The sales of AITO over the past two years.“The new company is an independent external entity, similar to the previous independent Honor. On the one hand, operating outside of the Huawei system will be more convenient and provide a relatively neutral stance. On the other hand, Huawei is sharing a portion of the ownership with major clients, creating a shared interest. For many clients, this represents a stepping stone and an imaginative financial investment,” said Yi Ran , an electric vehicle industry consultant.
The separated assets did not encompass the smart selection car section under the leadership of Yu Chengdong. According to the announcement, the new company would engage in automotive intelligent driving solutions, intelligent vehicle cabins, smart automotive digital platforms, intelligent car cloud, AR-HUD, and intelligent car lighting. This transition involved the transfer of relevant technologies, assets, and personnel to the new entity, with a focus on the designated business scope.
The marketing and sales personnel within Yu's team would remain in Huawei. "The separation of the smart car unit doesn't impact us significantly. We still operate within the Huawei ecosystem, and our salaries are from Huawei," said a sales representative from a Hongmeng (HarmonyOS) Smart Lifestyle Experience Store, Huawei’s retail shop.
However, according to the announcement, businesses and solutions within the new company's business scope would primarily be provided by the new company to complete vehicle customers. Huawei, in principle, would no longer engage in businesses that compete with the new company's business scope. This implied that in the future, complete vehicle manufacturers operating under the smart selection car model would need to procure technologies such as intelligent driving and intelligent cabins from the new company. This was also the reason why Yu Chengdong has invited companies like Seres and Chery, who have collaborated with Huawei using the smart selection car model, to join this newly established platform.
Intensified competition in the smart car sector
By taking such move, Huawei has boosted automotive intelligence to unprecedented heights this year.
For the past two years, the industry focused on hardware advancements. However, the current landscape was characterized by a heightened emphasis on optimizing and enhancing the software experience.
According to Xia Huan, the head of car maker Lynk & Co's intelligent cabin center, Huawei's HarmonyOS-based cabin system stood at the forefront in terms of system integration, smooth and fluid operation, as well as the finesse of its user interface. However, he also noted that intelligent cabins developed by new players like Li Auto and tech companies such as Meizu also belonged to the top tier.
“It’s just each of these players has their own areas of strength, with some excelling in ecosystem development, some in user interaction, and others in overall user experience. Nevertheless, all of them hold a leading position,” Xia said.
Xia also pointed out that Huawei's HarmonyOS-based cabin has added another layer of competition and excitement to this industry.
The number of vehicle models currently incorporating the HarmonyOS cabin system remains limited. For now, Huawei's HarmonyOS-based cabin system is exclusively featured in vehicles produced by automakers with substantial collaborations with the tech giant. This includes models such as ArcFox α-S Hi, AVATR 11 and 12, AITO M5/M7, the recently launched Luxeed S7, and a select few models from partner automakers.
However, its mere presence has ignited a sense of competition within the industry. Automakers viewed it as a benchmark, compelling them to intensify their efforts in developing intelligent cabins. This influence could be likened to a "ceiling" set by HarmonyOS in the realm of intelligent cabin technology.
Huawei's influence in advanced intelligent driving extended even further.
As intelligent driving is evolving, Navigate on Autopilot (NOA) has become a focus in the industry. The advanced intelligent driving systems, particularly NOA, have ventured into urban environments. Urban NOA is considered a game-changing feature in advanced intelligent driving. It has the capability to automatically recognize road conditions and objects on the road ahead while autonomously planning the driving route. This assists drivers in navigating complex city environments from point A to point B.
In this rapidly evolving landscape, Huawei and XPeng Motors stood out as frontrunners in the urban NOA market.
Huawei's advantage lied in its ability to leverage its extensive research and development capabilities to catch up and excel in the field. With the launch of the second-generation advanced intelligent driving system, ADS 2.0, in April, Huawei freed itself from dependence on high-definition maps. Powered by the innovative GOD network algorithm, the system has the capability to understand both the road and its surroundings.
In addition to Huawei and XPeng Motors, a variety of both established and emerging players in the automotive industry, such as NIO, Li Auto, iM Motors, Denza, Zeekr, Jiyue and Great Wall Motor, have also announced plans to introduce advanced intelligent driving systems for urban environments.
The competition driven by companies like Huawei and XPeng has shifted the focus of the smart vehicle industry from electrification to a new battleground centered on intelligence. The prevailing theme of competition is shifting from a race about scale, cost, and efficiency to an era of intelligent competition where the winners take all.
According to the automotive Research Institute Gasgoo, the penetration rate of advanced intelligent driving systems in July jumped to 2.8 percent, from less than 1 percent in the previous year. In the first seven months of this year, the sales of advanced intelligent driving systems surged by 196.6 percent year-on-year, reaching 264,000 units. As iResearch, a market research and consulting company, predicted, such penetration rate was expected to exceed 10 percent in 2023, and might surpass 25 percent in 2025, indicating that the market was in a blue ocean phase.
The competitive landscape of this sector may be on the brink of a new round of reshuffling.
In fact, Huawei's collaboration with Changan to establish a joint venture company, or a platform-based company led by Huawei with investments from multiple automakers, was not new.
