Yu Chengdong jumped to the back of Xiaomi's rumors: Why doesn't Huawei build cars? | Deep web

Source: Visual China

Author丨Cheng Xiaoyi

Editor丨 Kang Xiao

Produced by Tencent News Xiaoman Studio

The public criticism at Huawei's 2022 annual report press conference has put Huawei's internal "car-building" route disputes and contradictions on the table, and speculation and rumors have poured in.

On March 31, after reiterating that "Huawei does not build cars", Xu Zhijun, vice chairman and rotating chairman of Huawei, bluntly stated that he would clean up and rectify automotive materials, and strictly prohibit the Huawei brand logo before any automobile brand logo. "Some people, departments or partners are messing with Huawei's reputation... Huawei's hard-earned brand should not be used casually. ”

In the eyes of the outside world, the spearhead is directly aimed at Yu Chengdong, executive director of Huawei, CEO of Terminal BG, and CEO of Intelligent Vehicle Solution BU. That night, Yu Chengdong responded by posting his real name in Huawei's voice community, "This era has changed, and this will only make it more difficult for us!" Everyone will understand it in a few years, leave it to time to test! "There seems to be reluctance in the words.

On April 1, while thousands of stores across the country urgently rolled off the production of "HUAWEI" materials, there were rumors that Meng Wanzhou, vice chairman, rotating chairman, and CFO of Huawei, seriously criticized Yu Chengdong for violating Huawei's strategy. A Huawei source told Deep Web that he had not heard about it.

However, how the facts are true or false does not affect onlookers to make bold assumptions, and there are more and more discussions about whether Yu Chengdong will leave Huawei in a negative mood. On April 6, it was rumored on the Internet that Yu Chengdong would go to Xiaomi Automobile to work. Xiaomi's official response at the first time: make up nonsense.

After the news came out, a number of automotive insiders expressed to "Deep Net" the view that Yu Chengdong could not go to Xiaomi, because Xiaomi founder Lei Jun and Yu Chengdong's style concept are inconsistent.

In fact, Yu Chengdong has clarified his position at the China Electric Vehicle 100 Forum on April 1, "We have always insisted on not building cars and helping companies build good cars." Yu Chengdong said that this year, in addition to Cialis, Chery and Jianghuai will also produce models of smart car mode, "If we use different brands, we will do marketing and service is very complicated, so I hope to have a common brand, such as Huawei Qianjie... But after that, some leaders had different opinions. ”

Yu Chengdong's implication: I am highly consistent with Huawei's overall strategy, but I have different opinions with some leaders at the executive level.

Since Huawei established the intelligent vehicle solution BU in 2019, Huawei has been officially involved in the automotive industry for five years. There have been many detours in progress, but the most curious and puzzled question is the old question: it seems simpler to build a car and the money comes quickly, why does Huawei insist on not building a car?

Bound by sanctions, it is difficult to build a car

Huawei's insistence on not building cars, the most fundamental reason is sanctions. There are three main impacts of US sanctions on car manufacturing:

1. Blocked supply chains. Some international Tier 1 (Tier 1 parts supplier) giants may not be able to supply Huawei with important parts needed to build cars.

2. Damage to overseas ICT services. Car manufacturing may threaten Huawei's ICT (information and communication technology) business development in Germany and even Europe, such as 5G, after all, traditional cars are one of the pillar businesses of Germany and other European countries, and car manufacturing will face direct competition.

3. Huawei is still in the stage of survival, and the problem of funds is difficult to solve. Huawei's cash flow pillar businesses such as mobile phones have been curbed by sanctions, and there is a lack of continuous blood supply for car manufacturing. If external financing is carried out, it violates Ren Zhengfei's long-standing principles for Huawei's governance.

While Yu Chengdong "showed his heart" at the China Electric 100 People Forum forum, he also explained in detail the dilemma that Huawei is currently encountering.

