Newcool’s Business Scope and Growth Prospects
Analysts predict that Newcool, Huawei’s automotive business unit, will become China’s largest smart car solution provider, offering full-stack solutions for smart cars. This forecast follows the announcement that Avatr Technology, an electric vehicle (EV) brand backed by Changan Automobile, CATL, and Huawei, has signed a deal to become one of the shareholders of Huawei’s automotive business unit.
Avatr Invests in Newcool
Avatr’s agreement to invest in Newcool has been signed, making it the second-largest shareholder in the Changan’s EV unit. According to a Weibo post, the joint venture will enable the two companies to collaborate on building advanced smart cars.
Details of the Investment
Changan revealed in a stock exchange announcement that Avatr will purchase a 10 percent stake in Newcool for RMB 11.5 billion ($1.6 billion). This puts Newcool’s latest valuation at RMB 115 billion.
Huawei is in the process of spinning off its automotive business into a standalone company, Newcool, with Avatr becoming the first external investor. After the deal, Huawei’s stake in Newcool will stand at 90 percent.
Cooperation Agreement
On November 25, 2023, Changan signed a memorandum of investment cooperation with Huawei to jointly support a company established by Huawei to provide automotive smart system and component solutions. Huawei planned to set up the target company, later named Newcool, with Changan and its affiliates acquiring no more than a 40 percent stake.
Background of Avatr
Avatr was initially known as Changan Nio, founded by Changan and Nio on July 10, 2018, with each holding a 50 percent stake. Nio has since largely withdrawn from the company.
In August 2021, Changan, CATL, and Huawei jointly announced the updated Avatr brand, stating that they would build EVs based on a co-created CHN architecture, with C standing for Changan, H for Huawei, and N for CATL.
Analyst Perspectives
According to Wang De’an, an automotive industry analyst at Ping An Securities, Newcool is expected to grow into the largest smart car solution provider in China. Avatr, which is 40.99 percent owned by Changan, is Changan’s key brand in the high-end EV sector.
The transaction is expected to help Avatr gain more support from Huawei and allow Avatr and Changan to benefit from Newcool’s potential future valuation growth.
Financial Projections
The team projects that Newcool’s medium-term steady-state revenue size will be between RMB 127.5 billion and RMB 65 billion, corresponding to an annual net income of RMB 19.1 billion to RMB 24.8 billion, assuming a net profit margin of 15 percent. With reference to the current 30x PE valuation of mature tech companies, Newcool’s market capitalization is expected to reach RMB 573.7 billion to RMB 742.5 billion.
Conclusion and Outlook
The partnership between Avatr and Huawei’s auto unit, Newcool, represents a significant milestone in the automotive industry. It sets the stage for exciting developments in technology, sustainability, and global expansion, positioning both companies for long-term success.
