On November 27, 2023, Chongqing Changan Automobile (SZ: 000625) issued an “Investment Cooperation Memorandum” stating that Huawei plans to form a new company mainly engaged in automotive intelligent systems and component solutions. Changan Automobile plans to invest in the target company (holding no more than 40% of the shares) and carry out strategic cooperation. The final transaction documents will be signed before May 25, 2024.
At the beginning of 2024, Changan Automobile Chairman Zhu Huarong asked three “whether” about Huawei's smart selection model in public – does it comply with industry rules? Does it comply with industrial policy requirements? Does it protect the fundamental interests of users?
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It seems that Changan Automobile does not plan to choose Yu Chengdong's favorite “Huawei Smart Selection” mode.
In 2023, Changan Automobile's revenue will be 151.3 billion, a year-on-year increase of 24.8%; excluding non-net profits of 3.78 billion, a year-on-year increase of 16.2%.
In Q1 of 2024, Changan Automobile's revenue was 37 billion, a year-on-year increase of 7.1%; non-net profit after deducting was only 110 million, a year-on-year decrease of 91.8%.
Changan Automobile's situation is mixed, but despite some reluctance, it is still actively promoting cooperation with Huawei.
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Once upon a time, “One out of every three parts of the world”
Changan Automobile started from the production and sales of mini cars and engines. In 1995, sales reached 66,000 vehicles (average price 36,000 yuan), ranking first in the country in market share.
In 2002, Changan Automobile sold 270,000 vehicles (including minivans, Alto, Antelope and other models). Ranking fourth after SAIC, FAW and Dongfeng. Among them, the sales volume of minivans reached 152,000 units, with an average price of 39,000 yuan; the sales volume of Alto sedans was 48,800 units, with an average price of 38,000 yuan. Although the grade is not high, the net profit margin is not low. The net profit of a bicycle is about 3,000 yuan.
In 2003, Changan Automobile's sales reached 410,000 vehicles, still ranking fourth in the country, including:
The main products of Changan Suzuki (holding 51% of the shares) include SC7130 series Antelope sedans and SC7080 series Alto sedans. In 2003, revenue and net profit were 4.59 billion and 380 million respectively;
The main products of Changan Ford (holding 50% of the shares) include Fiesta and Mondeo series sedans, with revenue of 520 million in 2003;
The main products of Nanjing Changan (holding 63.33% of the shares) and Hebei Changan (holding 89.8% of the shares) are mini trucks/trucks (including SC1013, SC1010, SC6330, SC1011, SC1016 and other series), with a total sales revenue of approximately 1.5 billion.
In 2003, the combined sales of Nanjing Changan and Hebei Changan accounted for one-third of China's minibus/truck market.
In 2004, Changan Automobile listed on the A-share market and raised approximately 1.1 billion yuan.
It’s no longer the same company
Changan Automobile's profits come from two sources: one is the production and sales of its own brand cars (entity operations); the other is investment income calculated according to the equity method (investment control).
The invested companies are divided into two categories: one is joint ventures (the shareholding ratio is greater than or equal to 50%), including Changan Ford and Changan Mazda (Changan Peugeot was liquidated in April 2000); the other is associates (the shareholding ratio is less than 50%). %).
From Changan Suzuki, Changan Ford, and Changan Mazda, equity investment gains and losses (equity method) have a decisive impact on Changan Automobile's performance, especially Changan Ford (Changan Automobile holds 50% of the equity).
Changan Suzuki
Changan Suzuki is the first joint venture invested by Changan Automobile, with a shareholding ratio of 50%. It mainly produces Alto mini cars.
In 1996, Changan Suzuki's investment income based on the equity method was negative 21.26 million yuan.
In 2009, Changan Suzuki's revenue reached 9.3 billion yuan, but it only contributed 40.16 million yuan in investment income;
In 2011, the investment income contributed by Changan Suzuki soared to 94.5 million yuan and then fell back. In 2012, it fell back to less than 50 million yuan, and in 2013 it was only 918,000 yuan; #Alto can’t be sold anymore#
Changan Ford
In 2001, Changan Automobile invested in Changan Ford, holding 26% of the shares;
In 2003, Changan Automobile acquired 24% of Changan Ford's equity from Changan Group, bringing its shareholding ratio to 50%.