"In the past, the world's mainstream manufacturers, T-BOX modules, all chose Huawei, and they withdrew a lot in the past two years due to sanctions." Yu Chengdong said that Huawei may be the "biggest and strongest" in the field of intelligent network connection in the past, from Germany's Volkswagen, Mercedes-Benz to the United States Tesla and other leading car companies, have chosen to cooperate with Huawei (the on-board T-BOX is used to communicate with the car background system and mobile phone APP to achieve vehicle information display and control of mobile APP).

The reverse is also true. Automobiles are arguably the most complex civilian industrial products that people come into contact with in their daily lives, and the industry has always believed that the automobile industry must be a global industry. Li Shufu, founder of Geely Automobile, said last year that the automotive product industry chain is very long, and it is difficult for a country to independently complete the development of the entire automotive industry chain, "Under the trend of anti-globalization, enterprises can only adjust their business plans as soon as possible." ”

For example, the world's largest automotive technology supplier Bosch Group of Germany has a number of technological innovation patents in the auto parts industry, almost monopolizing the automotive brake system market for a long time, and most models that want to be equipped with CVT transmissions cannot bypass Bosch's patents. A car, tens of thousands of independent parts, even if there is only one less, it cannot be mass-produced.

Among the above three reasons, ensuring the security of traditional ICT service fundamentals is the reason why Huawei executives have publicly admitted not to build cars.

Xu Zhijun and Chi Linchun, president of Huawei's intelligent vehicle solution BU Marketing and Sales and Service Department, both explained in 2021 that the European market is very important for Huawei's ICT business, and Germany is even more important. "Germany's pillar industry is the automotive industry, and if Huawei builds cars, it will have direct competition with local car companies."

Huawei's overseas business is divided into four regions by region: Europe, Middle East, Africa, Asia Pacific, Americas, and others. EMEA is Huawei's largest regional market outside the Chinese market, accounting for more than 20% of its overall revenue for a long time (23% in 2022).

Chen Lifang, executive supervisor of Huawei, disclosed a set of data that Huawei has signed more than 50 5G commercial contracts around the world in 2019, of which more than half are from Europe (28).

In addition, the four-year US sanctions have had a great impact on Huawei's revenue. According to the 2022 financial report, Huawei's operating profit and operating cash flow are the lowest in five years.

In mid-2022, Huawei founder Ren Zhengfei internally released an article entitled "The Company's Business Policy Should Shift from Pursuing Scale to Pursuing Profit and Cash Flow", "taking survival as the main principle" to ensure that it survives the crisis in the next three years. "When making business predictions, stop having illusions, tell stories to deceive the company, losses must be deducted from your food package, first of all, you must survive, and if you survive, there will be a future."

Huawei's revenue from 2018 to 2022

Building a car can be called a sales money. According to the statistics of electric observers, from 2007 to 2019 (it began to continue to make money), Tesla's research and development expenses and capital expenditures reached 18.5 billion US dollars (about 130 billion yuan), and the cumulative amount was 42.63 billion US dollars (about 300 billion yuan) in 2022.

And with the increasingly heated military war of new energy vehicles, the research agency Statista said that the total global automobile research and development expenditure is also rising every year. For Huawei, which is still in the survival stage, it is difficult to allocate a large budget to build cars when the business is not profitable.

Yu Chengdong's dilemma

The two major reasons why Huawei's "helping enterprises build good cars" business are always in a dilemma due to continuous sanctions and urgent need for performance and business monetization.

When Yu Chengdong talked about the difficulties at the China Electric 100 Conference, his tone was astringent and helpless, "Originally, our idea was to become a supplier such as Bosch and Continental in the field of (intelligent) vehicles, but in today's era, it seems to be not very true." ”

According to Yu Chengdong, Huawei initially wanted to be a component supplier, selling intelligent products such as software, algorithms, clouds, and chips to car companies.

