In Depth: Mega-Mistake Adds to Li Auto’s Troubles as Huawei Rivalry Intensifies

Li Auto Inc. has faced significant challenges despite starting 2023 with strong financial performance. The Beijing-based company reported a profit of 11.8 billion yuan ($1.66 billion) on vehicle sales of 120.3 billion yuan for 2023, marking the first annual profit among major newcomers from China in the field of electric vehicles and topped the delivery ranking with 376,030 vehicles sold last year. (para. 2).

Excitement was high with the upcoming launch of their mega electric vehicle (EV), designed as a seven-seater multi-purpose vehicle reminiscent of a high-speed train. (para. 3). The launch, however, was marred by an edited viral image, comparing the vehicle to a hearse, and lower-than-expected subsequent orders. (para. 5)(para. 6). Investors filed a class-action lawsuit against Li Auto, alleging overestimated market demand, following which the company reported revenue of 24.3 billion yuan in the first quarter of 2024, short of 26. 7 billion yuan estimated. (para. 6).

Initial high expectations for the Mega, targeting monthly shipments of 8,000 units, were not met as only 1,000 units were sold as of mid-May 2024. (para. 8). CEO Li Xiang expressed concerns about organized cyberdefamation affecting the vehicle’s image and announced plans to take legal action. (para. 9).

Market experts like Li Yanwei criticized the ambitious sales target, pointing out that just one model, the BMW X5 SUV, had consistently sold more than 8,000 units per month in the high price range targeted by the Mega. (para. ten). Faced with disappointing sales, Li Auto lowered its sales target for the first quarter but still managed to deliver 80,400 vehicles, close to the lower end of its revised target. (para. 11). Li Xiang admitted to having misjudged the Mega’s product lifecycle phase, indicating the need to shift the strategy back to a product validation phase. (para. 12).

Adding to Li Auto’s difficulties was its competition with Huawei’s premium electric vehicle brand, Aito, which launched its M7 model in 2022, direct competition to Li Auto’s Li One SUV. The M7 quickly gained traction, forcing Li Auto to reduce Li One prices and accelerate the launch of new models. (para. 23). This competition has led to increased net losses and increased financial pressure for Li Auto. (para. 25)(para. 27).

Despite releasing the L6 to compete with Aito’s M5 at a similar price, Aito continued to outsell Li Auto for three consecutive months from January to March 2024. (para. 30). Industry observers predict that while Tesla and BYD currently dominate the 200,000-plus yuan segment of China’s new energy vehicle market, Aito may soon join the top ranks, potentially disrupting Li Auto’s position. (para. 34)(para. 37).

In response to Huawei’s growing presence in the market, Li Auto plans to intensify its focus on pure battery electric vehicles, pushing back the launch of new fully electric models until next year. The company also aims to improve its intelligent driver assistance systems and intelligent interfaces in car cabins to be more competitive. (para. 38)(para. 40).

Competition in China’s new energy vehicle market is expected to become even fiercer, with sales expected to increase significantly in 2024. (para. 41). Faced with these challenges, Li Auto remains determined to refine its market strategies and evolve its product offering to support its growth and counter competition from formidable competitors like Huawei. (para. 42).

AI generated, for reference only