Exclusive-Huawei approaches Audi, Mercedes about investing in its smart car firm, sources say

FILE PHOTO: People check a display near a Huawei logo during a media day for the Auto Shanghai show in Shanghai, China April 19, 2021. REUTERS/Aly Song/File Photo

SHANGHAI/HONG KONG (Reuters) – China’s Huawei Technologies has asked Mercedes Benz and Volkswagen’s Audi if they are interested in buying small stakes in its smart car software and components firm, according to three people with knowledge of the discussions.

The move is aimed at expanding its partnerships beyond Chinese brands, they said. Huawei, the target of U.S. sanctions since 2019, also hopes the presence of foreign investors would help defend the business from potential further geopolitical tensions, according to one of the sources who was briefed on the matter.

The Chinese technology giant said last month it will spin off its four-year Intelligent Automotive Solution (IAS) business unit which is seeking to become the dominant supplier of software and components for smart electric vehicles (EVs).

Sources have previously said the unit will be valued at somewhere between $28 billion and $35 billion.

Huawei held preliminary talks with Mercedes in recent weeks, according to two sources. One source said the German auto brand was offered a 3% to 5% stake with the valuation to be negotiated.

But Mercedes was not that interested as it wants to remain in charge of its software to sustain its premium brand positioning rather than outsource it to a supplier, the source added.

Audi’s level of interest in Huawei’s offer could not be immediately determined.

However, two of the sources said Audi and Huawei are planning a partnership to develop autonomous driving technologies for Audi. Those technologies would be used in vehicles for the Chinese market from 2025 and which would be built by the German automaker’s venture with FAW Group.

The sources declined to be identified as the discussions were confidential.

Mercedes declined to comment on what it called speculation. Huawei and Volkswagen did not respond to requests for comment. The move by Huawei comes as global automakers in China increasingly seek to partner with Chinese companies, which have pulled ahead in developing high-end features for tech-savvy Chinese consumers. Volkswagen has been working with EV automaker Xpeng and autonomous driving chip designer Horizon Robotics to develop China-specific intelligent and connected electric cars.

Audi has also partnered with SAIC Motor to develop EVs in a segment for the Chinese market it did not previously have a presence in.

Richard Yu, who oversees Huawei’s smart car business, told a forum in April that it had been difficult for European, U.S. and Japanese companies to choose Huawei as their main supplier of intelligent solutions due to U.S. sanctions. “Therefore it’s a huge challenge because we have invested tremendously,” Yu said at the time.

While many of China’s most high-profile EV manufacturers like Nio and BYD rely on their own software, Huawei has formed partnerships with smaller electric car makers like Seres Group and some big older automakers like Chongqing Changan Automobile.

Changan Auto has said it will be an investor in Huawei’s smart car business once it is spun off, owning as much as 40% along with relevant parties.

Yu said in November that Huawei had invited Seres, Chery Automobile, Jianghuai Automobile Group and BAIC Motor to invest in the smart car firm and hoped FAW Group could join as well.

Dongfeng Motor is another potential investor in the firm, sources have said.

($1 = 7.1865 Chinese yuan)

(Reporting by Zhang Yan and Julie Zhu; Editing by Brenda Goh and Edwina Gibbs)