17 years of hibernation, relying on Dongfeng

On June 27, 2003, a joint venture automotive company named Dongfeng Yu'an was established.

This small event unexpectedly pioneered several industry precedents.

On one side of the company's preparation, there were the renowned Dongfeng Motor and Dongfeng Industrial Corporation, while on the other side was the little-known private enterprise Yu'an Group.

Even more surprisingly, Yu'an Group only invested 50 million yuan and obtained 50% of the company's shares. Naturally, Zhang Xinghai, the helmsman of Yu'an Group, also became the general manager of this company.

20 years ago, it was almost unheard of for private enterprises to collaborate with large state-owned car factories to build cars. What's more, it was able to snatch the control from state-owned enterprises.

As a result, after the three parties signed the contract, a responsible person from Dongfeng Motor praised Zhang Xinghai, saying, "You won this negotiation."

The creator of this miracle is Zhang Xinghai.

Unlike early private entrepreneurs like Li Shufu, Wang Chuanfu, and Wei Jianjun who built cars, his car-making philosophy is slightly unconventional.

Zhang Xinghai understands clearly: the automobile industry requires significant investment and a long supply chain, not just anyone can enter it. It must possess advantages in products, brands, talents, and technology.

In other words, Zhang Xinghai firmly believes that private enterprises cannot succeed by going it alone. This philosophy has since permeated Zhang Xinghai's entire car-making journey.

In this way, Zhang Xinghai relied on Dongfeng, one of the top three Chinese automakers at the time, to enter the market through a joint venture.

To say that Zhang Xinghai borrowed Dongfeng purely by luck is unfounded. The trust and reputation accumulated over 17 years may be the key.

In fact, Zhang Xinghai has a profound connection with Dongfeng.

In 1986, Zhang Xinghai took out a considerable sum of 8,000 yuan at the time and founded the Baxian Phoenix Electrical Spring Factory. Since then, it has produced seat springs for Changan Automobile.

In 1996, Zhang Xinghai founded Chongqing Changan Shock Absorber Co., Ltd., producing shock absorbers for motorcycles and cars. Soon, he made a name for himself, and his company's motorcycle shock absorbers had been the industry leader in production and sales for 13 consecutive years.

Based on this foundation, Zhang Xinghai decided to take it a step further: in 2002, he entered the motorcycle manufacturing field and began manufacturing motorcycles himself. However, the weather did not cooperate, and the subsequent "motorcycle restriction order" caused this plan to fail.

But precisely at this time, Zhang Xinghai caught up with Dongfeng Motor Company's search for partners. Facing Dongfeng Motor's olive branch thrown into society, Zhang Xinghai sensed an excellent opportunity to enter the automotive industry and seized this rare opportunity.

From automotive seat springs to shock absorbers, from failed motorcycle ventures to joint ventures with Dongfeng to manufacture minivans, Zhang Xinghai gradually entered the core area of passenger car manufacturing.

Although lucky, the price Zhang Xinghai paid was also significant. From 1986 to 2003, this private entrepreneur spent a full 17 years just to reach the threshold of car manufacturing.

Successful in building a well-off society, but a failure in new energy

Although Zhang Xinghai had a strong desire to build cars, he achieved good results in every field.

When he made motorcycle shock absorbers in 1996, his company was the industry leader in production and sales for 13 consecutive years.

After 2003, the Dongfeng Xiaokang brand minivan he jointly manufactured with Dongfeng once shared the market with Wuling Hongguang and Chang'an Star.

In 2007, Chongqing Xiaokang Automobile Group Co., Ltd. was established and renamed Chongqing Xiaokang Industrial Group Co., Ltd. in 2011. This is the well-known Xiaokang Corporation, from which Seres evolved. In 2011, Dongfeng Xiaokang minivan sales exceeded 1 million vehicles.

Five years later (in 2016), relying on this small niche market of minivans, Zhang Xinghai took Xiaokang Corporation to the capital market and listed it.

But this was still far from enough for Zhang Xinghai, who aspired to build cars. Moreover, at this time, Zhang Xinghai already had greater confidence and strength, and he planned to showcase his ambitions in the broader passenger car market.

Just like seizing the opportunity to collaborate with Dongfeng Motor, Zhang Xinghai also sensed the wind of new energy. But crises and challenges also came with it.

In 2016, Zhang Zhengping, Zhang Xinghai's son who was only 27 years old at the time, established a new energy automotive company called "SF Motors" in Silicon Valley, USA. Subsequently, SF MOTORS was renamed SERES (the origin of Seres).

At the time, few people were optimistic about Seres, seeing it as a mere car-making farce by the "second generation."

But Zhang Zhengping's next big move soon proved everyone wrong. Seres not only recruited Martin Eberhard, the first CEO of Tesla, but also acquired his company and team, obtaining "three-electric" technologies such as electric drive systems, control systems, and battery systems.

In a sense, Eberhard is the true "father of Tesla." He is not only the founder but even the Tesla brand name is derived from him. Additionally, he built Tesla's earliest prototype, the Tzero.

