Starting from a small county town in Chongqing, Seres has become a leading new force in the automotive industry after a deep integration with Huawei. However, the story has only just begun, and there are still many variables at play.

Who is the Chinese company with the highest market value among new automotive forces?

The answer to this question has changed several times, and Seres (601127.SH) is currently challenging for the top spot.

On June 18th, Seres topped the list for the first time, with a market value of 151.507 billion yuan at the end of the day's trading, surpassing Li Auto's 151 billion Hong Kong dollars (approximately 137.5 billion yuan).

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In the following week, Seres maintained its first place, and the gap in market value with the second place continued to widen. However, due to stock price fluctuations, Seres' market value slightly declined starting from June 25th, with the stock closing at 85.71 yuan, and the title of the most valuable new force in the automotive industry returned to Li Auto.

Regardless of whether it is number one or not, it is undeniable that Seres has entered the first tier of market value among new automotive forces.

In 1986, when Zhang Xinghai opened a parts factory in a county town in Chongqing, he might not have imagined that 38 years later, it would emerge as a dark horse among China's new automotive forces.

The rise of Seres has been full of twists and turns, from selling motorcycle parts at Phoenix Electrical Appliance Spring Factory to entering the automotive industry. In 2016, it made a bold bet on the new energy track and at the most opportune time, successively encountered two giants, Dongfeng Group and Huawei, and cooperated with them to reap the benefits of the era of new energy vehicles.

In 2021, the AITO series, a collaboration between Huawei and Seres, was launched, and three SUV models, the M5, M7, and M9, were successively introduced. Although early sales experienced ups and downs, they have been on an upward trend in the past six months, with a record delivery of 32,226 vehicles in May 2024.Driven by sales, Seres achieved a net profit attributable to the parent company of 220 million yuan in the first quarter of 2024 for the first time, an increase of 845 million yuan compared to the same period last year, with its market value soaring in tandem.

In addition to the AITO brand, Seres also has its own new energy brands, such as Blue Electric and Rui Chi. However, more than 90% of Seres' car sales are contributed by the AITO brand.

The question arises: Without Huawei, would Seres still be the new force with the highest market value?

The surge in market value is attributed to both sales and Huawei.

Seres' market value soared directly due to the increase in AITO sales.

Starting from the fourth quarter of 2023, AITO sales began to increase rapidly. From September 2023 to May 2024, AITO sales grew from 6,708 units to 32,226 units, an increase of 380.4%.

The sales increase is closely related to the launch of new AITO models. Since September 2023, new AITO M7, M7 Rear-Wheel Drive Intelligent Driving Edition, M7 Ultra, M5, and M9 have been launched one after another, with continuous improvements in configuration and intelligent driving capabilities. Take the M9 as an example, it is equipped with Huawei's high-level intelligent driving, Tuling chassis, Xuanwu body, and CATL 4C Kirin battery.

Especially in May 2024, the AITO series sales broke new records, with the M5, M7, and M9 models performing brightly, with sales of 5,583, 10,181, and 16,462 units, respectively. In addition to the M9 starting delivery in February 2024, AITO released the new M5 and new M7 Rear-Wheel Drive Intelligent Driving Edition in April and May 2024, respectively.

Since AITO initially exhibited through Huawei's stores, and Huawei also provides the main selling point of AITO intelligent driving, most consumers associate AITO with Huawei. However, in reality, AITO cars are a collaborative launch between Huawei and Seres.

In terms of division of labor, Seres is responsible for the entire lifecycle of vehicle experience, including research and development, smart manufacturing, and delivery services of the whole vehicle product, while Huawei deeply participates in product definition, whole vehicle development, and channel sales; Huawei highly empowers and conducts joint quality control and joint marketing with Seres.In the product structure of Seres, the Enovate brand holds a significant portion. According to the Seres May 2024 production and sales flash report, Seres Group Co., Ltd. sold 34,130 new energy vehicles, with 32,202 units being Seres Automobiles (Enovate), accounting for 94.3%.

Apart from Enovate, Seres also has four brands that truly belong to the category of smart electric vehicles, including the Blue Power and Rui Chi sold domestically, and the SERES and DFSK sold internationally, but none have yet made a significant impact.