Similar models of collaboration have emerged in the industry, such as Banma by SAIC and Alibaba, Tinnove by Changan and Tencent, and T3 Go, a ride-hailing service provider initiated by FAW, Dongfeng and Changan with joint investments from Tencent and Alibaba.
Despite the initial excitement and high expectations, these partnerships failed to deliver significant results or revolutionary developments in the automobile industry. Banma was restructured and transformed into an internet of vehicles company led by Alibaba. Tinnove has never managed to make a significant impact. As for T3 Go, which was born with a silver spoon in its mouth, has yet to alter the industry landscape dominated by Didi, although it has secured a top position in the ride-hailing market.
A key reason for the failure was tech firms and automakers had contradictory core objectives. According to someone familiar with the partnership between SAIC and Alibaba, Alibaba aimed to make AliOS a vehicle operating system applicable across the entire industry. The tech firm valued scaling the outcomes, with an intention to equip more smart vehicles by various automakers with the system. However, SAIC wanted to invest the two parties’ efforts into developing AliOS for models under SAIC's own brands, thereby emphasizing its own competitive differentiation.
That was the same case for Tinnove.
As Huawei revisited the historical collaboration model between technology firms and automobile manufacturers, the question arose again. Were they retracing the steps of their predecessors, potentially falling into similar pitfalls, or were they poised to establish a new benchmark for successful partnerships in the industry?
Yi expressed strong confidence in Huawei's potential. “The key obstacle in the past was the absence of a figure, who possessed the charismatic leadership qualities like Captain America or Iron Man. Furthermore, it is preferable for such an individual to maintain a cooperative stance rather than engage in a zero-sum, highly competitive relationship with others,” Yi said.
Yi believed that Huawei appeared to possess the two critical prerequisites for success in this venture. First, Huawei's primary focus was not on the automotive industry, as evidenced by the recent separation of its car business unit and the explicit commitment to refrain from competing with the newly independent entity. Huawei consistently emphasized its non-competitive stance in this regard. Second, and perhaps most significantly, Huawei has, through years of dedicated effort, delivered results in the automotive sector that have garnered industry-wide recognition. The transformation of Seres, from a near-collapse to a successful market entry, stood as a compelling testament to Huawei's achievements.
The sales of AITO over the past two years.
However, the absence of competition between Huawei and automotive companies, coupled with Huawei's relatively persuasive leadership, did not guarantee success of the new joint venture. Yi pointed out that Chinese companies were accustomed to long periods of going it alone, competing with each other, and were not adept at establishing collaborative mechanisms for mutual cooperation.
Huawei’s move held the potential to usher in a new era of joint ventures in the Chinese automotive industry, although whether the joint venture would bear fruit remained to be seen.
The era of joint venture 1.0 in China began with the establishment of SAIC Volkswagen in the 1980s. Such partnership model flourished after China's entry into the WTO in the early 2000s. Over the past two decades, nearly all major global automotive companies, from luxury brands like Mercedes-Benz, BMW, and Audi to mass-market brands like Volkswagen, Toyota, General Motors, and Hyundai, have come to China to form joint ventures with Chinese companies, have established joint ventures in China.
Such model worked because of mutual benefits between multinational corporations and Chinese companies. The former brought to the table two distinctive advantages that Chinese counterparts lacked: advanced technology and well-established brand recognition. Chinese companies took root in a vast consumer market and a cost-effective manufacturing environment.
Benefited from such strategic partnership, the Chinese automotive market grew into one of the few markets with a complete automotive industry chain across the globe. According to statistics from the China Association of Automobile Manufacturers, in 2009, China surpassed the United States for the first time, becoming the world's largest producer and consumer of automobiles. That was five to six years ahead of the anticipated schedule. Much of this achievement could be attributed to the contributions of joint venture companies.
More importantly, Chinese companies gained experience to manage brand operations, handle supply chains, and cultivate a pool of local automotive talent. "Decades of joint cooperation in the automotive field have nurtured a large number of domestic automotive technicians and managers. These talents have made significant contributions to the development of China's domestic automobile brand," said Dong Changzheng, executive vice president of Toyota China in a recent public event.
However, as the trend towards intelligent electrification became increasingly mainstream, companies that owned these joint ventures must adopt new strategies to keep pace with the evolving landscape.
According to the latest data from the China Passenger Car Association (CPCA), as of the end of October, the penetration rate of NEVs in the Chinese automotive market reached 37.8 percent. Among this, domestic brands had a penetration rate of 60.4 percent, while mainstream joint ventures had a much lower penetration rate of only 6.5 percent.
Top 10 automakers in November 2023 (Credit: CPCA)
Yi suggested these joint ventures continuing operating while actively seeking partners for the era of intelligent electric vehicles, such as Huawei. The tech firm brought two formidable assets to the table: a well-known and highly esteemed brand with premium recognition across the globe, and core expertise in intelligent technology within the electric vehicle sector.
Sun Shaojun, the founder of Car Fans, said that once the penetration rate of new energy vehicles surpassed 50 percent, it would signify the dominant position of NEVs over traditional gasoline-powered cars. It would be the moment for both the Chinese and foreign parties of joint ventures to embrace the Joint Venture 2.0 wave. It would also mark the starting point for companies like Huawei to rise within the automotive industry.
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