China’s Huawei Technologies said it had agreed to establish a new joint venture with state-owned Changan Automobile as the communications technology and mobile phone giant increases its business in the smart, connected vehicle sector.

The two companies signed a memorandum of understanding (MoU) to establish a new company which would absorb Huawei’s existing smart car system business while Changan would supply core automotive technology for an expected 40% stake.

The new company would be involved in “research and development (R&D), production and sales of smart vehicle systems and components”, according to a Huawei statement.

Shenzen based Huawei had always insisted it would limit its auto industry role to being a technology collaborator with existing automakers such as Seres Group.

While the company had taken a leading role in this new JV with Changan, it had also invited other strategic automotive partners to join.

Huawei chairman Xu Zhijun insisted his company “only wants to help carmakers build better vehicles”.

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Richard Yu Chengdong, chairman of Huawei’s intelligent automotive business, said in a statement: “We have deepened our cooperation with Changan Automobile and will also work with more strategic partner car companies to continuously explore new, open and win win business models.”

China’s auto industry is evolving rapidly with consumers – especially affluent younger buyers – increasingly demanding vehicles packed with smart, autonomous and connected features. particularly in new energy vehicles (NEVs) which are rapidly gaining market share.

The planned ‘marriage’ between Huawei and Changan Automobile came as the local EV industry undergoes rapid changes amid fierce competition between Shanghai based Tesla and dozens of local brands including (top selling) BYD and Li Auto.

These companies are all fighting for a slice of a growing market in which Aito, a Huawei-Seres brand, currently has only a tiny share.

Huawei said it was open to selling equity in its latest JV to other car industry players.

The move has solidified Huawei’s role as a tier one supplier to the auto industry and lessened concerns from existing players that the company could become a rival carmaker, according to a research note from GF Securities.

“It can reduce the resistance in the automotive industry against Huawei to some extent,” analyst Liu Xuefeng wrote.

However, it remained to be seen how much impact the new venture would have on the sector, depending on the competitiveness of its products and whether other mainstream carmakers were willing to join the new company, the note added.

The Huawei-Changan venture was expected to cover intelligent automotive solutions, smart cockpits, digital platforms, cloud services and augmented reality heads up display, among other areas, according to a Changan Automobile statement filed with the Shenzhen Stock Exchange.

Huawei would no longer compete in those categories after transferring its technology and staff to the new unit, the statement said.

Seres, in a statement, welcomed Huawei’s new venture while insisting its current venture with Huawei remained unchanged. It revealed it had received an invitation to invest in the new unit and was in talks over potential investment and cooperation.

Huawei had placed high hopes on its nascent car business which forms part of the company’s diversification efforts after US sanctions hobbled its once lucrative smartphone segment.

The car unit achieved CNY2.1bn (US$305m) in sales in 2022 and booked CNY1bn revenue in the first half of this year.