Produced by | Tankechuxing

Designed by | Qianqian

Edited by | Songwen

Under the expectations of many, Huawei's Mate XT Extraordinary Master tri-fold phone has been launched.

According to IDC reports, Huawei's share of the Chinese foldable phone market reached 37.4% in 2023, firmly holding the top spot.

This market appeal, built on technology and brand power, is equally applicable in the automotive market.

On August 6, Yu Chengdong, Chairman of Huawei's Device BG and Intelligent Driving Solutions BU, revealed more information about Huawei's "Fourth Realm." It is reported that this brand is jointly created by JAC Motor and Huawei, targeting the high-end market with prices potentially reaching the million-yuan level.

Upon this news, JAC Motor's shares surged the following day, closing at 20.27 yuan, with a 9.98% increase.

According to the latest news on September 11, Huawei Technologies Co., Ltd. has recently transferred over a dozen word and graphic trademarks, including "Zun Jie," "MAEXTRO," and "MAS-TRO," to JAC Motor.

(Image from Pacific Automobile Network)

It can be said that the cooperation between JAC Motor and Huawei is steadily progressing.

Tankechuxing understands that the first product under the Zun Jie brand has actually entered the vehicle verification stage, with plans to roll off the production line by the end of this year and officially launch in the first quarter of next year.

As the final piece in Huawei's "Four Realms" strategy, the Zun Jie project, jointly created by JAC Motor and Huawei, has already allowed JAC Motor to reap the benefits of Huawei's "golden brand."

A recent research report by Huaxin Securities stated that in-depth cooperation with Huawei is expected to drive JAC Motor's passenger car brand upwards and recommended a buy rating for JAC Motor shares.

However, despite the market confidence brought by Huawei, JAC Motor's own performance and development have been quite sluggish. It is reported that JAC Motor has recorded negative core earnings for seven consecutive years, with the company consistently losing money.

Currently, the "shoe" of Zun Jie has yet to drop, and it remains uncertain how the market will respond and how JAC Motor will develop.

1. How will the 'big brother' transform into a new energy player and make money?

Looking at the automotive market, JAC Motor is not prominent among carmakers or Huawei's partners.

Founded in 1964 and based in Hefei, Anhui, JAC Motor is a traditional automaker covering both passenger and commercial vehicles. Its dual focus on both segments is JAC Motor's unique feature and survival strategy for a long time.

From 2006 to 2016, JAC Motor achieved rapid growth, with annual production and sales surging from 170,000 to 640,000 units, marking a qualitative leap. In comparison, BYD's annual sales were around 500,000 units during that period.

However, the advent of the new energy vehicle era and intensifying competition within the industry have pushed JAC Motor, with its slow transformation and lack of core competitiveness, to the brink of elimination.

In fact, JAC Motor, with its roots in traditional automaking, was not late to the new energy transition. As early as 2010, JAC Motor launched the JAC iEV series, embarking on its new energy layout.

At that time, new energy vehicles were scarce in the market, and new automakers had not yet truly entered the game. JAC Motor, with its early layout in new energy, garnered market attention and captured a certain market share. It is reported that in 2012, JAC iEV alone accounted for over 20% of the electric vehicle market with sales of just 2,485 units.

But good times didn't last long. As new automakers entered the market with fanfare, the penetration rate of new energy vehicles soared in the following years, and the number of players in the market also increased.

An owner who purchased a vehicle from a new automaker brand in 2019 told Tankechuxing that new automakers are not only new in branding but also in developing products based on all-new electric platforms with solid capabilities. Coupled with a completely different service experience, it is hard not to choose a car from a new automaker.

On one hand, there are all-new electric platforms and brand-new developments, and on the other hand, there are traditional oil-to-electric conversions. Consumers' preferences began to tilt significantly.

However, JAC Motor has consistently lacked autonomy in new energy vehicle research and development, failing to keep pace with the times.

In 2023, JAC Motor significantly increased its R&D investment, reaching 2.235 billion yuan that year, with plans to invest an additional 25 billion yuan in R&D expenses over the next five years.

In April of the same year, JAC Motor embarked on a new journey in the new energy sector by launching its new brand, JAC Yiwei, with its first model, the Yiwei 3, a pure electric compact car, unveiled in May.

