will set up a company engaged in the R&D and production of smart driving systems and components, in which Changan plans to acquire no more than a 40 percent stake.

(Image credit: Changan)

Chongqing Changan Automobile said it will invest in a new company to be set up by Huawei, days after renewed rumors of a partnership between the two circulated.

Changan signed a memorandum of understanding (MoU) with Huawei on November 25 in Shenzhen, Guangdong province, to jointly support the latter's establishment of a company that will provide automotive smart system and component solutions, according to an exchange announcement today.

Huawei plans to set up the target company to engage in the research and development, design, production, sales and services of automotive intelligent systems and component solutions, and Changan plans to invest in the company and carry out strategic cooperation, according to the carmaker's announcement.

The new company will aim to become a world-class leader in the automotive intelligent driving system and component industry, and act as an open platform serving the automotive industry, opening up equity to investors such as existing strategic partner car companies and car companies with strategic value, Changan said.

The partnership will accelerate the full-stack intelligent capabilities built by Changan and realize a comprehensive and steady transformation into an intelligent low-carbon mobility technology company, the announcement said.

Changan and its affiliates plan to acquire no more than 40 percent of the new company's equity, with the specific amount of capital contribution and term to be separately negotiated between the two parties, according to the announcement.

The company's business scope includes automotive smart driving solutions, smart cockpit, smart car digital platform, smart car cloud, AR-HUD and smart car lights.

Huawei plans to integrate the core technologies and resources of its smart car solutions business into the new company, with the specific business scope and scheme to be determined in the final transaction documents, according to Changan's announcement.

The memorandum of cooperation is a document of intent, and the two sides plan to sign definitive transaction documents, including an equity purchase agreement and a shareholders' agreement, within six months.

The announcement comes after rumors about Huawei's possible divestment of its automotive business unit sparked widespread discussion.

In August, local media outlet HiEV reported that Huawei intended to push for the automotive BU to operate independently, and that it had been in close contact with the State-owned Assets Supervision and Administration Commission (SASAC) of Chongqing.

The independent unit would likely become a new Tier 1 parts giant, with Huawei recouping years of R&D investment in the business, according to the report.

On November 23, new rumors surfaced that Huawei's smart vehicle solutions business unit was going to be spun off from Huawei, with the new top shareholder being the SASAC of Chongqing.

Changan will be the only automotive company involved in the deal, and will receive a 15 percent stake in that Huawei business unit, a Jiemian report said, citing the rumors, adding that there were also rumors that Changan would receive about 30 percent of Huawei's stake in the business unit at a valuation of RMB 300 billion.

On the back of the rumor, Shenzhen-listed Changan rose by a one-day trading limit of 10 percent at one point on November 23, although the gain narrowed to 6.75 percent at the close.

Both Changan and Huawei said in response to the rumors that they were unaware of them, according to previous reports by several local media outlets.

In addition to its partnership with Huawei, (NYSE: NIO) announced on November 21 that it had signed a battery swap business cooperation agreement with Changan in Chongqing.

The two parties will jointly facilitate the formulation of standards for swappable batteries, build and share the battery swapping network, develop swappable vehicles, and establish an efficient battery asset management mechanism, Nio said.

Nio ties up with Changan as it wins 1st partner on battery swap network sharing