Embarking on the Next Ten-Year Journey

Author: Qin Zhangyong

From deliberating on product strategies to revamping the company's management approach, Li Xiang transformed a routine performance review call into a strategic masterclass.

Li Auto stands as Li Xiang's most significant entrepreneurial endeavor. Since its early expansion phase, Li Xiang's entrepreneurial foresight has consistently garnered positive acclaim, with sales and revenue consistently outpacing those of other new automotive manufacturers.

Over the past three years, Li Xiang and his team have endeavored to implement a professional managerial system. However, they found themselves "becoming increasingly less effective versions of ourselves." In the third quarter that just concluded, Li Auto encountered a multitude of challenges, including product cycles, public relations crises, supply chain scaling, and policy shifts.

Following introspection and evaluation, Li Auto is poised to revert to its area of greatest expertise—startup management—as it looks ahead to the company's second decade.

Once the organizational model is firmly established, Li Auto's subsequent strategic decisions become significantly more comprehensible.

01

Envisioning a Future of Embodied Intelligence

When it comes to conceptualizing next-generation products, Li Xiang's vision extends further and delves deeper than most:

If a product is merely defined as an 'electric vehicle,' the competitive landscape devolves into a battle of specifications. Opting to transform vehicles into smart terminals would be akin to transplanting mobile app functionalities into cars, a move that could easily lead automakers into a self-indulgent trap.

In Li Xiang's estimation, the current choices between electric vehicles and smart terminals are not lacking in quantity but rather in depth and innovation.

Only by embracing the formidable challenge of embodied intelligence and offering autonomous, proactive services through embodied intelligent robot products can automotive enterprises and entrepreneurs seize the premier opportunities and confront the highest-level challenges in this new era.

Compared to traditional automobile manufacturing, venturing into embodied intelligence introduces greater uncertainty. It necessitates not only reshaping product forms but also making pivotal choices in technological pathways. Choosing this path means that Li Auto, having just discovered a successful route, must now embark on the next technological revolution.

Fortunately, Li Xiang's prowess in product development is undeniable. The design of the Li L series has been widely emulated, and this year, numerous major automotive manufacturers launching extended-range products have validated Li Xiang's strategic approach.

To excel in the realm of embodied intelligent products, Li Xiang opted to start from the foundational logic—constructing an AI system distinct from linguistic intelligence. This endeavor requires breakthroughs in perception, modeling, operating systems, and transforming hardware into the essence of embodied intelligence.

The challenge lies in the fact that no third-party supplier can currently provide a complete, integrated system.

Gaining a comprehensive understanding of the entire AI system through the lens of embodied intelligence necessitates custom-designed chips and proprietary operating systems, spanning from perception to modeling. This is why Li Auto is developing its own chips. The M100 chip is specifically engineered to address the fundamental challenges of embodied intelligence.

Li Xiang stated during the call that the AI system equipped with the self-developed M100 chip will be deployed in 2026, at which point "true value and experience will undergo a transformation," enabling vehicles to transition from 'passive use' to 'proactive automated services.'

Li Auto's CTO, Xie Yan, revealed that the company's independently designed M100 AI inference chip is currently undergoing large-scale system testing and is expected to be commercialized next year. When co-designed with the base model compiler and software system, its performance-to-cost ratio will surpass that of today's high-end chips by more than threefold.

These endeavors demand substantial financial investment. In the third quarter, Li Auto's R&D expenditure reached 3 billion yuan, with an anticipated total annual R&D investment of 12 billion yuan. Over 6 billion yuan will be allocated to the field of artificial intelligence, with comprehensive in-house research and development also commencing in areas such as chips, base models, underlying operating systems, and core controllers.

Current investments are poised to transform into a competitive advantage. Li Auto's VLA driver large model was fully rolled out to AD Max models in September, with monthly usage rates soaring to 91%. Li Auto's President, Ma Donghui, stated that by the end of December, there will be an architectural upgrade focusing on enhancing language and behavioral information interaction, optimizing decision-making processes, and adapting to the self-developed M100 chip in 2026.

With underlying technological support, it is only logical for Li Auto to introduce ecological products, such as smart glasses.

