An electric vehicle (EV) jointly developed by Huawei Technologies and Seres Group has received strong market responses in the first 50 days after its launch, having a good start in a competition against Tesla’s revamped Model Y.
AITO M7 SUV has received more than 80,000 orders within the first 50 days after its launch in China on September 12, exceeding the two partners’ expectations, according to AITO, a unit of Huawei and Seres. The M7 offers three options with a starting price of 249,800 yuan (US$34,434), 284,800 yuan and 309,800 yuan. Huawei has reportedly committed 1 billion yuan (US$136.5 million) of additional investment to guarantee delivery of the M7.
AITO, which refers to “Adding Intelligence to Auto,” was formerly known as Huawei AITO until April this year. Its EVs use Huawei’s in-car operating system Harmony OS. AITO also said that its next model, M9, which will be ready for sale next month, has received 15,000 pre-sale orders.
But a favorable market response, in this case, does not equate to financial success for all concerned – yet, at least. In the three years ended last year, Seres has already reported a combined net loss of 9.7 billion yuan. Besides, Seres is also facing rising competition from Huawei’s other business partners, including Xiaopeng and JAC Motors.
The problem, an auto expert says, is that the net profit on an EV priced at around 300,000 yuan is about 35,000 yuan. He says that under its profit-sharing model, Seres can only make about 3,000 yuan while the rest all goes to Huawei, which contributes software and high-end electronic parts.
In the first three quarters of this year, Seres generated revenue of 16.68 billion yuan, down 27.8% from the same period of last year. It recorded a net loss of 2.29 billion yuan in the first nine months of 2023, compared with a net loss of 2.68 billion yuan a year earlier.
Price war
The successful launch of M7 will not be enough to help Seres stop bleeding, say some Chinese commentators. But commentators say Seres is willing to tolerate losses as it wants to gain popularity by partnering with Huawei.
Last year, Seres sold 135,100 units of EVs, up 226% from 2021, thanks to the strong market responses for the launch of AITO M5. But the company still reported a net loss of 3.82 billion yuan.
“The increase in EV sales does not mean that Seres can improve its financial performance,” says a columnist of OFWeek, a B2B marketplace connecting China manufacturers and suppliers with buyers. “Seres reported strong EV sales performance only after it made a huge investment in research and development. Its profit from EV sales was too small to recover the investment.”
In the first three quarters of this year, Seres’s R&D expenses grew 20.4% to 1.09 billion yuan in the same period of 2022.
In late 2022, Tesla started a price war in China as its sales growth started to slow, prompting other market players to follow suit.
The price war helped boost the company’s EV sales by about 56% to 625,000 units in the first eight months of this year from 400,000 a year earlier.
On September 1, the American firm cut the prices of its basic Model S sedan by 14% to 698,900 yuan (US$96,200) and its entry-level Model X sport utility vehicle by 17.8% to 738,000 yuan.
To survive in the price war, AITO slashed prices of the M5 by 30,000 yuan this year, meaning that it almost gave up all its margins, Chinese media said.
After seeing a stabilized sales growth these two months, Tesla on Tuesday increased the prices by 14,000 yuan for its updated version of Model Y, one of the best-selling EVs in China.
After the adjustments, the three Model Y variants are currently listed at 263,900 yuan, 299,900 and 363,900. They were unveiled on October 1 with new features such as different ambient lighting, upgraded finishings and a new wheel design.
Cost reduction
While smaller players are cutting prices, bigger players are cutting costs.
However, cost reduction may also not be a good strategy for this moment, said some analysts.
“Price wars have caused more automakers to focus on cost reduction, but excessive emphasis on cost reduction can lead to decreased investment in new technology,” Jason Low, principal analyst at Canalys, a technology market analyst firm, says in a research note published on October 2.
“With electrification and smart technologies, automobiles have transitioned from mature industrial products to continuously iterative technological products,” Low says. “Automakers must rapidly improve their software and hardware capabilities, establish intelligent ecosystems related to automobiles, and cultivate new brand cultures and automotive concepts.”
He adds that the Tesla-led price war has been challenging for smaller brands but bigger players such as BYD have more resources to help their businesses survive.
BYD is now the No.1 EV seller in China with a 35% market share, followed by Tesla (10%) and AION (6%), according to Canalys. AION is an EV unit of Chinese state-owned automaker Guangzhou Automobile (GAC).
In the first half of this year, global sales of EVs grew by 49% to 6.2 million units, according to Canalys. EV constituted 16% of the global light vehicle market during the period, compared with 12.4% in the first half of 2022.
China sold 3.4 million units of EVs in the first half, up 43% from a year ago. The country remained the largest EV market, representing 55% of global EV sales in the first half.
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