Taking Blue Power as an example, the brand only sold 1,705 units in May 2024, and in the past year, the monthly sales of Blue Power never exceeded 5,500 units.

As Enovate's sales took off, Seres's market value also reached the summit with the help of Huawei's "far ahead" momentum.

Sales directly drove the increase in revenue and net profit, which is reflected in the performance. In 2023, the company's operating income was 35.842 billion yuan, a year-on-year increase of 5.09%, while the net profit attributable to shareholders of the listed company was -2.45 billion yuan.

After four years of net profit losses, Seres welcomed its first profit in the first quarter of 2024, with operating income of 26.561 billion yuan, a year-on-year increase of 421.76%, and a net profit attributable to the mother company of 220 million yuan, an increase of 845 million yuan compared to the same period last year.

Seres revealed to "Finance and Economics" that the gross margin per vehicle in the first quarter also continued to improve, surpassing Li's 20.6% to reach 21.5%.

As for the stock price, it has risen from around 9 yuan in October 2020 to a peak of 106 yuan this March.

Collaborating with giants is not the first time for Seres.Collaborating with industry leaders is not the first time for Seres; in the past, it was Dongfeng Xiaokang, and now it's AITO.

Seres initially started as a small parts factory. In 1986, Zhang Xinghai established the Fenghuang Electrical Appliance Spring Factory in Ba County, Shapingba District, Chongqing, mainly dealing in motorcycles and shock absorbers, with assets of less than 300,000 yuan.

The formal shift from motorcycles and parts to automobiles occurred in 2003. The growing spring factory was renamed Yu'an Group, coinciding with Dongfeng Group's search for new partners. Consequently, they jointly established "Dongfeng Yu'an Vehicle Co., Ltd.", focusing on the production of micro passenger and cargo vehicles, which was a typical case of the integration of state-owned and private enterprises at that time.

Later, Yu'an Group was renamed Chongqing Xiaokang, and the joint venture became Dongfeng Xiaokang, primarily manufacturing micro passenger and cargo vehicles. The first Dongfeng Xiaokang vehicle was launched in 2005, and by 2009, the annual production and sales of Dongfeng Xiaokang had reached 200,000 units, making it one of the top three in China's micro-vehicle industry with a market share of over 10%.

In 2016, Xiaokang Shares successfully went public on the Shanghai Stock Exchange with the stock code 601127. In the same year, Xiaokang began a comprehensive transformation to new energy, embarking on its third entrepreneurship, and chose to study abroad, establishing a new energy vehicle division in Silicon Valley, USA, for research and development. According to Caijing, during their time in the United States, the Seres team purchased the American Hummer factory and recruited many Tesla technicians to jointly develop core three-electric technologies.

However, apart from the well-known models such as Dongfeng Xiaokang and Dongfeng Fengguang, which were built in partnership with Dongfeng, Xiaokang Shares itself remained relatively obscure. From 2017 to 2020, Xiaokang Shares' operating income continued to decline, and its net profit plummeted from 1.101 billion yuan to -2.234 billion yuan.

Faced with pressure, Zhang Xinghai, the founder of Xiaokang Shares, urgently sought ways to escape the predicament, and Yu Chengdong arrived.

At that time, Huawei was facing chip sanctions from several countries, including the United States, and its smartphone sales were also continuously declining. It was difficult to find manufacturers willing to cooperate in the automotive transformation. Car companies were afraid of losing control and being labeled as "selling their souls."

Although Seres had already laid out its new energy field, it had always been relatively unknown. Coupled with the continuous decline in Xiaokang Shares' revenue, the net profit from 2017 to 2020 plummeted from 1.101 billion yuan to -2.234 billion yuan. Choosing to cooperate with Huawei was an attempt to accelerate its own new energy transformation and a path that had been taken and proven successful.

In April 2021, under the witness of the Chongqing Municipal Government, Xiaokang and Huawei signed a cooperation agreement on the Seres new energy vehicle project.In 2022, the AITO brand launched three new energy vehicles, the M5, M7, and the all-electric version of the M5, which were successively introduced to the market and delivered. That year, the AITO series achieved annual sales exceeding 75,000 units, making it one of the fastest-growing new energy brands in China.