Today, Li Auto officially announced that it will unveil the Li Auto AI Glasses, Livis, on December 3rd. Li Xiang had previously hinted at the possibility of a Li Auto AI speaker also being in the works.

Li Xiang's vision is to position Li Auto as the premier performer and highest user-value company in the field of embodied intelligence within the next 3-5 years.

02

Ample Resources in Reserve

After establishing the company's long-term strategy, focusing on the present is equally imperative.

In the third quarter, Li Auto's revenue surged to 27.4 billion yuan, with a total revenue of 83.5 billion yuan in the first three quarters, the highest among new automotive manufacturers. Additionally, its R&D investment (3 billion yuan) and cash reserves (98.9 billion yuan) also lead the pack.

A pivotal event during this period was the recall of certain 2024 Li MEGA models, with the associated costs reflected in the Q3 financial report, temporarily impacting profit performance. However, this was a necessary step to uphold user responsibility.

Li Tie, Li Auto's CFO, stated that based on estimated amounts, approximately 1.1 billion yuan in warranty costs were accounted for in Q3 regarding the MEGA recall.

Excluding the impact of the estimated costs from the Li MEGA recall, Li Auto's quarterly gross profit margin stood at 20.4%, the highest among new automotive manufacturers.

Following the release of the financial report, the capital market responded favorably. As of press time, Li Auto's Hong Kong stock price rose by 1.6% to 72.85 Hong Kong dollars, with after-hours trading in the US also exhibiting an upward trend.

Corresponding to the performance figures, Li Auto's pure electric strategy has begun to bear fruit. In the third quarter, two pure electric SUVs, the Li i8 and Li i6, were launched, amassing over 100,000 orders to date. It is anticipated that the monthly production capacity of the Li i6 will steadily increase to 20,000 units by early next year.

The success of these two new pure electric SUVs has also enabled Li Auto to achieve broader market coverage in the mainstream pure electric segment.

The high-end pure electric market has also witnessed breakthroughs, with the Li MEGA securing the sales championship for pure electric vehicles and MPVs priced over 500,000 yuan in the third quarter.

As of the end of October, Li Auto had established 3,500 supercharging stations. Ma Donghui stated that by 2026, Li Auto aims to have approximately 4,800 supercharging stations, with the proportion of highway charging piles expected to exceed 35%.

Extended-range vehicles remain Li Auto's traditional forte. This year, various automakers have flooded the market with a plethora of extended-range products, ranging from compact SUVs priced around 100,000 yuan to mid-to-large SUVs priced between 200,000 and 300,000 yuan. Extended-range SUVs appear to have become a golden ticket for boosting sales, inevitably impacting the Li L series.

Ma Donghui proposed an overall strategic goal at the earnings call: 'By 2026, Li Auto aims to reclaim its leading position in extended-range products.' The Li L series will undergo a major redesign in 2026.

For instance, the model configuration will revert to a streamlined SKU model, balancing market coverage and supply chain efficiency. In other words, even the entry-level version will boast sufficiently rich configurations. Additionally, in terms of design, it will continue the classic design genes while enhancing the luxurious feel. Technologically, it will feature 5C supercharging technology as standard across all models.

Regarding global expansion, Li Auto also accelerated its pace in the third quarter. In October of this year, Li Auto's first overseas authorized retail center officially opened in Uzbekistan, followed by a launch in the Kazakhstan market a month later. Unlike the direct sales model adopted domestically, Li Auto primarily leverages an authorized dealer partnership system for overseas markets.

For global expansion, Li Auto plans to initially complete layouts in core regions of the Middle East, Central Asia, and North Africa this year, followed by a gradual expansion into Latin America, Europe, and Southeast Asia in 2026 as scheduled.

It is evident that after weathering a series of setbacks, Li Auto's systemic capabilities are continuously evolving, and adjustments in its management model are laying the groundwork for product and technological innovation.

In the automotive industry, there may be no shortage of companies capable of producing exceptional vehicles. However, in the field of embodied intelligence, a groundbreaking enterprise may emerge. Let us collectively anticipate this development.