Huawei-Changan auto JV rocks industry

Huawei's decision to move its smart vehicle technologies and solutions into a joint venture with Chinese carmaker Changan is expected to grow its business but it is also spreading disquiet among other partners as well, said analysts.

The new company, in which Changan is to hold up to 40 percent stake, will engage in research and development, production, sales and service of intelligent automotive systems and component solutions, said Huawei on Sunday.

Yu Chengdong, head of Huawei's smart vehicle business unit, said China needs a smart electric vehicle platform that is headed by "a locomotive" and co-built by automotive firms.

He said the equity stakes in the joint venture will be open to its existing partners and others of potential strategic value. Huawei has been co-developing models with brands including Seres, BAIC, JAC and Chery.

In a research note, Ping An Securities analysts said the new JV has great potential, whose annual operating revenue could reach over 100 billion yuan ($13.97 billion) in the long run.

In contrast, Huawei's operating revenue from its vehicle business unit was 1 billion yuan in the first half of this year.

Ping An analysts said Huawei's influence is growing in the automotive industry because of its competitive edge in smart driving and smart cabin technologies.

They further said annual sales of vehicles that sport Huawei's technology package will reach 1 million units in the short term.

Changan, which has partnered with Huawei on its Avatr models, is expected to benefit most from the deal. Its shares jumped to the daily limit on Monday.

Yet, Seres, a long-time partner with the technology giant to roll out the AITO models, saw its shares slump 7.45 percent during the intraday trading. But, they closed marginally up nevertheless, with Seres' good sales performance and late-night statement on Sunday appearing to have finally reassured investors.

Other partners among carmakers, including Chery and BAIC, have remained silent. Shares of BAIC's listed arm BAIC BluePark fell 0.79 percent on Monday.

Roy Lu, a Shanghai-based automotive analyst, said Huawei has proven appealing to small and medium-sized Chinese carmakers that do not yet have their own solutions.

"It is one of the best solutions for them," said Lu. "Working with Huawei is probably better than working with traditional suppliers."

From the very start, Huawei's logo helped such smaller carmakers to sell more vehicles and now Huawei's technology will boost their sales, said Lu.

But larger companies, including SAIC, Geely and GAC, have chosen to solve the problem themselves.

Chen Hong, SAIC's chairman, said one-stop package solutions from suppliers will reduce carmakers to hardware companies.

"It is like we become the flesh and they are the soul, and that is not acceptable to us. We want to retain our soul," said Chen.

Yale Zhang, managing director of consulting firm Automotive Foresight, said Huawei has shown it will pursue excellence in smart vehicles, but the big carmakers may see it a potential threat.

"What if it produces vehicles itself when conditions are ripe? After all, carmakers make much, much more money than suppliers," said Zhang.