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Wheels of Change: the Story of Huawei

时间:2024-08-05 16:38 来源:雅延咨询 作者:雅延 点击:
Why has Huawei become Tier 0? As the landscape of smart electric vehicles evolves into a complex ecosystem, many players - from traditional parts suppliers to emerging startups and cross-industry giants - have sought to empower the industry. Yet, why has Huawei ultimately positioned itself at the Tier 0 level? In fact, Huawei is a well-known consumer electronics brand with a huge user base in China and around the world. Its user base includes a large variety of individual consumers and a large n
Why has Huawei become Tier 0?
 
As the landscape of smart electric vehicles evolves into a complex ecosystem, many players - from traditional parts suppliers to emerging startups and cross-industry giants - have sought to empower the industry. Yet, why has Huawei ultimately positioned itself at the Tier 0 level?
 
In fact, Huawei is a well-known consumer electronics brand with a huge user base in China and around the world. Its user base includes a large variety of individual consumers and a large number of business clients, which has fostered a strong reputation among users.
 
As a result, Huawei had a strong brand appeal when it entered the intelligent electric car market.
 
From another perspective, Huawei’s extensive influence in both B2B and B2C means that it can fully meet the high standards demanded by business clients, including R&D capabilities, marketing, channel resources and supply chain security, etc., all of which have been extensively validated in the market. Moreover, Huawei has deep insights into the operation of the consumer market.
 
These are exactly what the automotive industry urgently needs amid the transformation to smart electric vehicles, especially a strong technology base, which is widely recognized as the key to winning the smart transformation.
 
Despite the fierce competition in the smart electric vehicle sector - whether on cost, user experience or service - the focus will ultimately return to products and technology.
 
Hardcore technological capabilities, including integration across domains and technologies, are also natural genes for Huawei.
 
As a “supplier for intelligent connected vehicles”, Huawei’s automotive business strategy has been updated several times in recent years. However, its commitment to driving the development of intelligent vehicles through core technology innovation remains steadfast. Currently, Huawei has established a full-stack core technology base for intelligent electric vehicles.
 
In the field of intelligent driving, Huawei has deeply integrated technologies ranging from the perception layer such as cameras, millimeter-wave radar, high-precision 4D radar and laser radar, to the decision-making layer, including MDC computing platforms and various perception and decision-making algorithms. Based on these technologies, Huawei has developed a system-level solution - Huawei ADS intelligent driving system, which has now been iterated to version 3.0.
 
 
Photo credit: Huawei
 
In this process, with the continuous upgrading of intelligent driving capabilities, Huawei announced the launch of intelligent driving-centered solution brand - Qiankun, including Qiankun ADS, Qiankun Vehicle Control and Qiankun Cloud for Automotive, and aimed to synergize with “HarmonySpace (cockpit)”, forming the two core brands of Huawei’s intelligent automotive solutions.
 
In the field of intelligent cockpit, Huawei has also driven technology and application innovation. For the intelligent cockpit, Huawei has laid out a comprehensive strategy, from the bottom layer of HarmonyOS, to in-vehicle intelligent displays and in-vehicle audio systems, to various software and ecosystem applications.
 
As a distributed operating system for various terminal devices, HarmonyOS serves as the fundamental support for Huawei's “1+8+N” full-scenario strategy and has become a key part of building a diversified smart mobility ecosystem.
 
On one hand, in terms of in-vehicle application development, HarmonyOS supports the rapid development of diverse applications and seamless cross-terminal collaboration due to its distributed architecture and good cross-platform compatibility. In addition, HarmonyOS can provide the automotive industry with a dedicated subsystem platform for the intelligent cockpit domain, enabling rapid development of cockpit applications.
 
 
Photo credit: Huawei
 
On the other hand, in terms of the end-side ecosystem, thanks to the continuous expansion of the Harmony ecosystem, Huawei can also provide crucial support for OEMs to develop various cockpit applications. According to data, as of now, the total number of Harmony ecosystem access devices has exceeded 800 million units, with more than 2.2 million developers and more than 2,500 partners under the HarmonyOS Connect brand, more than 7,000 ecological products, covering all aspects of intelligent living scenarios.
 
Thanks to the powerful underlying support base and ecosystem of HarmonyOS, HarmonySpace (cockpit) is considered a “ceiling level” presence in the automotive industry.
 
In the field of intelligent electric vehicles, Huawei has developed the DriveOne high-voltage electric powertrain system, which includes 3-in-1 ePowertrain, X-in-1 ePowertrain, as well as vehicle charging systems, cloud solutions and other product portfolios. Huawei's DriveONE ePowertrain has been used in models such as AVATAR 11, AVATAR 12, AITO M9, LUXEED S7, and Li Auto’s models.
 
