Huawei and Seres Take on Tesla Amidst Fierce EV Battles
In the fast-paced world of electric vehicles (EVs), Chinese tech giant Huawei Technologies and automotive company Seres Group have made headlines with the successful launch of their collaborative AITO M7 SUV. Despite strong market responses, the partnership faces significant challenges, especially in the wake of Tesla's aggressive price war moves in China's hyper-competitive EV market. This analysis explores the profit-sharing tensions, margin pressures, and what the future holds for this unique tech-automaker alliance.
AITO M7: Explosive Market Response
The AITO M7, developed jointly by Huawei Technologies and Seres Group, garnered an impressive 80,000 orders within the first 50 days after its launch in China on September 12. The vehicle, featuring Huawei's in-car operating system Harmony OS, offers three variants with prices ranging from 249,800 yuan (US$34,434) to 309,800 yuan. Huawei has even committed an additional investment of 1 billion yuan (US$136.5 million) to ensure timely deliveries of the M7. The vehicle's success demonstrates Huawei's brand power and the appeal of its smart cabin technology, which includes seamless integration with Huawei smartphones and IoT devices.
The Profit-Sharing Dilemma
Despite the strong market response, Seres is facing a challenging situation under the profit-sharing arrangement with Huawei. The net profit for an EV priced at around 300,000 yuan is approximately 35,000 yuan. Under the current model, Seres stands to make only about 3,000 yuan per vehicle, with the bulk of the profit going to Huawei, which contributes software and high-end electronic parts. This represents a 90-10 revenue split in Huawei's favor—a stark reality for the manufacturing partner.
Seres: Growth Without Profitability
Seres has been striving to gain popularity through its partnership with Huawei, even at the cost of enduring financial losses. While the company experienced a surge in EV sales, reaching 135,100 units in 2022 (a 226% increase from 2021), these sales did not translate into improved financial performance. In fact, Seres reported a net loss of 3.82 billion yuan despite the strong market response. The company's stock has underperformed as investors worry about the sustainability of selling cars at thin or negative margins. This pattern reflects a broader challenge for Chinese EV startups: capturing market share while bleeding cash, reminiscent of Tesla's early "production hell" years.
Tesla's Price War Reshapes the Landscape
The price war initiated by Tesla further complicates the landscape. In response to slowing sales growth, Tesla reduced its prices in China starting in late 2022, prompting other market players, including AITO, to follow suit. AITO slashed prices of its M5 model by 30,000 yuan this year, almost eliminating its already thin profit margins. The Model Y now starts at around 260,000 yuan in China, putting direct pressure on the AITO M7's pricing window. Tesla's aggressive pricing strategy has forced every competitor to re-evaluate their cost structures, benefiting consumers but squeezing manufacturers across the board.
BYD vs. The Rest: A Tale of Two Strategies
While smaller players like Seres focus on price reduction and survival, larger players like BYD are investing in vertical integration and cost reduction. BYD's advantage comes from controlling its entire supply chain—from battery cells (Blade Battery) to semiconductors to final assembly. The company has achieved industry-leading gross margins of over 20% on its EVs, even as it lowered prices. However, analysts caution against excessive emphasis on cost reduction alone, emphasizing the importance of continuous investment in software and hardware capabilities. As the EV market evolves, establishing intelligent ecosystems related to automobiles and fostering new brand cultures are essential for long-term success. Huawei's Harmony OS ecosystem gives the AITO brand a genuine differentiator, but Seres must find a way to turn volume into profit.
Global Context: Surging EV Adoption
In the global context, EV sales have surged, with a 49% growth in the first half of 2023, constituting 16% of the global light vehicle market. China remains the largest EV market, representing 55% of global EV sales in the first half of the year, with 3.4 million units sold, a 43% increase from the previous year. The European Union and United States follow, though both have implemented tariff barriers on Chinese-made EVs to protect domestic manufacturers. This global backdrop makes the Huawei-Seres partnership strategically important: if successful, it could serve as a template for other tech-auto collaborations worldwide.
What's Next for Huawei, Seres, and Tesla?
As Huawei, Seres, and other players navigate the complex terrain of the EV market, their strategies and innovations will shape the future of electric mobility. For Seres, the path forward may require renegotiating the profit-sharing agreement with Huawei or diversifying its manufacturing partnerships. Huawei, meanwhile, must decide whether to deepen its automotive involvement—potentially by taking an equity stake in Seres or launching its own brand—or remain a technology supplier. Tesla continues to leverage its manufacturing efficiency and brand cachet to maintain pressure on all competitors. This three-way dynamic makes China's EV market the most competitive and innovative in the world, with outcomes that will influence global automotive trends for years to come.
Key Takeaway: The AITO M7's 80,000 orders prove consumer appetite for Huawei's smart driving technology. But the brutal math of EV profitability—amplified by Tesla's price war—means that success in China's EV market now requires not just great products, but sustainable unit economics. Seres is learning this lesson the hard way.
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