This was just the beginning. In 2023, AITO's sales volume reached 104,000 units. It was also in this year that the company known as "Xiaokang Shares" changed its listed name to "Seres", with the stock code remaining unchanged, and the company name was correspondingly changed to "Seres Group Co., Ltd."

Is it Huawei's contract manufacturer?

Since partnering with Huawei, Seres has been continuously questioned about becoming Huawei's "contract manufacturer". In response, Yu Chengdong denied this, stating: "In fact, both parties are jointly developing."

Seres has also emphasized on multiple occasions that it is not a contract manufacturer and does not act as one. For every vehicle sold, the revenue belongs to Seres, and Huawei receives the corresponding service fee.

Over the past few years of cooperation with Huawei, Seres has continuously increased its R&D investment, from 1.949 billion yuan in 2021 to 4.438 billion yuan in 2023.

A 4.4 billion yuan R&D investment is not a large amount compared to other new forces in the industry. In 2023, NIO's R&D investment was 13.431 billion yuan, Li Auto's was 10.586 billion yuan, and Xiaopeng's was 5.277 billion yuan.

What has Seres developed? The main achievements are reflected in the "one platform, three factories" concept. The "Magic Cube" platform is the only one in the industry capable of supporting three power forms, including supercharging, all-electric, and super hybrid—compared to the existing Li Auto LEEA architecture, which supports supercharging and all-electric, and Geely and Volvo's SEA Ocean platform, which only supports all-electric. In terms of vehicle compatibility, the Magic Cube platform supports models ranging from Class B to Class D, covering various categories such as sedans, SUVs, and MPVs.

Seres owns three smart factories located in Chongqing, which are the Liangjiang factory producing the M5, the Fenghuang factory producing the M7, and the new Liangjiang factory producing the M9. Among them, the super factory features an integrated casting technology with a locking force of 9000T, which can integrate parts highly, reduce welding points, and enhance the vehicle's rigidity, strength, and safety.At present, Seres' self-developed technologies are primarily focused on platform and factory production. According to Caijing, after the sales of the Enovate brand reached the top, Seres also hopes to play its own cards of technology and luxury.

While R&D expenses continue to rise, sales expenses are also increasing. From 2021 to 2023, Seres' sales expenses soared from 1.28 billion yuan to 5.465 billion yuan, with a rate already as high as 15.25%.

Regarding the high proportion of sales expenses, Seres has explained in its financial reports that the mid-2022 report stated: "This is mainly due to the increase in promotional expenses for high-end new energy vehicles, sales service fees, etc.", and the 2022 annual report stated: "Through in-depth strategic cooperation with partners, the company has obtained high-quality online and offline channels, promotional, and other comprehensive sales resources at an industry-level sales expense rate."

Seres is trying to rise with the wind in this cooperation. Now, both market value and gross margin have achieved their goals, and the next issue is how to maintain them. On the one hand, it is necessary to expand overseas, and on the other hand, it is necessary to build its own brand.

In the 2023 annual report, Seres added an item of "investment in overseas market promotion" to the explanation of changes in sales expenses. On the investor interaction platform, Seres stated that the Enovate brand has entered multiple countries in Europe, the Middle East, the Americas, and Africa, completing the initial layout of the overseas market; the company has exported more than 500,000 vehicles.

In March 2023, Seres launched a new new energy vehicle brand - Blue Power, with the first model Blue Power E5 equipped with BYD Fudi power system and HUAWEI Hicar 3.0, priced at 99,800 yuan to 119,800 yuan.

However, Blue Power's current sales are still far from comparable to Enovate. In May 2024, Blue Power brand sales were only 1,705 units, and in the past year, the highest monthly sales of Blue Power did not exceed 5,500 units.

If separated from Huawei, would Seres still be the new force with the first market value?

The outside world always doubts this, and Seres itself will definitely be anxious. But the key to the problem is that there is no if - Seres has already been deeply bound and integrated with Huawei, and in the foreseeable future, this binding will only continue to deepen.

Therefore, compared with repeatedly questioning doubts, doing a good job in the current delivery and doing a good job in the next car is the only important thing for Seres at this stage.