Seres (9927 HK, HK$42.08, HK$4.5bn): The Dynamics of the Huawei Partnership

Seres is one of the EV manufacturing partners of Huawei.  The company issued a profit warning earlier this week, projecting a net loss of RMB1.5–1.8bn for 1H26, reversing from a profit of RMB2.94bn a year earlier. 1Q26 attributable net profit of RMB754mn included RMB652mn in government subsidies, leaving only RMB103mn in core operating profit, and the 2Q26 net loss widened to RMB2.25–2.55bn. The loss is expected to stem from three factors: (1) raw material cost spikes as lithium carbonate rising from RMB80k to 180k per ton and memory chip prices increasing fivefold, resulting in a rise in unit costs by RMB15k–20k and eroding an estimated RMB2.3–3bn in profits; (2) one-off asset impairments of over RMB1bn on obsolete tooling and inventories due to new 800V platform model launches; (3) intensifying price competition, forcing AITO brand to match industry-wide discounts and squeezing margins from both cost and revenue sides.

A structurally vulnerable business model: Prior to 2021, Seres was a regional ICE vehicles automaker, with 2020 revenue at RMB14.3bn and a net loss of RMB1.73bn. The late-2021 partnership with Huawei to launch AITO marked Seres' turning point. Under Huawei's "Smart Select" model, Huawei led product definition, design, R&D, quality control, and sales, while Seres handled manufacturing and delivery. Since then, the AITO brand has gained significant traction. Deliveries increased from 70k units in 2022 to over 420k units in 2025 (82% CAGR). Moreover, revenue rose from RMB16.7bn in 2021 (pre-partnership) to RMB165bn in 2025 (77% CAGR); net profit swung from a loss of RMB3.8bn in 2022 to a profit of RMB5.96bn in 2025; GPM expanded from 8% to 26.9% over the same period.

Yet as Seres' top line expanded, so did its financial dependence on Huawei. Over the same period, Huawei's share of Seres' procurement rose from 14.5% to 33.0%, with cumulative payments exceeding RMB75bn by 1H25.

Specifically, Huawei's charges Seres for four distinct components:

1.Core Hardware - Huawei supplies intelligent driving and cockpit hardware (domain controllers, LiDAR, sensors, chips, high-voltage components). This portion is priced on a per‑vehicle basis according to actual hardware configuration. The cost varies significantly by models, with roughly RMB50k per vehicle for the M7/M8, and over RMB150k for M9.

2. Technology Licensing Fee (2% of Vehicle Price) - A fixed fee based on the vehicle price covering HarmonyOS cockpit OS, ADS algorithms, high‑definition maps, cloud services, and joint engineering.

3. Channel & Marketing Service Fee (8% of Vehicle Price) - Huawei provides unified sales, test drives, brand promotion, and after‑sales traffic generation through approximately 700 HarmonyOS Intelligent Mobility experience centers nationwide, charging 8% of the vehicle price.

4. User Value‑Added Services (Fully Retained by Huawei) - End‑user paid services are fully recognized as Huawei revenue, with no split to Seres.  That includes: City NOA subscription fees (approximately RMB12k–36k), in‑vehicle memberships and app store payments, in‑car entertainment subscriptions, and paid OTA advanced feature upgrades and connected vehicle value‑added services.

In addition, Seres completed two significant one‑off transactions with Huawei in 2024.  It made a RMB2.5bn acquisition of AITO brand trademarks and design patents, which established Seres' full ownership of the brand.  An RMB11.5bn investment for a 10% equity stake in Yinwang (Huawei's intelligent driving unit), which further cemented their strategic alliance.

Our views: Seres' business model is essentially an outsourced manufacturer as Huawei leads product definition and intelligent driving, while dealers handle over 95% of deliveries. Huawei's backing has given AITO a competitive edge and strong margins. However, Huawei's mobility alliance has expanded to five "Jie" brands, diluting the technology and channel advantages AITO once enjoyed. Seres' product scope within this alliance is limited to SUVs—a much narrower portfolio. As Huawei's resources are spread across more partners, it is believed that AITO's scarcity premium is fading, making its high GPM increasingly difficult to sustain.

Compounding this challenge, Seres bears the marketing and channel costs associated with Huawei's ecosystem, its 14.7% selling expense ratio in 2025 was well above the industry average. These fees scale with sales rather than amortizing over volume, and the spending builds Huawei's brand rather than building Seres' own franchise.

Furthermore, the pace of Seres' product refreshes is largely aligned with Huawei's technology development cycle. New technology introduced by Huawei typically entails incremental capex from Seres to enable production, often in advance of meaningful revenue. With upgrades occurring at a relatively high frequency, these investments rely on steady volume growth for amortization; weaker-than-expected sales could increase the likelihood of impairment charges.  In short, Seres’ business model is quite passive with heavy reliance on Huawei.  The counter is trading at 13x FY26E P/E. (Research Department)