Huawei’s new smart car firm is valued at up to $35 billion amid advanced stake talks. Following the sale of holdings to investors such as Changan Auto, the new intelligent vehicle software and components company that Huawei Technologies (HWT.UL) has established is expected to be valued at up to 250 billion yuan, which is equivalent to $34.67 billion, according to three individuals who know the subject.

The Chinese company announced on Sunday that it will be forming a new company that will acquire the core technologies and resources of its Intelligent Automotive Solution (IAS) business unit, which has been operating for the past four years. The IAS business unit’s objective was to become the equivalent of the German automotive supplier Bosch in the era of intelligent electric vehicles (EVs).

The leading car partner, Chongqing Changan Automobile (000625. SZ), together with other relevant parties, would own up to forty percent of the new company, according to a statement released by Changan Car on Sunday. Neither Changan Auto nor Huawei made any financial disclosures.

According to two individuals, Changan Auto and its ultimate parent, the state-owned China Ordnance Equipment Group, also known as China South Industries Group, are contemplating the possibility of acquiring around 35 percent and 5 percent of the new company, respectively. The new company is estimated to have a value of between 200 billion and 250 billion yuan.

The three individuals stated that state-owned automobile manufacturers FAW Group (SASACJ.UL) and Dongfeng Motor Group (0489. HK) are also in advanced discussions with Huawei to purchase up to 5% of the company’s shares. These companies may become minority owners.

During the next two to three years, it is anticipated that Huawei will remain the single largest shareholder, holding between forty and fifty percent of the company’s shares.

As far as the three individuals are concerned, the particulars of the transaction, particularly the ownership split and valuation, have not been finalized and are open to modification. Along with one of the individuals, a fourth individual familiar with the situation stated that the deal would also be subject to clearance from the regulatory authorities.

Due to the delicate nature of the situation, the individuals declined to be named. Reuters was directed to Changan Auto’s statement from Sunday, and the company declined to comment. In response to demands for comment, Huawei and the other firms concerned did not immediately respond.

Since the company’s founding in 1987, Ren Zhengfei and nearly 100,000 shareholder-employees have controlled Huawei’s operations, which include telecom and consumer electronics. The spin-off is unusual for Huawei, which has been in business since 1987. It sold the cheap smartphone brand Honor in 2020, one year after being subjected to sanctions by the United States on security concerns. This was done to keep the brand alive.

Three individuals have stated that one of the reasons for the anticipated sale is that Huawei has had difficulty expanding its innovative vehicle business and has to recuperate funds to finance its expenditures on research and development (R&D).

According to the sources, senior officials at Huawei, including Ren, initially hoped the operation would become a new development driver.

It has extended its research and development staff to 7,000 people. It has invested $3 billion in the business since it was first established, according to the corporation’s annual report for the year 2022.

Reuters sent a question to Ren through the firm, but he did not immediately answer. However, it was the only unit among Huawei’s primary six that had a loss in sales and brought in one billion yuan in revenue during the first half of 2023. This figure represents a small portion of the company’s overall revenue of 310.9 billion yuan, as Huawei stated in August.

Other automobile manufacturers, such as Seres Group (601127. SS) and Jianghuai Automobile (600418. SS), as well as Changan Auto, which includes the electric vehicle brands Avatr and Deepal, are among the firms with whom Huawei has formed relationships.

The new company, which Huawei has stated would participate in research and development, manufacture, sales, and service of intelligent automotive systems and component solutions, will also absorb the group’s other auto-related assets and resources that are not tied to the IAS business unit, according to one of the three individuals.

According to two individuals, Huawei is contemplating establishing the new company’s headquarters in Chongqing, a vast municipality in the southwestern region of China of which Changan is a part. At the moment, the headquarters of the unit are located in Shanghai. According to two individuals, the proposed transaction will make it easier for the company to be listed on the stock exchange, as Huawei had intended.

Without providing any further details, one of the individuals stated that it is highly improbable that Richard Yu, who runs Huawei’s consumer division and has been in charge of the intelligent vehicle section for many years, will be the leader of the new company.