Newcool's business scope will cover full-stack solutions for smart cars and is expected to grow into China's largest smart car solution provider, analysts said.

Avatr Technology, an electric vehicle (EV) brand backed by Changan Automobile, CATL, and Huawei, signed with Huawei to become one of the shareholders of the latter's automotive business unit.

Avatr's agreement to invest in Huawei's Newcool has been signed, officially making it the second-largest shareholder in Newcool, the Changan's EV unit announced on Weibo today.

The joint venture effort will enable the two to work together to build the world's most powerful smart cars, Avatr said.

Changan said in a stock exchange announcement last night that Avatr will buy a 10 percent stake in Newcool for RMB 11.5 billion ($1.6 billion).

That means Newcool's latest valuation is RMB 115 billion.

Huawei is in the process of spinning off its automotive business into a standalone company, Newcool, with Avatr becoming the first outside investor and Huawei's stake standing at 90 percent after the deal.

Changan signed a memorandum of investment cooperation with Huawei on November 25, 2023, to jointly support a company established by the latter to provide automotive smart system and component solutions.

Huawei planned to set up the target company -- later known as Newcool -- in which Changan and its affiliates planned to acquire no more than a 40 percent stake, according to an announcement by Changan last year.

Avatr was formerly known as Changan Nio, which was founded by Changan and Nio (NYSE: NIO) on July 10, 2018, when each party took a 50 percent stake. Nio has now largely exited from the company.

In late August 2021, Changan, CATL, and Huawei jointly announced the updated Avatr brand, saying at the time that they would build EVs based on a co-created CHN architecture, where C stands for Changan, H for Huawei, and N for CATL.

Newcool's business scope will cover full-stack solutions for smart cars, and is expected to grow into the largest smart car solution provider in China, Wang De'an, an automotive industry analyst at Ping An Securities, said in a research note today.

Avatr, which is 40.99 percent owned by Changan, is Changan's key brand in the high-end EV sector, the note said.

Avatr already has a deep partnership with Huawei, and the transaction will not only help it gain more support from Huawei, but is also expected to allow Avatr and Changan to benefit from Newcool's potential future valuation growth, according to the team.

Newcool's medium-term steady-state revenue size is projected to be between RMB 127.5 billion and RMB 65 billion, which corresponds to an annual net income of RMB 19.1 billion to RMB 24.8 billion, assuming a net profit margin of 15 percent, the team said.

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, the team said.

($1 = RMB 7.1413)

Avatr to acquire 10% stake in Huawei's parts unit Newcool for $1.6 billion