SAIC sells its 'soul' to Huawei to engineer a reversal of flagging sales

Editor's note:

This is the first instalment of a two-part series examining the recent agreement between Huawei Technologies and state-owned carmaker SAIC to collaborate on a new Huawei-powered smart vehicle venture.

Huawei, a Chinese multinational involved in telecommunications, consumer electronics, chips and sensor technology, has joined forces with state-run carmaker SAIC to launch a car venture called Shangjie, China Business News reported on February 17.

Under the agreement, Shanghai-based SAIC and Huawei's auto unit will sell Shangjie models through Huawei's Harmony Intelligent Mobility Alliance channels.

This collaboration marks a timely and much-needed shift for SAIC under new leadership and yet another milestone for Huawei, following previous partnerships with automakers that include Seres, BAIC, JAC and Chery.

What makes this development notable is that SAIC was once considered the least likely carmaker to team up with Huawei.

At a 2021 shareholder meeting, SAIC's then-chairman Chen Hong flatly opposed the idea of relying on a third-party supplier like Huawei for developing an entire vehicle. He argued that such a move would reduce SAIC to the "body" while selling its "soul," essentially stripping the company of its control.

Chinese media broke the news in November 2024 that the two sides were engaged in advanced talks on an eye-popping about-face.

The union between two strange bedfellows came as some automakers remain cautious about working with Huawei, fearing a loss of control over their brand identity and technological direction.

Shifting balance of power

SAIC initially refused to join hands with Huawei mainly for two reasons.

First, Huawei's car business was still in its infancy in 2021. The only automakers that came onboard at the time were Chongqing-based Seres, formerly known as Sokon, and state-owned BAIC. Industry reaction was generally lukewarm, with a wait-and-see attitude.

The Aito series, which Seres co-developed with Huawei, had just been launched and was no where near the level of success it enjoys today.

In contrast, SAIC, established in 1997, was a local powerhouse with a much stronger position in the auto industry than Huawei.

The second reason was that no established automaker, domestic or foreign, would want to outsource the entire vehicle development process to a third-party supplier.

Picture this scenario. Suppose Mercedes-Benz were to delegate key vehicle components like the chassis, cabin and powertrain to leading suppliers such as Bosch or Continental. What role would Mercedes-Benz be left with? It would essentially become an assembly line merely contract-manufacturing for suppliers. No legacy automaker would tolerate that scenario.

This is the context for understanding the "soul" comments by SAIC's Chen.

For those who may not be aware, Huawei entered the auto business in 2019, ostensibly with the goal of "enhancing the intelligence of existing automakers, rather than building cars itself."

Over the years, it has spared no effort to dispel any speculation of its direct involvement in the auto sector, positioning itself as an "enabler of intelligent, connected cars" to allay concerns that it might threaten its allies.

Leveraging its multi-field technical experience, Huawei's auto affiliate has fared swimmingly in recent years.

The three faces of Huawei's car venture

The tech titan works with automakers through three business models:

The Tier-1 model: Huawei, like others who supply directly to carmakers, offers essential auto parts such as communication modules, lidars, motor and chips.

Huawei Inside: Carmakers collaborate with Huawei on smart, connected cars, utilizing its full-stack solutions for intelligent driving and smart cockpits. A typical case is Avatr, an electric-car producer affiliated with state-owned Chang'an Automobile.

The Harmony Intelligent Mobility Alliance: Huawei dominates vehicle design, research and development, and sales, with automakers playing second fiddle as mere manufacturers. Partnerships with Seres, Chery, JAC Motors and BAIC fall under this category.

The most prominent of the three models is the latter, where the tech giant has co-developed four brands, including Aito with Seres, Stelato with BAIC, Maextro with JAC and Luxeed with Chery.

If there's any drawback to this model, it's that Huawei calls the shots, with little leverage in negotiations for the carmakers. The tables have turned.

Redeeming any sense of humiliation for the automakers involved is the fact that they stand to benefit by working with Huawei.

Aito, the first in the collaborative family of brands, is particularly successful. For much of last year, its monthly sales exceeded 30,000 units, placing it among the top contenders in the new electric car market.

A media report in November 2024 revealed that the Huawei channel had delivered over 500,000 units in just 32 months, setting the fastest delivery record among China's new-energy vehicle startups.

Challenging times for SAIC

While Huawei was on the ascendancy, SAIC was caught in a downward spiral. In the third quarter of 2024, SAIC's net profit plummeted 93 percent to 279 million yuan (US$38 million).

Its joint venture with General Motors slid 61 percent in the first three quarters. SAIC's own brands, such as MG, Roewe and Wuling, also suffered declining sales.

The only growth spot is IM Motors, a pure-play electric brand incubated by SAIC. Its deliveries rose from 10,000 units in the first quarter to 12,000 in the second, and further to 15,000 in the third. However, these sales numbers are dwarfed by rivals and still far from enough to provide any relief for SAIC's woes.

SAIC once hoped to lead the shift to electric vehicles without relying on external partners, but its ambitions have faltered due to a string of strategic missteps.

For instance, it launched two electric brands, Rising Auto and IM Motors, both priced between 200,000-300,000 yuan, but due to intense infighting, SAIC ultimately had to abandon Rising after realizing it had become a drain on resources.

Additionally, SAIC's pivot to smart vehicles has been slow relative to rivals, encumbered by its over-reliance on the ride-hailing market and government procurement. Its products have limited appeal for individual buyers.

SAIC is in critical need of change, and quickly.

(The author, a former Shanghai Daily opinion writer, now works as a business analyst and communication strategist. He has no conflict of interests to declare.)