Huawei recently announced another reorganization of its cabinet of executives. Richard Yu, President of Huawei, steps down as the CEO of Huawei Cloud and takes over the CEO mantle for Smart Car Solutions BU instead.

This move does appear to be part of a typical organizational shuffle, except that Richard Yu himself was only appointed as the CEO of Huawei Cloud in January 2021. 

Why then was there this rather abrupt change to Yu’s leadership responsibilities– and what does it say about Huawei’s plans for Smart Car Solutions BU?

The appeal of automotive parts

Huawei Smart Car - SF5

To unpack this question, we must first understand why Huawei perceives automotive part production as a potential growth engine.

First, the promise of connected vehicles. Huawei recognises that there is a pivotal shift in interest towards intelligent, user-centric electric vehicles, such that car original equipment manufacturers (OEMs) can generate sustained revenue streams by releasing continuously iterated functions.

During the 2021 Huawei Global Analyst Conference, the chairman, Xu Zhijun, revealed that their vehicle business generated “an average annual revenue of CNY 10, 000 per car”. That recurring revenue is much higher than what you can get from a conveyor belt of phones.

As a device manufacturer, Huawei will need to avoid being left out in the market where other players, including rival Apple, are racing fast to capture. 

Many have also attributed the US embargo to Huawei’s recent car push. We think that the sanctions may have hastened the urgency, but it does not change the decision of whether to do it or not. 

Over the past twenty years, Huawei has demonstrated a strong ability to survive against all odds, starting from the push in emerging markets when China was slow to issue 3G licences. They are a battle-hardened team. 

Richard Yu: Huawei’s ‘powerhouse’ executive

Huawei Smart Car - Cover Image

That’s where Yu’s arrival comes into the picture.

We cannot talk about Richard Yu without discussing the remarkable rise of Huawei’s smartphone business. While this seasoned veteran has undertaken several key positions in the firm, he is best known for leading Huawei into the forefront of the smartphone industry.

Before he assumed leadership of the smartphone division in 2012, Huawei was primarily an original design manufacturer (ODM) that made devices for other firms. Although Huawei had released its own-brand smartphone several years earlier, it would have been generous to describe it as an incumbent at that time. People simply did not think of Huawei as a mobile brand that they could flaunt to their acquaintances. 

Yet, in just six years, Yu had transformed Huawei’s Consumer BG into the world’s second-largest smartphone vendor, above Apple and behind only Samsung. In big Chinese cities, many executives that we know have ditched their Apple for Huawei phones, because the phones now are not only good enough but also carry a brand that makes phone owners proud. 

Yu is a formidable executive– and his sudden arrival signals that Huawei’s recent USD 1 billion investment into the automotive R&D sector wasn’t some haphazard hurl into a crowded pool. It’s an ambitious, assertive, and calculated splash.

Huawei’s going all-in

Like an evenly matched chess game, every car OEM (and our team) will be watching Huawei’s next move with bated breath. 

Huawei’s eventual goal is probably to produce its own cars. In the short term, however, the firm would probably focus on making its systems (including the operating system and hardware) work. Building the brand, distribution channel, service network etc. might not be the immediate priority for Huawei, since it could be better to launch its own cars after the systems are perfected.

It’s a path that differs greatly from Tesla. But Huawei relied on this strategy in both their smartphone and cloud businesses– and they might prefer to stay on this tried-and-tested path.

What we can say with certainty, however, is this: Huawei will bring the same relentlessness and bullish tenacity that it built its success around into this automotive push. In its early days, Huawei would hand out blankets and mattresses to its new employees, and we expect Smart Car Solutions BU to show this single-minded focus as well.

Most of us marvel at Huawei Cloud’s domestic market share today, but we often forget that it was achieved by swallowing four years of frustration and disappointment. Huawei’s resilience is not to be underestimated; neither is this latest venture.

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].