However, in the process of practice, Huawei found that intelligent components are difficult to sell to car companies on a large scale like standardized components such as brakes and steering made by Bosch and Continental, and it is necessary to cooperate with car companies for a long time and continuously iterate versions. Moreover, parts are affected by sanctions, making it difficult to sell them to global automakers on a large scale.

Therefore, Huawei has made HUAWEI INSIDE, that is, HI mode, to package and sell intelligent technologies with intelligent driving as the core to car companies.

But the road has also proved difficult to follow. Under the circumstances of sanctions and independent research and development in the field of new energy becoming mainstream, there are very few partners that can be leveraged by Huawei's HI model.

Yu Chengdong said that under the background of sanctions, it is difficult for European, American and Japanese car companies to choose Huawei as the main force of intelligent transformation; New domestic automakers "have their own pursuits" are unlikely to choose Huawei; Traditional car companies that are afraid of losing their souls will not choose Huawei. "With such a large investment, I would not be able to achieve a commercial closed loop without a large number of vehicles using Huawei HI for sales."

"Huawei's HI model initially had three car manufacturers (BAIC, Changan, and GAC) cooperating with us, and now basically only Avita (Changan) remains." Yu Chengdong reviewed at the forum, "We provide the best technology, and we may not guarantee the commercial success of the final product. ”

More important is product definition and systematic competitiveness, so Huawei launched the smart car model.

Under Huawei's smart car cooperation model, if the quality and service of the car driver company are endorsed by the Huawei brand, the business logic is unreasonable and lacks guarantee, and Huawei's core management may also be aware of this, so there is public criticism. But if the Huawei brand is downplayed, the sales of car companies will face difficulties.

According to Yu Chengdong's description, the smart car model can be said to also include the important task of helping car companies carry out digital and intelligent transformation of enterprises. "After the cooperation between Cialis and Huawei, the management level and capabilities in terms of quality have been improved by orders of magnitude." Yu Chengdong said that Huawei has used decades of accumulated management models to empower and help car companies.

The Huawei brand's contribution to Cialis' sales is clearly visible. Before the cooperation with Huawei, the cumulative sales of Cialis SF5, the first model of Cialis, only exceeded 8,000 units in 2021, with an average monthly average of less than 1,000 units. After the first cooperation with Huawei Smart Select SF5, monthly sales quickly exceeded 1,000, and after the second cooperation with the brand, almost 90% of Cialis' sales contributed to the competition.

AITO M5 landed in Huawei stores. Source: Visual China

However, after Tesla started the car price war at the beginning of this year, the price reduction did not bring more sales growth. Increasing the exposure of Huawei brands in Qianjie cars may also be one of the ways to promote the amount of market-side promotion.

However, in the smart car mode, Huawei faces great challenges if it wants to maintain the reputation and reliability of the Huawei brand while helping car companies with the Huawei brand.

A consumer told "Deep Net" that after he booked a car at Huawei's store, the delivery work was handled by Cialis, "The delivery group pulled more than a dozen people, and there were those who promoted the installment business halfway, so they found a reason to return (the car)." ”

"The gap between sales and delivery was too big, and I instantly realized that Cialis is not Huawei." The consumer said.

According to Yu Chengdong, Huawei invests about 10 billion yuan in smart car related business every year, and has more than 10,000 R&D personnel. According to Huawei's 2022 annual report, Huawei's intelligent vehicle solution component business revenue was 2.1 billion yuan, which is a loss item that Huawei needs to do its best to reverse or abandon in the survival stage, and the commercialization pressure is huge.

In August last year, Huawei's article "The Company's Business Policy Should Shift from Pursuing Scale to Pursuing Profit and Cash Flow" specifically mentioned that smart vehicle solutions cannot be rolled out on a complete front, but that it is necessary to reduce scientific research budgets, strengthen business closed loops, and take the road of modularization in R&D, focusing on a few key components to make competitiveness, and the remaining parts can be connected with others.

This may mean that Huawei's automotive business needs to submit a passable financial report card by the end of this year.

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