 
Photo credit: Huawei
 
In terms of charging, Huawei’s liquid-cooled supercharger has been deployed in more than 30 provinces and cities, including Beijing, Guangdong, Chongqing and Shanghai.
 
To provide a more convenient charging experience, Huawei Digital Power has partnered with the first 11 OEMs, including AVATAR, BAIC, BYD, Great Wall Motor, GAC, HOZON, JAC, Li Auto, CHERY, SERES and XPENG, as well as over 500 charging operators, to establish the supercharging alliance in April, with the goal of building a comprehensive supercharging network.
 
According to the plan, Huawei Digital Power plans to work with customers and partners to deploy more than 100,000 superchargers by 2024.
 
Intelligent connected vehicles and intelligent vehicle cloud are also the core of Huawei’s full-stack solution. Huawei’s intelligent connected vehicle business mainly focuses on “IoT (Internet of Things) devices, connectivity channels and cloud services related to connected cars,” providing diverse network connectivity inside and outside the vehicle.
 
To some extent, this business is the actual starting point of Huawei’s automotive business and the expansion of its ICT technology capabilities to the automotive industry.
 
The intelligent vehicle cloud business primarily provides users with connected services such as digital keys and dashcams, as well as intelligent services that cover the entire lifecycle of the vehicle, such as OTA updates and remote fault diagnosis.
 
 
Photo credit: Huawei
 
For example, Huawei recently launched Qiankun Intelligent Vehicle Cloud Service 3.0, which introduced six major innovative services and applications, including LLM, digital key, HUD 2.0, DVFdiff OTA high-efficiency differential algorithm and internet of vehicles security cloud services, covering various application scenarios such as vehicle preparation, boarding, usage, parking, maintenance and more.
 
A huge technical system also relies on continuous high R&D investment. According to Huawei's 2023 Annual Report, since the establishment of the Intelligent Automotive Solution BU, the cumulative R&D investment has exceeded 30 billion yuan, and the R&D team has reached 7,000 people, while in 2021 the team was only 5,000 people.
 
With the expansion of the Harmony Smart Selection and HI model cooperation project, Huawei has continued to expand the size of its automotive business team. Such a large investment has actually built a "hard core" competitiveness and a natural fortress for Huawei's automotive business, making the Intelligent Automotive Solution BU more confident to compete in the transformation of the intelligent electric vehicle industry.
 
Spin-off of Intelligent Automotive Solution BU
 
In the field of intelligent electric vehicles, Huawei's entry was not early. Compared to the early entrants such as NIO, XPENG and Li Auto, Huawei's entry came about five years later. Despite being a latecomer, Huawei has preliminarily established a leading position in the competition through the continued hot sales of AITO.
 
Next, Huawei undoubtedly faces the issue of profitability in its automotive business. After all, any business model will eventually be put to the test of commercial realization.
 
At the beginning of the establishment of the Intelligent Automotive Solution BU, Huawei's senior management set "no profit target for six years" for the business, but this didn't mean that the business was without profit pressure. Especially in recent years, with the continuous expansion of the automotive business, Huawei's investment has also increased.
 
According to Huawei's 2022 Annual Report, the Intelligent Automotive Solution BU had a cumulative investment of US$3 billion by 2022, and the automotive-related R&D expenditure alone reached 10.3 billion yuan in 2022, accounting for 6.37% of the total investment. In contrast, the business revenue in the same year was only 2.1 billion yuan, while the total revenue of the Group was 642.3 billion yuan.
 
Thanks to the upgrade of AITO M7, the total shipment volume of AITO increased from 75,000 units in 2022 to 94,380 units in 2023, driving the revenue growth of Huawei's automotive business. According to Huawei's 2023 Annual Report, last year, Huawei's revenue from the Intelligent Automotive Solution BU reached 4.7 billion yuan, a year-on-year increase of 128.1%.
 
However, the Intelligent Automotive Solution BU was still facing serious losses. “In the past, the business lost 10 billion yuan a year, then 8 billion yuan, and last year it lost 6 billion yuan,” said Yu Chengdong in March this year. The company has lost at least 24 billion yuan in the past three years.
 
Despite the huge losses, Huawei's automotive business has been gradually moving toward profitability. “In the first three months of this year, Huawei's Smart Selection business has already turned losses into profits, and the Intelligent Automotive Solution BU is also expected to break even from April,” said Yu Chengdong.
 
