In an interview with Jiemian News last week, CEO of Huawei’s consumer business Yu Chengdong explained why is now at the helm of the new car business.
Photo provided to Jiemian News by Huawei
By LIN Teng, LU Keyan
Sharp at 9 on a Saturday morning, YU Chengdong pulled up at a Huawei store in Shenzhen’s business district. A group of reporters was waiting. Without much care for small talk, Yu popped the trunk of a car in the showroom and began to walk his audience through the details of the latest designs.
All his weekends now are devoted to cars, he said. Still CEO of Huawei’s consumer business – known for its phones, tablets and all kinds of gadgets – Yu
In an interview with Jiemian News last week, Yu claimed that “there’s no need for Huawei to make its own cars,” although no one seems to believe it. It’s a waste of resources to build another car factory given how many are already out there, he said. A better way to do it is to lead a consortium of car companies and make cars with them.
Huawei calls the consortium Wenjie Ecosystem Alliance. The first and only car company so far to have signed up is SERES, with whom Huawei launched the line AITO at the end of 2021. In about a year, AITO has released three models and delivered 75,000 units, faster than any other EV startup in China.
Yu describes the partnership as an “alliance among the fittest.” Huawei doesn’t know much about car manufacturing but is an expert in software, design, user experience, and quality control. Car makers will benefit from Huawei’s experience. Resources in user experience, marketing, and distribution can be shared among everyone in the consortium.
But why SERES and not BMW, or any other big-name car maker? The reason, essentially, is that Huawei wants more power. “Times have changed,” he said. “Huawei must be master of its own if its own decisions if we want to survive and thrive.”
Yu mentioned several times during the interview that he wants to be able to call the shots.
Huawei sells car parts as well as software. If it’s only parts and software, the final result is subject to the vision and execution of the client. With the Wenjie system, Huawei is hands-on from design to distribution and owns the final product.
Yu said Wenjie was not a marketing gimmick nor was it contract manufacturing. Contract manufacturers are paid pennies, but Huawei offers to first help car makers sell cars and make money, and then sell them a lot of parts and services.
“People scoff at us and misinterpret us. But I’m confident that in the end, they won’t be able to catch up,” Yu said.
SERES has gained prominence since signing with Huawei but is still to turn a profit. Yu attributes the losses to large upfront investment. Once sales take off, SERES as well as other partners will be very profitable very quickly, he said.
Huawei’s has 60,000 retail stores, including 5,000 “experience centers,” where cars are displayed side by side with Huawei’s electronic products. But the transition from phone shops into car dealerships has not been smooth.
“It’s not as easy as we thought,” Yu said. Retail store workers trained to sell phones and tablets are so good at selling cars. This year, Huawei will be more selective in its showrooms.
In response to speculation that Huawei is reaching out to other car companies and even contemplating breaking up with SERES, Yu said Huawei will look for more partners because SERES only has limited capacity. Two factories are operating at full capacity and a new factory is being built.
“We haven’t withdrawn our R&D force as rumors say. In fact, we are investing more in SERES,” he said.
Yu had hoped to sell 300,000 cars in 2022 but in the end, only 75,000 units were sold. Still, it is more than what most EV companies sell in the first three to five years. Yu deflected the question about sales targets, talking instead about Net Promoter Score – in other words, how likely customers are to recommend a product. The industry average is around 40 percent. For AITO, the score is 70 percent, higher than that of many luxury cars.
The pressure for profitability, however, is real. In an internal meeting last year, Yu set the goal of turning a profit by 2025. To do this, he told Jiemian News, sales first need to reach one million units. “We hope Huawei Inside and Zhixuan will both take off. Zhixuan, hopefully, will sell more. But in the end, we will be fine if either succeeds,” he said.
In terms of how he plans to fend off competition from EV giants such as BYD and Tesla as well as upstarts like Xiaomi, its old rival in the smartphone world, Yu said Huawei only cares about the 200,000-yuan-and-above high-end market. The best-case scenario is that everyone wins in a booming market.
The next two years will be a make-or-break window for the smart car industry. To distinguish themselves, Chinese car makers must be vigilant and “intelligentize” every part of the car. AITO will release new versions of the existing three models. They will be equipped with enhanced autonomous driving features, including AI-powered navigation.
“We must unite. And that’s why we founded the alliance. I’m sure our closest partners will all be survivors of this reshuffle,” Yu said.