In 2009, Changan Ford's revenue reached 37 billion, net profit was 1.69 billion, and investment income was 835 million;
In 2014, Changan Ford's revenue reached 106.4 billion and net profit was 14.4 billion, bringing 7.15 billion investment income to Changan Automobile, equivalent to 98.2% of non-net profit.
In 2016, Changan Ford's net profit reached 18.2 billion, bringing 9.03 billion investment income to Changan Automobile, equivalent to 95.6% of non-net profits!
In 2017, the investment income contributed by Changan Ford exceeded the non-net profit of Changan Automobile!
In 2018, Changan Ford's revenue plummeted, with a net loss of 800 million, bringing an investment loss of 416 million to Changan Automobile;
In 2023, Changan Ford's sales volume will be 236,000 vehicles, and investment profits and losses recognized under the equity method will be negative 712 million. The book balance of equity investment returns to zero at the end of the year.
However, the cooperation between Changan and Ford has not ended. The two parties have newly established “Changan Ford New Energy Vehicle Technology Co., Ltd.” and the first strategic product CX810 is being promoted in an orderly manner.
Changan Mazda
In 2012, Changan Mazda was separated and newly established; in 2013, it contributed investment income of approximately 50 million yuan;
In 2014, investment income of 510 million was recognized according to the equity method; in 2015, it increased to 830 million;
In 2018, Changan Mazda contributed 1.26 billion in investment income, mitigating the impact of Changan Ford's plummeting performance. The listed company's non-net profit was negative 3.2 billion;
In 2019, Changan Mazda contributed 930 million in investment income, but Changan Ford lost 1.93 billion and Changan Peugeot lost 1.11 billion… In the end, the listed company Changan Automobile's net loss after deducting non-profits reached 4.8 billion;
As of the end of 2023, the book balance of Changan Mazda's equity investment is 880 million;
That year, the investment income contributed by one of its joint ventures (Changan Ford) accounted for 90% of the net profit. Today's Changan Automobile is no longer the same company.
The rise of independent brands
1) Sales bottomed out and rebounded
In 2016, Changan Automobile's sales began to decline after reaching 3.06 million vehicles; in 2017, it fell 6.2% to 2.87 million vehicles; in 2018, it fell 27.8% to 2.14 million vehicles; in 2019, it fell to the bottom, with sales of 1.76 million vehicles.
In 2020, Changan Automobile's sales began to slowly rebound; in 2022, sales volume will be 2.35 million vehicles.
In 2023, Changan Automobile will sell 2.55 million vehicles, a year-on-year increase of 8.8%, which is approximately 83.3% of the peak in 2016.
In Q1 2024, Changan Automobile sold 692,000 vehicles, a year-on-year increase of 13.9%.
The sales volume fell off a cliff after reaching its peak, and the root cause was the joint venture brand; the bottoming out in recent years was due to the rise of independent brands.
2) The rise of independent brands
Changan Automobile owns five independent brands: Changan Qiyuan, Changan Gravity, Changan Kaicheng, Shenlan and Avita.
In Q3 of 2021, self-owned brand sales were 385,000 vehicles, accounting for 72% of total sales; including 34,000 new energy vehicles, accounting for 8.9% of self-owned brand sales;
In Q3 of 2022, self-owned brands sold 423,000 vehicles, accounting for 76% of total sales; including 71,000 new energy vehicles, accounting for 16.9% of self-owned brand sales;
In Q3 of 2023, self-owned brands sold 529,000 vehicles, accounting for 81% of total sales; including 131,000 new energy vehicles, accounting for 24.7% of self-owned brand sales;
For the whole year of 2023, the total sales of self-owned brands will reach 2.1 million vehicles, accounting for 82.2% of the total sales: 474,000 new energy vehicles were sold, accounting for 22.6% of the sales of self-owned brands.
