In the dynamic landscape of China’s automobile market, Japanese brands have established themselves as crucial players, noted for their efficiency, reliability, and fuel economyAmong these, Toyota and Honda have emerged as standout representatives, enjoying significant popularity across the nationHowever, the success of these brands in China is significantly tied to the collaboration with a local automotive powerhouse—GAC Group, officially known as the GAC Motor Corporation.

GAC Group has been instrumental in the production and sale of Toyota and Honda vehicles, primarily through joint ventures like GAC Toyota and GAC HondaThis monumental collaboration has seen GAC Group play a vital role in the thriving automobile sector during the era dominated by traditional fuel-powered vehicles, yielding impressive profits and a strong market presence.

However, the automotive horizon is rapidly changing with the rise of new energy vehicles (NEVs). This transition has intensified competitive pressures on joint venture brands, including GAC Group, which recently faced a significant downturnA staggering 23.88% decline in revenue and a shocking 97.34% drop in net profit during the first three quarters of 2024 signal the steep challenges ahead.

Despite these obstacles, GAC Group is not one to back down easilyResponding to the dire situation, they have initiated a series of strategic adjustments and brought in an unconventional ally—HuaweiThis partnership marks a significant turning point for GAC Group as they aim to reinvigorate their business model in the face of adversity.

On December 2 and 3, GAC Group's stock experienced a remarkable surge, hitting the upper limit on both days and leading to a market capitalization exceeding RMB 100 billion, closing at RMB 10.9 per shareThis impressive rebound is largely attributed to the potent collaboration with Huawei, the tech giant known for its innovative endeavors in various sectors.

The pivotal moment in this alliance occurred on November 30 when GAC Group and Huawei signed a strategic cooperation agreement in Guangzhou focused on intelligent vehicles

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This collaboration aims to establish a new high-end intelligent new energy vehicle brand, signifying a groundbreaking shift in their partnership.

GAC Group's extensive experience—spanning 27 years in automotive manufacturing—coupled with Huawei’s cutting-edge advancements in smart technology sets the stage for a transformative ventureThe collaboration intends to merge GAC's established manufacturing prowess with Huawei’s innovations in intelligent systems, promising a robust product offering in an increasingly competitive market.

Huawei, through its “Hongmeng” intelligent driving ecosystem, has partnered with several automakers, and many anticipate that this new brand might follow suitThis collaboration is expected to create a distinct market presence, seeking differentiation from previous products in Huawei's ecosystem.

Industry insiders highlight that GAC Group and Huawei are not strangers; their partnership has evolved since 2017, encompassing numerous areas from hardware to software and encompassing product R&D to intelligent manufacturingFor instance, GAC's Aion brand had previously collaborated with Huawei to develop the AH8 model, and upcoming models are expected to integrate Huawei's latest intelligent systems.

However, the strategy thus far has leaned towards empowering existing brands rather than establishing new independent labelsThe recent announcements indicate a substantial pivot, aiming at generating a distinct high-end smart car segment as opposed to merely enhancing current offerings.

This method of collaboration has become increasingly common within the NEV sector, with many manufacturers looking to Huawei as a vital partner due to its powerful technological expertiseNotably, Aito, born from Huawei's partnership with Seres, has gained traction as a leading brand among new car manufacturers, allowing Seres to rebound to profitability and achieve a market valuation over RMB 200 billion.

Alongside the urgency to innovate, GAC Group confronts the stark reality of its sales and profits plummeting

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In 2024, the downward trend has been evident, with a 24.66% drop in total sales of GAC Group’s main enterprises within the first ten monthsSales of GAC Toyota and GAC Honda fell by 23.31% and 29.60%, respectivelyThe self-operated brands did not fare well either, facing declines across the board.

Faced with these challenges, GAC Group has outlined a strategic roadmap to revamp its self-operated brands, transitioning from macro-strategic oversight to more granular operational managementThis shift aims to strengthen the day-to-day operations of its brands, promising a more effective approach to market challenges moving forward.

Additionally, GAC has made significant strides in its international ambitions, enhancing overseas sales—an impressive 190% increase in overseas vehicle sales was recorded in the first half of the year, including notable growth in self-branded vehicle exports.

The future of GAC Group appears to balance precariously between aggressive innovation through partnerships, especially with tech leaders like Huawei, and facing traditional risks within the automotive marketTheir strategy emphasizes not only the introduction of new electric models but also enhancing existing brands through rapid electrification efforts, showcased at major auto expos.

As GAC Group seeks to solidify its market position, attention will undoubtedly center on the efficacy of merging technology and automotive expertise to usher in a new era of vehiclesThe upcoming developments from their partnership with Huawei, particularly in launching a new premium brand, are highly anticipated both within the industry and among consumers alike.

In summary, GAC Group's response to its current troubles seems to hinge upon strategic partnerships, notably with Huawei, while addressing internal operability to foster a more innovative and responsive vehicle lineupAs the dynamics of the market shift towards new energy and intelligent vehicles, GAC Group's recovery and growth trajectory could set a compelling example for traditional automakers attempting to navigate this uncertain but promising landscape.

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