, but its performance is far less impressive than Huawei’s and has experienced "large swings" - in January 2021, it officially announced that it would enter the automotive industry as a complete vehicle manufacturer, with Geely Group as a strategic partner.
1) Sporadic authoritative data about the car BU
Huawei disclosed information related to the automotive BU for the first time in its 2021 Annual Report - an investment of US$1 billion in 2021, of which 70% to 80% will be used for research and development (disclosed by Yu Chengdong). In other words, the R&D investment in 2021 is about 5 billion yuan (RMB), and the R&D team (5,000 people) has an average of 1 million per person.
The "2022 Annual Report" disclosed that the Automotive BU had revenue of 2.077 billion and had invested a total of 3 billion US dollars since its establishment.
The "2023 Annual Report" disclosed that the Automotive BU had revenue of 4.737 billion yuan, and had invested a total of 30 billion yuan in research and development since its establishment; the main achievements in 2023 were: delivery of 3 million sets of components; release of the HUAWEI ADS 2.0 advanced intelligent driving system; upgrade of HarmonyOS 4; and empowerment of 7 strategic cooperation models.
To sum up, from its establishment to the end of 2023, Huawei's Automotive BU has invested a total of 40 billion yuan (assuming that R&D investment accounts for 75%), of which 30 billion yuan was invested in R&D (approximately 15 billion yuan in 2023).
2) “Not making cars” is a dangerous path
If you don’t make cars, you have to be a supplier. Potential parties A are BYD, Tesla, traditional fuel car companies, and new forces.
As we all know, Huawei has three modes of cooperation with car companies: the smart car selection model (Wenjie in cooperation with SERES), the HI model (Jifu in cooperation with BAIC, and Avita in cooperation with Changan Automobile) and the parts supplier model.
“Not making cars” is a dangerous road. Because to achieve a closed loop, it mainly relies on the smart car selection business. And the smart car selection business has to overcome two difficulties when looking for a client:
First, Party A’s willingness to purchase.It's like a shoe factory with no other customers hoping that a certain tribe in Africa would want to wear shoes. It would be doomed to fail.
Secondly, it is the quantity and quality of Party A.It is no secret that the partners of the smart car business have not been doing well in the era of fuel vehicles. The cooperation between Huawei and SERES can hardly be considered a strong alliance, otherwise what is the cooperation with SAIC and FAW?
At a forum, Yu Chengdong said, "Li Xiang and Li Bin are both here today. I believe it is unlikely that they will choose Huawei for intelligence... Among traditional car companies, those who are afraid of losing their souls will not choose us."
In fact, Huawei is the Bosch of ICT (information and communication). However, the smart car selection model is not just selling software and hardware, but it requires in-depth participation in all processes such as design, manufacturing, and procurement, and entering Huawei's online and offline sales channels to achieve ideal results.
When Bosch launches a new product, if 10 car companies use it successfully, the number can quickly expand to 100 or 1,000.
The smart car selection model has a successful case (SERES), which can drive Chery, JAC, and BAIC to actively cooperate, but more potential parties are still on the sidelines.
Even if all four sectors are successful, observers will still wonder, "How many car companies can Huawei bring success to? Can the fifth or sixth one do it?"
Bosch does not need to help its customers sell cars to prove that it is far ahead, but Huawei Smart Car has to prove it again and again.
Yu Chengdong, who can feel the bitterness of the situation the most, has already hinted at backing off. At the 2023 Auto 100 Forum, he said: "We want to become another supplier like Bosch or Continental in the automotive field.But in today's era, this condition does not seem to be true。”
3) The automotive business unit drags down Huawei
Huawei is rich, so why would it not care about the small amount of money spent by the car BU? No!
In 2022, at Huawei’s internal forum, Ren Zhengfei wrote:
From pursuing scale to pursuing profits and cash flow, with survival as the most important guideline, marginal businesses will be shrunk and closed across the board; smart car solutions must reduce research and development budgets and strengthen business closed loops; the bonuses for each business department must be differentiated, and businesses that cannot create value will receive very low bonuses or even no bonuses, forcing the business to commit suicide and passing on the coldness!
2023
Huawei's R&D expenses are 164.7 billion yuan, of which the Automotive BU accounts for about 9%; Huawei's revenue is 704.2 billion yuan, of which the Automotive BU accounts for only 0.67%; Huawei's net profit is 86.95 billion yuan, and the Automotive BU loses about 15 billion yuan (revenue of 4.7 billion yuan, investment of about 20 billion yuan); The loss of the Automotive BU is equivalent to 17.2% of Huawei's net profit; Excluding the Automotive BU business, Huawei's net profit margin will increase by 2.2 percentage points.