Afterward, SF Motors collaborated with the University of Michigan to establish an autonomous driving research center and obtained an autonomous driving road test license issued by the State of California in the United States.

In China, "Jinkang New Energy," a subsidiary of Xiaokang Corporation, also launched a 2.5 billion yuan pure electric passenger car construction project. In 2017, Xiaokang Corporation obtained the eighth new energy production qualification in the country, and new energy vehicles became the company's core strategy.

From all appearances, both Zhang Xinghai and his son Zhang Zhengping were poised to make a big splash in the new energy race.

They did not hesitate to act. On the evening of March 28, 2018, Zhang Zhengping held an event at the Silicon Valley headquarters to showcase his four-motor technology platform and launch two pure electric SUVs - SF5 and SF7.

At that time, Zhang Zhengping boasted that SF had independently developed core three-electric technologies and autonomous driving technology, stating that "technology is SF's core competitiveness."

But reality played another joke. Until 2020, Seres SF5's annual sales were only 791 vehicles.

With minimal output, significant movement, and staggering investment. SF, established in 2016, had its original investors as Xiaokang Corporation. It was the significant financial support from Xiaokang Corporation that enabled SF to complete research and development layouts in four countries - China, the United States, Japan, and Germany - around 2018, set up dual manufacturing bases in China and the United States, and complete a 200,000-vehicle production capacity layout.

However, the new energy strategy soon dragged down Xiaokang Corporation. According to incomplete statistics, from 2016 to 2022, Xiaokang Corporation successfully raised funds three times (with one failure), with a cumulative net fundraising amount of 13.573 billion yuan. These funds were primarily invested in the field of new energy vehicles.

Including 6 billion yuan in equity investment, nearly 10 billion yuan in research and development expenses, and nearly 4 billion yuan in production capacity investment, Xiaokang Corporation invested at least 20 billion yuan in the field of new energy vehicles in the six years after its listing.

Zhang Zhengping's new energy globalization strategy suffered a significant setback.

Relying on Huawei and struggling with AITO

Father and son work together in the car-making arena.

As Zhang Zhengping struggled overseas, his father had to take matters into his own hands.

Just as he relied on Dongfeng Motor in the past, Zhang Xinghai began to look for a new variable for Xiaokang New Energy.

Precisely at this time, a national brand more famous than Dongfeng emerged.

In 2019, Huawei's BU business was established, and Huawei positioned itself as not building cars but mainly focusing on ICT technology to help enterprises build good cars.

In 2020, Yu Chengdong was appointed as the director of the Intelligent Terminal and Intelligent Automobile Components IRB and later concurrently as the CEO of the Intelligent Automobile Solutions BU, becoming the de facto leader of Huawei's automotive business.

Under Yu Chengdong's leadership, Huawei's Intelligent Vehicle BU explored three paths: component supplier, HI mode, and Smart Selection mode.

The component supply model has long existed. Before the establishment of Huawei's BU business, it had already globally supplied components such as motors and lidar. Under the HI mode, Huawei provides automakers with a full-stack integrated solution. Previously, Huawei launched the ARCFOX with BAIC BluePark and the Avita with Changan, but the market performance was mediocre.

The Smart Selection mode is the centerpiece of Huawei's car-making efforts. Under this mode, Huawei hopes to further control the entire design, research and development, and sales process of cooperating automakers and deeply participate in car manufacturing.

Huawei was urgently looking for an OEM to realize its car-making dream, while Seres also urgently needed a major manufacturer to empower its technology and brand. The two manufacturers, with a shared mindset, instantly completed a deep bond.

After two years of collaboration, the AITO M5 and M7 were launched in 2022.

Zhang Xinghai once again made the right bet. In March 2022, the AITO M5 accounted for 41% of the group's new energy vehicle deliveries in its first month on the market. Since then, the entire AITO series has accounted for up to 90% of the group's new energy vehicle sales.

Perhaps out of a desire to strengthen the new energy brand and strategy, Xiaokang was directly renamed Seres this year.

On the other hand, the popularity of AITO has also created a high dependence of Seres on Huawei.

A discussion about whether AITO belongs to Huawei or Seres was quietly brewing. Even more, many people directly characterized Seres as AITO's "OEM factory."

On the AITO official website, the detailed introduction pages based on the models are all "jointly designed by Seres and Huawei," with Seres in front and Huawei behind.

However, Yu Chengdong once said without any disguise that AITO is Huawei's ecological car, and the AITO ecological brand is a Huawei-led ecological brand.

This extremely subtle and uncertain relationship ultimately affected AITO's sales.

In early 2023, AITO's sales halved. In February, AITO stopped announcing delivery volumes altogether. However, from August to December of the previous year, AITO's average delivery volume exceeded 10,000.

Coincidentally, at this time, the voices calling for Huawei to independently build cars were once again loud.

On March 8, 2023, AITO's official Weibo account posted a promotional poster. Among them, "AITO AITO" became "HUAWEI AITO." Huawei's terminal quickly reposted the Weibo, but Seres, as the actual OEM, did not make any indication.