(Image from JAC Motor's official website)

Prior to its launch, JAC Motor's General Manager Li Ming stated that the target for Yiwei 3 was 10,000 units per month, but this highly anticipated model ultimately failed to meet expectations. According to data from the China Automobile Dealers Association, Yiwei 3 delivered only 1,061 units in June 2023, the month of its initial delivery.

Data shows that JAC Motor sold 592,000 vehicles in 2023, even falling short of its 2016 sales figures, with sales stagnating over seven years. Among them, new energy vehicle sales were just 186,000 units, barely matching BYD's monthly sales and lagging far behind the market.

The latest sales data shows that JAC Motor sold a cumulative 18,500 new energy vehicles in the first eight months of this year.

In JAC Motor's half-year report, poor sales have dragged down the company's performance. Financial reports show that the company's revenue for the first half of the year was 21.34 billion yuan, a year-on-year decrease of 4.77%, with net profit attributable to shareholders of the parent company reaching just 301 million yuan despite a 93.84% year-on-year increase. After deducting non-recurring gains and losses, the first-half profit was 91.87 million yuan.

2. Seeking external help, but to no avail

In fact, JAC Motor does not have many memorable points in the market; instead, its continuous external cooperation has become the focus of attention and its "cash cow" for a long time.

As early as 2016, JAC Motor partnered with the new automaker NIO, becoming one of the earliest traditional automakers to cooperate with new automakers for OEM production. Both parties benefited mutually, with NIO licensing JAC Motor to use its trademarks and technologies during the trial period, while JAC Motor was responsible for manufacturing.

In this pioneering cooperation, to meet NIO's product requirements, NIO and JAC jointly built the JAC NIO Advanced Manufacturing Base.

However, where there are teams, there will inevitably be friction and disagreements. According to insiders, although NIO participated in all aspects of factory renovation and manufacturing, JAC's team always held a higher degree of discourse power, leading to some operational disputes between the two parties.

This communication issue has, to some extent, affected NIO's later delivery schedule and production rhythm.

Ultimately, NIO acquired its own factory by purchasing JAC's assets, gaining the ability to manufacture vehicles eight years after partnering with JAC for OEM production and obtaining vehicle manufacturing qualifications.

In October 2023, JAC Motor announced its intention to sell part of its assets through public auction for 4.5 billion yuan. These assets were previously used for JAC's OEM production with NIO.

In December of the same year, the Ministry of Industry and Information Technology's Vehicle Production Enterprise Information Management System update showed that NIO Automotive Technology (Anhui) Co., Ltd. obtained independent production qualifications. NIO, which acquired independent vehicle manufacturing qualifications, ultimately purchased part of JAC Motor's assets for 3.158 billion yuan.

In this cooperation, JAC Motor's biggest gain was from OEM fees. NIO's financial reports show that from 2018 to 2022, NIO paid JAC Motor approximately 3.038 billion yuan in OEM fees. This OEM fee is close to the price NIO paid for JAC's factory.

After NIO, seeking external cooperation has become JAC Motor's comfort zone.

In 2017, JAC Motor partnered with Volkswagen to establish JAC Volkswagen, Volkswagen's third joint venture in China, with each party contributing 50% of the investment. Subsequently, the two parties jointly launched the all-new electric vehicle brand SOL.

(Image from JAC Motor's official website)

However, just three years later, JAC Motor's cooperation with Volkswagen began to unravel.

Amid the failure of the newly launched SOL E20X, Volkswagen invested 1 billion euros in 2020 to acquire a 50% stake in Anhui JAC Motor Group Holding Co., Ltd. and increased its stake in JAC Volkswagen to 75%, gaining actual control of the joint venture.

In the view of Zhang Xiang, Secretary-General of the International Intelligent Transport Technology Association, JAC Motor did not substantially improve its business through these two cooperations but instead missed development opportunities.

3. The Huawei ecosystem, JAC Motor's only hope

Embracing Huawei has become JAC Motor's new strategic choice.

Public information shows that in December 2023, JAC Motor and Huawei formally signed an agreement to cooperate comprehensively in product development, manufacturing, sales, service, and other areas to create luxurious smart connected vehicles.

This cooperation marks JAC Motor's official entry into Huawei's automotive ecosystem, becoming the final member of Huawei's "Four Realms."

Prior to JAC Motor, the market has witnessed the significant impact of the Huawei brand on automotive brands.

