The automotive industry has witnessed remarkable shifts in recent years, with traditional giants navigating the waters amid the rise of new players and innovative business modelsOne such giant, Huawei, has made a significant entry into this domain with its smart vehicle solutions, primarily represented by its AITO brand, which has shown impressive sales figures in the recent monthsThis has ignited curiosity among industry observers regarding when the tech firm's automotive segment will finally turn a profit.

On March 16th, Yu Chengdong, Huawei's Executive Director and CEO of the Consumer Business Group, revealed the latest updates regarding the smart vehicle business at the China Electric Vehicle Hundred-Person Forum (2024). His remarks shed light on the company's past struggles and current turnaround efforts, highlighting the trajectory from significant losses to the brink of profitabilityHuawei's vehicle business had posted losses amounting to 10 billion yuan (approximately $1.5 billion) in previous years, and 6 billion yuan (around $900 million) last yearYet, Yu hinted that, largely thanks to collaboration with various automotive manufacturers, the company could achieve turnaroundsNotably, during the first quarter of this year, the automotive solutions segment was reported to have become profitable, and the business unit is nearing breakeven status.

The inception of the car business unit (BU) in 2019 saw Huawei executives proclaiming an ambitious strategy—setting no profit targets for the first six yearsCurrent trends suggest, as per Yu’s recent statements, that the timeline towards profitability has dramatically accelerated.

To fully understand the reasons behind this rapid progress, we must explore the three core business models Huawei has established in the automotive sphereHuawei has consistently stated that it is not a car manufacturerInstead, it positions itself as a facilitator, leveraging its 15 years of experience in consumer technology to help car manufacturers define, produce, and sell their vehicles more effectively.

The car BU was formed in May 2019, characterizing itself as the 'Bosch' for the smart automotive era

Advertisements

This division focuses on selling parts and offering full-stack integration solutions to car manufacturersBy May 2021, under Yu's leadership, the company didn't stop at parts and integrationInstead, it actively defined a third business model—the “AITO” smart vehicle collaborative approach, through which Huawei partners closely with automotive brands.

There are three primary partnership models that Huawei is currently employing with automakersThe first is the conventional sale of standardized automotive componentsThe second involves providing complete intelligent automotive solutions under what is termed the Huawei Inside (HI) modelThe third, the deep collaboration model—AITO—aims to take part in the entire product lifecycle, from development to salesThe significant advantage of this model is Huawei's involvement in product and corporate identity, which represents a more intimate relationship with its partner brands.

Prominent partnerships under the Huawei HI model include collaborations with companies like BAIC's Arcfox, GAC’s Aion, and Changan's AvitaHowever, this year, the inclusion of additional participants such as Changan Deep Blue and Dongfeng's Seres signifies an exciting expansionThe development of the AITO model has led to intensive partnerships with brands like Seres, bringing forth the successful launch of the AITO brand, which has seen a phenomenal sales performance since the introduction of its new M7 model in September 2023.

Recent delivery statistics illustrate the momentum of AITO vehicles, with over 21,000 units sold in February alone, securing the top spot among new energy vehicle brands in China for two consecutive monthsThe impressive M7 has significantly contributed to this success, racking up 18,479 deliveries in February, and the cumulative orders for the M9 model have approached 60,000 since its launch.

However, as exciting as these developments may sound, the journey hasn't been without its challenges

Advertisements

The introduction of the AITO homogenous ecosystem, comprising four models, is still under scrutiny as production delays plagued the introduction of the new electric sedan, the Zhijie S7. Although pre-orders surpassed 10,000 in just two days, skeptics have raised concerns about Huawei's manufacturing capacity, with delays stretching delivery timelines beyond acceptable limits.

During the forum where these challenges were discussed, Yu addressed these concerns by explaining that the S7 model, appealing mainly to the youth demographic as a mid-to-high-end electric sedan, encountered delays due to factory relocations and semiconductor supply shortagesYet, he expressed optimism about the recovery of production rates by April.

Despite the sales success of AITO vehicles, the core question surrounding Huawei's automotive divisions remains—when will they begin to see profitability? Reports indicated that while AITO has captured significant market interest, the parent company Seres is still grappling with substantial losses, projecting a net loss of 2.1 to 2.7 billion yuan this year, potentially exceeding 10 billion when considering previous deficits.

Yu has disclosed that Huawei heavily invests in its automotive business, with direct and indirect expenditures involving over 10,000 personnel and an annual investment exceeding $1 billionHowever, the financial returns have been dismal; in 2022, Huawei's revenue hit 642.3 billion yuan, with the smart vehicle sector contributing only 0.3% of this total—20.77 billion yuan—despite having poured in close to $3 billion since the inception of the car BU.

As of the first half of 2023, the smart vehicle solutions business achieved minimal revenue growth with figures stagnant at 1 billion yuanHowever, by reducing annual losses to 6 billion yuan and witnessing a significant turnaround in early 2023's profits, the automotive division seems to be on the right path.

Forecasts for the second half of 2023 hinge on the sustained popularity of AITO vehicles, anticipating greater profit margins as sales continue to rise

Advertisements

Advertisements

Advertisements