Huawei Comeback Drive powered by Hit EV and patriotic fervor

Chinese tech giant Huawei is reviving its fortunes, not with a new smartphone, but with a speedy electric EV boosted by a wave of patriotic fervor.

Huawei has been forced to curb its global ambitions after being hit hard by a series of US and Western sanctions over allegations of industrial espionage and data privacy fears.

But now it’s on the comeback trail with an Aito M5 car that turbocharged the Chinese EV market.

It is also harnessing a growing wave of patriotism to lure consumers unhappy with Washington’s hardening view on China as President Xi Jinping calls on them to refocus the national economy by buying locally.

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The heightened sense of nationalist sentiment proves to be a powerful selling point.

Just four months after its launch, the Aito M5 outsold models from Nio and major Western brands such as Volkswagen, and even approached the sales of Tesla’s popular Model Y in July.

With 6,128 units sold in July and 26,348 sold since its launch in March, the Aito M5 made it to the list of top 10 e-SUVs in July and January-July sales compiled by the China Passenger Car Association (CPCA) – an astonishing feat for a brand that few had heard of just a few months ago.

Huawei’s flag-waving motives could also be part of an effort to steal the thunder from Apple’s planned EV announcement.

“The Aito M5 is being touted as demonstrating the cachet Huawei has to offer – and patriotic Chinese buyers want a futuristic electric vehicle from one of the country’s biggest tech companies,” said Soochow Securities analyst Huang Xili, based in Shanghai.

Riding the patriotic groundswell of China and the freewheeling inroads of electric vehicles into traditional cars, Huawei and its automotive partner Chongqing Sokon Industrial Group announced a second model, the Aito M7, in June.

The Shenzhen-based tech powerhouse is branching out into alternative home businesses after its 2021 revenue fell 28.6% to 636.8 billion yuan ($93.7 billion) amid sanctions and restrictions. Trade bans imposed by the United States over the past three years have formed a technological iron curtain that it could not break.

Semiconductor embargoes hit Huawei

Semiconductor trade embargoes have also hampered Huawei’s business in the country, with a shortage of chips to power its personal tech products eroding its revenue last year and eroding its share of the Chinese smartphone market to only 4.8%.

Graphic: Aarushi Agrawal

To offset the declines, Huawei has pledged to expand its 5G and mobile capabilities, enabling it to develop smart city solutions and act as a technology designer and consultant to Chinese local governments. Observers say electric vehicles are its boldest step yet.

“It must be cars, especially electric vehicles, to carry the new incarnation of Huawei as it seeks to expand the use of its technology and solutions,” said Zhu Dawei, analyst at Way-s, consulting firm in the automotive sector based in Shanghai and Guangzhou.

As China prepares to become the most interconnected country on the planet, super-fast 5G connectivity is set to power everything from the Internet of Things to smart cities. This includes the roads on which robo-vehicles are expected to appear in the coming years, guided by new geospatial and collision avoidance technologies.

The focus on developing China’s domestic market was institutionalized in Xi’s “double circulation” and the “common prosperity” efforts, which emphasized reformist leader Deng Xiaoping’s outward-looking growth policies that sparked the country’s economic boom in the 1980s.

More recently, the flames of whereabouts have been fanned by US sanctions, first imposed by Donald Trump in 2017 and fueled by his successor, President Joe Biden.

While some Chinese companies have found ways around the restrictions, the tone of the White House rhetoric has been seen as a serious affront to bilateral relations. The creation of a peaceful equivalent of NATO between the United States, the United Kingdom and Australia to counter growing Chinese military influence in the region has also angered Beijing.

Meng EV’s bet pays off

It’s hard not to see Huawei’s diversification – which also coincided with the “relocation of operations” to its home market – partly as a response to shifting sentiment. That the process is overseen by the Vice President and Chief Financial Officer Meng Wanzhou gives weight to the view. Meng was recently released from three years of house arrest in Canada on a US extradition order that provoked Beijing.

Whatever the motives, Huawei’s bet seems to be working.

Huawei's net profit fell 52% in the first half, according to the company.

Meng is said to be leading the company’s transition to expand the use of its Harmony technology and operating system beyond personal gadgets, Chinese automotive news portals Auto Home and iAuto Daily reported in April, and is leading Huawei’s partnerships with automakers to tap into the world’s largest electric vehicle market, according to reports.

“Huawei puts its expertise at the service of the Aito brand, introducing it to the many users of Huawei devices as a high-tech intelligent electric vehicle and transforming Huawei stores into Aito showrooms… All of this is paying off,” said Huang Xili, analyst at Soochow Securities. said.

By its specs alone, the Aito M5 is an impressive EV. It goes from zero to 100 km/h in just 4.4 seconds and is equipped with Huawei’s Android-like Harmony mobile operating system. The company’s petal-shaped logo is everywhere inside the car’s cabin, from its hi-fi speakers to its giant in-dash touchscreen running the Harmony system.

By lending its trademark look, Huawei is eager to boost Aito’s growth before more tech companies jump on the car manufacturing bandwagon. But the Huawei EV is unlikely to be immune to the woes that overwhelm all Chinese automakers.

Beijing Electric Vehicle Subsidies

It comes at a difficult time, with production and sales collapsing due to Covid lockdowns and broken supply chains. Total auto sales in China in the first seven months of the year fell 3.5% to 11 million, according to the CPCA.

Chip shortages have hampered growth in the broader auto market for two years, but that’s only one factor. Post-Covid demand for metals and other raw materials has led to supply chain bottlenecks and increased input costs.

The price of aluminum used in car bodies has reached record levels and the lithium carbonate needed for electric vehicle batteries is now 430% more expensive than a year ago. This was exacerbated by the Covid lockdowns in Shanghai between April and May, where the closure of ports and factories lengthened delivery times.

The lithium carbonate needed for electric vehicle batteries is now 430% more expensive than a year ago.  Graphic: Aarushi Agrawal
Graphic: Aarushi Agrawal

Additionally, Beijing has drawn up a plan to reduce and end subsidies for electric vehicle sales that have been in place since 2015. These incentives have already been reduced by 30% since 2022 and will be phased out completely by the end of the year.

Despite the headwinds, more and more Chinese buyers are turning to electric vehicles. China is leading the electrification of the global automotive sector with more electric vehicles on the road than any other country and at a faster rate than any other major market.

Total electric vehicle sales in 2021 reached 3.31 million, up 181% year-over-year, according to the CPCA. Sales for the first seven months of 2022 were 2.73 million, up 121.5%. China’s BYD overtook Tesla this year as the world’s largest electric vehicle maker.

Even the lack of Aito brand recognition hasn’t deterred buyers. Early adopters simply call it “the Huawei EV”.

“It’s remarkable that a new brand of electric vehicles sells over 3,000 cars in its launch month and even leaves some models from VW and Nio in its wake, but Huawei must now prove that it can maintain its momentum as Aito has entered the market while all incumbents are struggling,” said Way’s automotive specialist Zhu. “As these challenges also begin to set in for Aito, his real test begins. “

Read more:

Huawei warns of a long global recession and aims for “survival”

Huawei Says First Half Profits Dropped 52% Due to Weak Demand

Huawei records first-ever revenue slump as US sanctions bite

Frank Chen

Frank Chen is an Asia financial correspondent who covers business and finance in China with a particular focus on stock indices. He has a keen interest in real estate, transportation, infrastructure and consumer brands. He spends time in Shanghai and Hong Kong and speaks Mandarin, Cantonese and English.

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