In Q1 of 2024, self-owned brand sales will be 589,000, accounting for 85% of total sales; including 129,000 new energy vehicles, accounting for 21.9% of self-owned brand sales.
The new energy transformation has achieved initial results, but it lags behind the broader market – in April 2024, the wholesale penetration of China's new energy vehicle manufacturers has reached 40%; the penetration rate of independent brand new energy vehicles has reached 53.6%.
Cooperation with Huawei
Changan Automobile clearly intends to take a two-pronged approach: while working hard to build its own Qiyuan and Deep Blue, while actively promoting external cooperation. For example, it established joint ventures with Huawei and Horizon.
1) Avita is hardly successful
In 2017, Changan and NIO reached a strategic cooperation, and in 2018, Changan NIO officially established a joint venture.
No substantial progress was made in the following years, and the joint venture was renamed Avita Technology in 2021. Introducing CATL, signing a contract with Huawei, and establishing the “CHN” model (Chang'an, Huawei, CATL).
In 2023, Avita will sell less than 30,000 vehicles, which is far from the sales target of 100,000 vehicles. Annual revenue was 5.64 billion and net loss was 3.69 billion (net loss in 2022 was 2.02 billion). According to the equity method, Changan Automobile confirmed an investment loss of 1.58 billion.
In 2023, Changan Automobile sold 474,000 new energy vehicles, with Avita accounting for less than 6%.
Sales are not ideal and losses have not narrowed. It is difficult to say that Avita is a success. But in 2023, Changan Automobile will invest an additional 1.23 billion in Avita.
At the same time, Changan Automobile spent 1.33 billion to increase its holdings in Deep Blue Automobile, with its shareholding reaching 51%. From February 1, 2023 to the end of the year, Deep Blue Automobile's revenue reached 25.88 billion, approximately 4.6 times that of Avita.
While Changan Automobile maintains its sincerity and patience in cooperating with Huawei, it also strives to cultivate its own brand, especially Deep Blue.
2) Accommodate each other
On January 16, 2024, Huawei invested 1 billion to register and establish “Shenzhen Yinwang Intelligent Technology Co., Ltd.” (hereinafter referred to as “Yinwang Intelligent”).
Huawei plans to inject its smart car solutions business (including core technologies and personnel) into the new company, and promises “not to engage in business that competes with the target company's business scope.”
Smart cars are not Huawei's “main channel business” and there is no hope of “closed loop”. Divesting means no longer burning money for it. The new company must be responsible for its own profits and losses and find its own rice.
On April 24, 2024, Huawei Auto BU made its debut after independence and released a smart car solution called “Huawei Qiankun”.
The most important shareholder and strategic partner of the new company is Changan Automobile. According to the “Cooperation Memorandum” signed by the two parties on November 25, 2023, the equity limit of Changan Automobile and its related parties is 40%.
The height reached by Changan Automobile in 2016 is ten times higher than the historical highs of JAC and Xiaokang. Even BYD will not be able to break it until 2024.
As the saying goes, “A skinny camel is bigger than a horse.” Moreover, Changan Automobile is a well-established state-owned enterprise. It is very rational for Huawei to choose Changan Automobile as its main partner to establish a joint venture.
On May 6, 2024, Changan Automobile issued an announcement stating: “The two parties are conducting further negotiations on key terms” and it is expected to sign the final transaction documents no later than August 31 (three months later than the original plan).
As we all know, Huawei's smart car BU has three cooperation models with car companies: upper, middle and lower: Shangce is the smart car selection model, with Cyrus, JAC, Chery, etc. in-depth cooperation with Huawei; Zhongce is the HI model, and only Changan Automobile Avita's subsidiary adopts the parts supplier model.
However, Changan Automobile only accepts the middle strategy, that is, the HI model, and Huawei must accommodate it. Because the establishment of Yinwang Intelligence is the winner of Huawei's automotive business, but it is not Changan's.
According to Yu Chengdong, Thalys, JAC, BAIC, and Chery have all received invitations to participate in the company, and Dongfeng and FAW are also potential investors. However, the above-mentioned car companies have not yet made clear investment intentions.
