Huawei Spins Off Intelligent Automotive Solutions Unit To Secure Fresh Funding

Huawei is spinning off its Intelligent Automotive Solution (IAS) business unit to seek deeper cooperation with Chinese car makers and secure fresh financing for independent development.

Huawei’s IAS unit is establishing a new company specializing in intelligent components for electric vehicles, injecting its core technology, personnel, and assets. Changan Automobile will invest in this company, which will open up its shares to attract investments from more automotive firms in the future, according to an announcement by Changan Automobile.

Changan Automobile said the company has signed an agreement with Huawei Technologies Co., Ltd. to invest in this new company, which provides intelligent driving solutions for automobiles, intelligent vehicle cockpits, smart automotive digital platforms, among other products and services.

Changan Automobile and other related parties will hold no more than 40% of the shares.

The move is expected to solve some long-standing challenges faced by Huawei’s automotive business. Huawei’s automotive BU has been suffering long-term losses. By spinning off, it can secure new channels for funding. The BU’s business has not achieved wide adoption because automakers are reluctant to purchase Huawei’s products due to concerns over control.

To achieve deeper cooperation with automotive companies, Huawei must do so from a more neutral position and deeply bind itself with the industry. Opening up equity, a strategy proven effective by companies like Toyota and Volkswagen, allows customers to share in the growth and provides them with a sense of supply chain security.

After the spin off, Huawei’s automotive business will be more focused on the 2B route as a supplier to car makers. This new automotive venture will seek to carry on Huawei’s ambition to build a world-class suppliers in the intelligent automotive systems sector. The internal slogan for the Huawei IAS unit was to "become the Bosch of the intelligent electric vehicle era".

The IAS unit primarily has two profit models: one is to provide components to car manufacturers, simply making money by selling parts; the other is the HI (Huawei Inside) model, providing car manufacturers with full-stack integrated solutions. In this business direction, Huawei’s former partners included BAIC BluePark, GAC Aion, and Changan Avatr. Currently, only the cooperation with Changan Avatr is ongoing.

Huawei’s IAS unit currently has about 7,000 people, and its R&D investment in 2021 and 2022 was 7 billion and 10.5 billion yuan respectively.

In comparison, Tesla, NIO, Li Auto, and Xpeng’s R&D expenses in 2022 were 21.2 billion, 10.8 billion, 6.78 billion, and 5.2 billion yuan respectively. SAIC and BYD’s R&D investments in 2022 were 18 billion and 18.6 billion yuan respectively.

Huawei IAS unit’s R&D investment is behind traditional automakers, but has already surpassed that of some leading EV companies in China.

Huawei also has a "Hongmeng Zhixing" business, which is originally the Smart Selection car business, including the Seres co-branded AITO and the Chery co-branded Exeed. It is deeply tied with car manufacturers and has its own product development and sales channels. As it belongs to Huawei’s Terminal Business Group, it is not part of the spin off.

The main revenue of IAS unit comes from providing components and development services for the "Hongmeng Zhixing" business. According to Huawei’s officially disclosed data, in 2022, the revenue from the intelligent automotive solution business was 2.1 billion yuan, accounting for only 0.3% of the total revenue. In the first half of this year, this figure was 1 billion yuan, accounting for about 0.3% of the total revenue.

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