Huawei’s Vehicle-making Partner Seres Faces Profit Pressure after Losing $859M in Three Years

The AITO brand built by Huawei and its car-making partner Seres has sold over 10,000 electric vehicles in August, September and October, but Seres is facing some new problems, such as low profitability and an inability to tear down the label of Huawei’s foundry.

Seres, formerly known as Sokon, had researched new energy vehicles before striking an agreement with Huawei. According to the report of Chinese media outlet “Market Value List“, as early as 2014, Seres established a new energy vehicle research institute while its compound annual growth rate of NEV sales from 2018 to 2021 was about 47.6%.

In 2019, Seres chose to launch extended-range electric vehicles. AITO M5’s extended-range version was launched first, and then its pure electric version was unveiled. Extended-range electric vehicles need a complete system including motor, battery and electric control system, as well as a set of fuel generator sets or fuel cell stacks to supply power for batteries. At present, due to technical limitations, most extended-range electric vehicles choose oil-fired units to generate electricity.

When confirming the agreement with Huawei in 2019, Seres agreed to use components such as intelligent consoles and driving systems, chips, network connection systems and thermal management systems provided by Huawei, as well as various cloud services. Seres’ vehicles were all sold through Huawei’s channels.

Regarding the cooperation with Huawei, Zhang Xinghai, chairman and founder of Seres, once publicly stated, “the traditional joint venture has fallen behind, and integration with Huawei is the direction to adhere to in the future. This is a question of whether to dare to innovate in the business model. We would like to cooperate with Huawei, rather than Audi, BMW and Mercedes-Benz.”

Seres’ financial report showed that the company generated a lot of income but not a lot of profit. In the first three quarters of this year, the company achieved a revenue of 23.1 billion yuan ($3.3 billion), an increase of 102% year-on-year, which was higher than that in any previous year. The gross profit margin of the company has increased from 6.68% in the first quarter of 2022 to 12.72% in the third quarter. However, the net profit attributable to shareholders in the first three quarters was -2.675 billion yuan, which was higher than -1.922 billion yuan in the same period last year. From 2020 to the first three quarters of this year, the total loss of Seres exceeded 6 billion yuan.

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The reason why Seres’ sales exceeded expectations could not be separated from the channels under Huawei. According to the data of Jielanlu Consulting, as of the end of September this year, the number of sales outlets of AITO has exceeded 1,000, 430 more than that at the end of June. As for the profit time, Haitong International said in a previous research report that Seres is expected to achieve break-even in 2023. The chairman of Seres also said that the company would strive for profit next year.