At present, the performance of the Intelligent Automotive Solution BU has exceeded expectations. According to Yu Chengdong, Huawei's Smart Selection and Intelligent Automotive Solution BU turned losses into profits in the first quarter of this year due to the strong sales of the Smart Selection business, especially AITO. However, it is expected to take some time for Huawei to completely make up for the deficit in the automotive business in recent years.
 
 
 
 
Photo credit: HIMA
 
The new AITO M7, AITO M5 and LUXEED S7 were launched in the second quarter, and STELATO S9 will be unveiled in the third quarter. Several new cooperation projects under the HI model have been gradually implemented. Based on this, Huawei's Intelligent Automotive Solution BU’s revenue is expected to have great growth potential this year.
 
HIMA has formed a relatively comprehensive product layout in the high-end vehicle market, and the Chinese high-end market is also in the process of accelerating expansion, further providing solid support for Huawei's automotive revenue growth.
 
According to the Gasgoo Automotive Research Institute, the sales volume of vehicles priced above 200,000 yuan in the Chinese passenger vehicle market reached 37% in 2023, up 3 percentage points year on year. Among them, sales of luxury brands reached 4.51 million units, with NEV companies being the main growth drivers, with sales rising rapidly from 220,000 units in 2020 to 1.97 million units in 2023.
 
As Chinese new energy vehicle brands continue to focus on the high-end market and consumption upgrading continues to become the main trend in the car replacement market, it is expected that the penetration rate of high-end models will continue to increase. Huawei has rapidly entered the high-end market through its Smart Selection business and is likely to continue to benefit from the rise of the Chinese high-end market.
 
According to the Gasgoo Automotive Research Institute, the total sales of AITO could reach 450,000 units this year, which is a big increase compared to 2023.
 
 
Photo credit: Huawei
 
However, as Huawei's Intelligent Automotive Solution BU blossoms, the challenges it faces cannot be ignored. A realistic test is whether the business can respond quickly to the needs of all parties with limited resources, as the number of partners continues to grow.
 
Although Yu Chengdong had previously clarified that due to Huawei's limited capacity, HIMA would only focus on the four brands (AITO、LUXEED,STELATO and Zunjie). If the four brands were fully rolled out, it would be a huge project.
 
"In the automotive business, Huawei aimed to lead the entire process from research and development to the launch of new vehicles. However, when working with automakers such as CHERY and Changan, the company did not want to play only a supporting role. As a result, there may be conflicts in the process, organizational management, style and culture," said industry insiders.
 
In other words, even though the AITO has achieved good performance, Huawei's efforts to work with other automakers in the same way will not be easy.
 
In response, Huawei has launched a new round of adjustments to its automotive business, including splitting the Intelligent Automotive Solution BU, sharing risks and costs by introducing automotive partners, and opening up a larger market space for the business by relying on strong ties with partner automakers.
 
In November 2023, Huawei officially confirmed a plan to establish a new company that integrates the core technologies and resources of its Intelligent Automotive Solution BU, including intelligent driving, intelligent cockpit, intelligent vehicle cloud, AR-HUD and intelligent car lights - but excluding HIMA. Huawei will also open equity to other automakers and jointly build the new company into an open platform with diversified equity.
 
 
Photo credit: Changan Automobile
 
At the same time, Changan Automobile and Huawei signed a "Memorandum of Investment Cooperation" and announced that Changan and its affiliates would invest in the new company with a shareholding of not more than 40%.
 
Then, at the beginning of this year, Huawei formally completed the registration of the new company, which was named Shenzhen Yinwang Intelligent Technology Co. Later, the company set up subsidiaries in Suzhou, Nanjing, Dongguan, Shanghai, Hangzhou and other cities, and started large-scale recruitment to prepare for the new companies.
 
According to the previous plan, Huawei and Changan should complete the deal within 6 months after signing the memorandum in November last year.
 
However, in the latest announcement, Changan recently pointed out that due to the importance and complexity of the project and the need for the parties to advance internal procedures, the project's progress has been delayed compared to the estimate in the memorandum. Based on the latest project progress, it was expected that the final transaction agreements would be signed no later than August 31, 2024.
 
This meant that the latest estimate for the completion of the transaction would be 3 months later than before.
 
In addition to Changan, You Zheng, deputy general manager of Dongfeng Motor Corporation, previously revealed that Dongfeng Motor is actively promoting the participation in Huawei's Intelligent Automotive Solution BU with FAW Group, and a preliminary conclusion is expected in June.
 
If the participation of Dongfeng and FAW goes smoothly, coupled with the support of Changan Automobile and Huawei's hard-core strength, more companies are expected to join. Ultimately, Huawei's Intelligent Automotive Solution BU is expected to reshape China's intelligent electric vehicle industry chain