Huawei revs up a new way to feed the beast

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 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 and related entities owning 40%. It has asked others including Mercedes Benz and Volkswagen’s 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 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 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.

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. Reuters