I wonder how Huawei's internal staff view the Smart Car BU? How much difference is there between the bonuses for employees in the Smart Car BU and those in other businesses?
The 2023 Annual Report published on March 29, 2024 no longer has the positioning of "supplier", but is replaced by "realizing commercial value and social value". Is this to "loosen up" itself? No!
In the above intranet article, Ren Zhengfei said:
Businesses that cannot generate value and profits in the next few years should be reduced or closed; businesses that consume huge resources and are not done well should be closed and then opened up to others.
The loop has not been closed for five years, and the gap is getting bigger and bigger. Although the car BU will not "commit suicide", it is a helpless choice to "leave" and avoid dragging down the entire group.
On November 25, 2023, Huawei and Changan Automobile signed a Memorandum of Investment Cooperation. The key points are as follows:
First, the new company's business scope includes: intelligent driving solutions, intelligent cockpits, intelligent car digital platforms, intelligent cloud, AR-HUD and intelligent headlights, etc. (the above are all automotive BU businesses, and the specific scope is subject to the final transaction documents). Second, Huawei will inject relevant technologies, assets, and personnel within the above business scope into the new company (the number of R&D personnel in the automotive BU alone reaches 7,000). Third, Huawei promises "not to engage in business that competes with the target company's business scope." Fourth, Changan Automobile plans to invest in the new company's equity, with the proportion not exceeding 40%. #It is said that it will not intervene in operations#
On January 16, 2024, Huawei invested 1 billion to register and establish "Shenzhen Yinwang Intelligent Technology Co., Ltd." (hereinafter referred to as "Yinwang").
Recently, according to the news obtained by the media from Huawei -The establishment of Yinwang and the introduction of shareholders were decided and supervised by Ren Zhengfei himself; the car BU is currently in a waiting state.。
In the future, Huawei will not only stop manufacturing cars, but will also divest its smart car solutions business.
Becoming a successful supplier like Bosch through the smart car selection model is a risky path. Huawei allows the car BU to operate independently to avoid risks and focus on the main channel.
Yinwang’s top priority is to complete the establishment of the joint venture - shareholders inject capital and Huawei injects automotive BU business.
On May 7, 2024, Changan Automobile issued an "Announcement on the Progress of the Investment Cooperation Memorandum" stating:
The financial, legal, business and technical due diligence has been basically completed. Currently, the two parties are further negotiating on the key terms of the transaction; it is expected that the final transaction documents will be signed no later than August 31.
On July 29, 2024, SERES issued a "Reminder Announcement on Planning Overseas Investment", disclosing that it plans to invest in Shenzhen Yinwang.
1) Two key points for establishing a joint venture
First, the smart car business belongs to the terminal BG. If Huawei retains this business, will there be competition with the new company? This is not only a question of concern to Changan Automobile and Seres shareholders.The CSRC will not approve the application without a satisfactory response.
Second, the valuation of Yinwang. Changan Automobile and Seres are both listed companies, and the former’s major shareholder is still a central enterprise. Yinwang’s valuation could be 100 billion, 200 billion, or 300 billion.But there must be a basis and performance commitment made by Huawei Group.
For example, if we value Yinwang at 100 billion based on 10 times the average net profit in the next three years, Huawei will have to promise that Yinwang's average net profit will reach 10 billion in 2025, 2026, and 2027. For example, 5 billion in 2025, 10 billion in 2026, and 15 billion in 2027.
Changan Automobile and Seres are not Masayoshi Son, no real money will be invested without performance commitment.
If the commitment is not fulfilled, Huawei can use its shares in Yinwang to compensate investors such as Changan Automobile and Seres.
With just over a week left, the outcome of the joint venture will be clear.
2) Find ways to make money
In 2023, Huawei's automotive BU R&D investment was only 15 billion, while BYD's was close to 40 billion and Tesla's was 28 billion (RMB). Huawei's ICT technology was built with money, and the automotive BU R&D investment was insufficient, and Ren Zhengfei asked for it to be reduced.
After the car BU switched to Yinwang, it had to invest at least 20 billion in research and development every year to barely stay at the table.
If Huawei stops providing financial support, it will have to earn 20 billion yuan in research and development funding on its own and strive to fulfill its performance commitments (such as a net profit of 5 billion yuan in 2025). It will have to find ways to make money.
If the company invests 20 billion in R&D and has a net profit of 5 billion in 2025, the company's revenue will reach 31.7 billion (R&D investment accounts for 75% of total costs and expenses). It is reported that in the first half of 2024, the revenue of the car BU has reached 10 billion. There is still hope that it will exceed 30 billion in 2025.
*The above analysis is for reference only and does not constitute any investment advice
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