Exclusive: Advancement in equity talks values Huawei’s new smart car company at up to $35 billion, according to sources.

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Huawei's new smart car
Huawei's new smart car company values turn up to $35 billion

Shanghai/Hong Kong (Reuters) – After selling shares to investors like Changan Auto, Huawei’s new smart car software and component company is expected to be valued as much as 250 billion yuan ($34.67 billion), according to three people with knowledge of the situation.

Huawei’s new smart car company values turn up to $35 billion:

The Chinese company announced on Sunday that it will split off its Intelligent Automotive Solution (IAS) business unit, which has been operating for four years. The unit’s goal was to become the intelligent electric vehicle (EV) equivalent of German automotive supplier Bosch. The unit’s core technologies and resources will be transferred to the new company.

According to a Changan Auto announcement from Sunday, the new company will be owned up to 40% by main auto partner Chongqing Changan Automobile and relevant partners. Huawei and Changan Auto did not provide any financial information.

According to two of the persons, Changan Auto and its eventual parent, the state-owned China Ordnance Equipment Group, sometimes referred to as China South Industries Group, are thinking about buying roughly 35% and 5% of the new company, which would be valued at 200 billion to 250 billion yuan.

According to the three sources, state-owned automakers FAW Group and Dongfeng Motor Group are possible minority shareholders. They are also in advanced talks with Huawei to purchase up to 5% apiece.

According to two of the people, Huawei is expected to keep a 40% to 50% stake and continue to be the sole largest stakeholder for the next two to three years.

The three individuals stated that the deal’s specifics, most notably the ownership division and valuation, have not been decided upon and could alter. A fourth individual with knowledge of the situation and one of the others stated that the acquisition will also need regulatory approval.

Since the matter is confidential, the individuals declined to be identified.

Changan Auto declined to comment more, directing Reuters to its statement from Sunday. Requests for comment were not immediately answered by Huawei or the other participating companies.

For Huawei, a company founded in 1987, the spin-off is unusual because the company’s businesses, which include consumer electronics and telecoms, are owned by founder Ren Zhengfei and over 100,000 employees who have stock options. It sold the low-cost smartphone brand Honor in 2020, a year after it was hit with U.S. sanctions for security-related reasons, in order to preserve the brand.

According to three of the individuals, Huawei has had difficulty expanding its smart car company and has to raise money to pay for its R&D expenses. This is one of the reasons for the anticipated sale.

The people claimed that at first, Ren and other senior Huawei officials had great expectations for the division to serve as a fresh engine of growth.

According to the company’s 2022 annual report, it has invested $3 billion in the unit since its founding and increased the size of its R&D team to 7,000 employees.

In response to a query from Reuters via the company, Ren did not immediately reply.

However, Huawei stated in August that it was the only one of the company’s six primary divisions to be losing money. In the first half of 2023, it generated revenue of just one billion yuan, or a small portion of the 310.9 billion yuan total.

Huawei has joint ventures with Changan Auto, which includes the EV brands Avatr and Deepal, as well as Seres Group and Jianghuai Automobile.

One of the three individuals claimed that the new company will also take over the group’s other auto-related assets and resources outside of the IAS business unit. Huawei has stated that the new company will work on research and development, manufacturing, sales, and servicing of intelligent automotive systems and component solutions.

According to two of the people, Huawei is thinking of putting the new company’s headquarters in Changan’s home city of Chongqing, a large municipality in the southwest. Shanghai serves as the unit’s current headquarters.

According to two of the persons, the proposed agreement will also facilitate the company’s listing, as Huawei had intended.

One of the persons stated without providing any details that it is doubtful that Richard Yu, who has been in charge of Huawei’s consumer business and the smart car division for years, will head the new company.

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