At the end of March 2023, Huawei held an internal vote, and Ren Zhengfei signed a resolution for the automotive business: "Huawei does not build cars," valid for five years.

In this way, both parties ended their tug-of-war. AITO began to grow again.

38 years of car-making, finally swallowing AITO

From April to May 2023, AITO's sales grew by over 20% for two consecutive months.

On September 12, 2023, the new AITO M7 was officially launched. In its first month on the market, the cumulative orders exceeded 60,000 vehicles, and in 50 days, the cumulative orders exceeded 80,000 vehicles.

This is of course related to Huawei and Yu Chengdong's vigorous promotion. In October 2023, during the period when AITO's production capacity was the tightest, Yu Chengdong even appeared at Seres' smart factory to personally oversee vehicle production speed and quality. At that time, Yu Chengdong said, "We are working overtime and continuously to ensure that everyone can take their new cars home as soon as possible!"

With the help of AITO, Seres' new energy vehicle sales in the fourth quarter of 2023 reached 82,700 vehicles, representing a quarter-on-quarter growth of 253%. Seres' revenue in the fourth quarter accounted for 58% of the annual total. In the first quarter of this year, Seres' sales reached 114,138 vehicles, representing a year-on-year surge of 172%.

On the morning of June 26, HarmonyOS Intelligent Mobility officially announced that AITO M9's half-year sales exceeded 100,000 vehicles, topping the list of luxury cars priced above 500,000 yuan.

According to data from the China Association of Automobile Manufacturers, the total sales of 500,000 yuan cars in China in 2023 were 560,000 vehicles, estimated at 280,000 vehicles for half a year. Based on these data, the market share of the AITO M9 model alone may reach 35.7%.

Even more impressive than the market sales is AITO's ownership.

On the evening of July 2, Seres announced that its holding subsidiary, Seres Automobile, intends to acquire 919 registered or pending trademarks related to AITO and other series of textual and graphic trademarks, as well as 44 related design patents, held by Huawei and its affiliates. The total acquisition price is 2.5 billion yuan.

According to the asset evaluation report released by Seres, the market value of the AITO-related trademarks and design patents to be transferred by Huawei exceeded 10.2 billion yuan on the evaluation base date of May 31, 2024.

In response, Huawei said, "Transferring the AITO and other series of trademarks to Seres will continue to support Seres in manufacturing and selling AITO well."

What Seres acquired for 2.5 billion yuan is not just a trademark but also the ownership of the entire AITO brand. This also means that Huawei's car-making efforts have taken a step back and moved behind the scenes, while Seres has stepped forward onto the stage.

In addition to acquiring the AITO brand, Seres Auto previously announced the repurchase of a 55% stake in Seres Electric from Qingyun Chuangfu and Saineng Fund for over 1.254 billion yuan. Based on the end-of-March valuation of Seres Electric's net assets at 785 million yuan, this acquisition comes at a premium of over 190%.

Moreover, Seres implemented an accounting estimate change, adjusting the amortization period for non-patent technology from 8 years to 5 years. This adjustment alone is projected to dilute Seres' profits by over 400 million yuan in 2024.

Seres' lavish spending indicates a company that is neither short of money nor afraid to spend it.

In the first quarter, Seres not only surpassed Li Auto in sales but also became the fourth globally profitable new energy vehicle company, following Tesla, BYD, and Li Auto. The current hot sales of the new M7 and M9 models give Seres even more confidence.

Reflecting on the development of AITO, Zhang Xinghai summarized it as: “Eight years of perseverance, three years of cross-industry integration, and three smart electric vehicle models.”

If we take a longer timeline, starting from Zhang Xinghai’s entrepreneurial beginnings in 1986, it can be summarized as:

- 38 years ago, manufacturing car seat springs and becoming a supplier for Dongfeng Motor;

- 28 years ago, producing motorcycle shock absorbers and becoming an industry leader;

- 22 years ago, venturing into motorcycle manufacturing, but facing unfortunate failure;

- 21 years ago, partnering with Dongfeng Motor to produce micro cars, capturing one-third of the market;

- 8 years ago, entering the new energy vehicle sector, investing billions, and struggling;

- 4 years ago, collaborating with Huawei, successfully launching the AITO brand and achieving multiple firsts;

- 3 days ago, acquiring the trademark, thus gaining full control over AITO.

Everything seems to be progressing along the grand automotive path Zhang Xinghai has envisioned.

If we start counting from the launch of Sokon micro cars in 2003, Zhang Xinghai has been in the car manufacturing business for 21 years. However, if we start from 1986, when he first entered the automotive supply chain, Zhang Xinghai has been in the automotive industry for 38 years.

Over these two decades, Zhang Xinghai initially partnered with Dongfeng to enter the micro car market and later joined forces with Huawei to build the AITO brand, charting an alternative path for private automotive entrepreneurs.

This path has been long, winding, and full of compromises, yet also marked by strategic pauses and commendable achievements.

However, Zhang Xinghai now faces a new challenge: Without Huawei, can AITO still be the same AITO?