According to AVIC Securities, in the second quarter of 2024, AITO delivered 14,000 M5s, 37,000 M7s, and 48,000 M9s. The rapid volume increase of high-end models directly led to an increase in Seres' gross margin. It is reported that Seres' gross margin for the second quarter was 27.47%, even surpassing that of BYD and Tesla.

Terminal sales have clearly demonstrated that Seres has taken off and is gaining momentum.

(Image from Seres' official Weibo account)

The validation of this successful cooperation model has accelerated the cooperation between JAC Motor and Huawei.

In March of this year, JAC Motor and Huawei signed a memorandum of cooperation, stating that they would jointly define scenarios and design experiences based on HarmonyOS, which is built on Open Harmony, and initiate the development of HarmonyOS native applications.

In April, information leaked from the Anhui Provincial Department of Ecology and Environment regarding the "Environmental Impact Report on JAC's Annual Production of 200,000 Mid-to-High-End Smart Pure Electric Passenger Vehicles Construction Project." The report revealed that JAC Motor is building two pure electric platforms (DE and X6). The first is focused on creating a new dedicated new energy platform (DE platform) to meet domestic demand for economical and upgraded models.

The second is the development of a new luxury new energy platform (X6 platform) through Huawei's intelligent technology, actively capturing the domestic high-end market with mid-to-large-sized MPVs, with a planned annual production capacity of 35,000 units. This model is expected to have a length of up to 5.2 meters and a wheelbase of up to 3.2 meters.

This also confirms outside speculation about JAC Motor and Huawei's cooperation on high-end models.

At the "HarmonyOS Intelligent Driving Enjoy Realm S9 and Huawei Full Scenario New Product Launch Event" held on August 6, Yu Chengdong officially announced the latest plans for the "Four Realms." "HarmonyOS Intelligent Driving will have AITO Askey in collaboration with Seres, LUXEED Zhijie in partnership with Chery, STELATO Xiangjie in cooperation with Beijing Automotive Group, and MAEXTRO Zun Jie in collaboration with JAC Motor."

Thus, JAC Zun Jie was officially named.

JAC Motor Chairman Xiang Xingchu also clearly stated that the first Zun Jie product has entered the vehicle validation stage and will roll off the production line by the end of this year, with plans for launch in 2025.

Embracing Huawei to launch high-end models seems to be JAC Motor's "only hope" for transforming into a new energy player.

According to Tankechuxing's statistics, JAC Motor has recorded negative core earnings for seven consecutive years. From 2017 to 2023, JAC Motor's core earnings were -93 million yuan, -1.877 billion yuan, -978 million yuan, -1.719 billion yuan, -1.884 billion yuan, -2.795 billion yuan, and -1.718 billion yuan, respectively.

Even the turnaround in performance in the first half of 2024 was largely based on substantial government subsidies. It is reported that while JAC Motor earned 301 million yuan in profit in the first half of the year, over 150 million yuan of government subsidies were included in current profit and loss.

Previously, JAC Motor's earnings were also heavily dependent on subsidies. Data shows that JAC Motor received government subsidies totaling 4.55 billion yuan from 2021 to 2023, with 2.005 billion yuan, 1.205 billion yuan, and 1.34 billion yuan received in those respective years.

To achieve its performance targets, JAC Motor has been continuously divesting marginal assets, including the sale of its import and export company. In October 2023, JAC Motor sold its 70% stake in JAC Import and Export Co., Ltd., which was specifically responsible for JAC Motor's wine import business.

By divesting marginal businesses and focusing on vehicle manufacturing, JAC Motor has prepared well for JAC Zun Jie. Under the pressure of performance, Zun Jie has become JAC Motor's "lifesaver."

However, for Huawei, there are still many aces up its sleeve.

Data released by HarmonyOS Intelligent Driving shows that in August 2024, a total of 33,699 new vehicles were delivered across the entire series, with 31,216 units belonging to the AITO Askey series. This means that Askey accounted for over 90% of total deliveries within the entire HarmonyOS Intelligent Driving ecosystem.

There are not many opportunities left for latecomers. While JAC Motor has garnered considerable attention from the capital market thanks to its association with Huawei, there are still uncertainties about whether its future products will be well-received and able to capture the high-end pure electric vehicle market.

For JAC Motor, replicating Seres' success is indeed a challenge.

*Image credit: JAC Motor's official website.