Lead-in

Introduction

The era of rapid, extensive growth in China's domestic new energy vehicle (NEV) industry is drawing to a close.

When discussing the 'bellwethers' of China's NEV sector, NIO, Xpeng, Li Auto, and Leapmotor immediately come to mind. Established over a decade ago, these companies have navigated both successes and setbacks, serving as a microcosm of the industry's evolution.

For years, China's NEV industry has followed a predictable growth trajectory: electrification replacing internal combustion engines, technological advancements, cost reductions, market expansion, and ultimately, a winner-takes-all scenario.

NEV startups capitalized on the dual benefits of electrification and intelligent upgrades, rapidly scaling their market presence through continuous product innovation. However, this linear growth pattern is now fracturing.

As the industry matures, the underlying competitive dynamics are undergoing a fundamental shift. Normalized price wars, severe product homogenization, and shrinking profit margins have become the defining characteristics of the current market landscape.

The entire market is fiercely competitive, yet struggles to generate sustainable profits or signs of long-term viability.

Data reveals that from January to May, domestic passenger vehicle retail sales reached approximately 7.10 to 7.15 million units, marking a year-on-year decline of 19% to 19.5%. In May alone, retail sales hit 1.51 million units, a 22.1% decrease from the previous year. This downturn extends beyond the NEV sector, impacting the entire automotive industry, including supply chains for power batteries, chips, and electric motors.

From an automaker's perspective, core technologies such as the three-electric systems (battery, motor, and electronic control), smart cockpits, and advanced driver-assistance systems (ADAS) have achieved near-universal adoption. The simple model of hardware stacking is losing its effectiveness and can no longer serve as a long-term competitive barrier for companies.

As competition at the product level peaks, a traditional business model focused solely on manufacturing and selling cars is insufficient for long-term development—or even survival. This raises new questions:

In this era of low margins and intense competition, can automotive companies afford to remain confined to the single track of 'pure car manufacturing' and simply 'wait' for better times?

01 Li Auto and Xpeng: Two Approaches to Intelligence and Technology

Faced with the new industry landscape of diminishing industrial dividends and intensifying competition, Xpeng and Li Auto have adopted the most 'proactive' strategies among the four NEV startups. Both are betting on the transformative potential of technology and intelligence, yet their practical approaches differ significantly.

In early June, Xpeng CEO He Xiaopeng issued an internal letter announcing his additional role as CEO of the robotics business, personally leading relevant initiatives. He emphasized that this was not merely a business upgrade but a pivotal step in Xpeng's transformation from a 'smart car company' to a 'physical AI company.'

Clearly, Xpeng is leveraging technology to 'expand outward,' establishing a comprehensive ecosystem of physical AI terminals. The goal is to transcend the automotive industry's traditional boundaries and unlock long-term growth potential through physical AI technology.

In Xpeng's strategic vision, smart cars are no longer the endpoint of corporate development. Their advantage lies in their high potential, effectively hedging against cyclical market fluctuations and the relentless pressure of competition.

However, this approach also presents significant challenges. Multi-track parallel layouts will continuously divert R&D, financial, and human resources. Xpeng must now address core challenges such as achieving convergence across multiple businesses, ensuring efficient technology implementation, and balancing commercial profitability.

In contrast to Xpeng's outward expansion, Li Auto leans more toward 'inward convergence.'

Five days after He Xiaopeng's internal letter, Li Auto reinforced its positioning at 'Livis Day,' showcasing its strengths in AI, software, hardware, and embodied intelligence technologies. It redefined cars as 'embodied intelligent terminals,' emphasizing the deep integration of AI with vehicle systems.

Indeed, Li Auto is also investing heavily in AI and embodied intelligence technologies.

However, Li Auto has chosen to focus on the core of 'embodied intelligent vehicles.' By precisely targeting mid-to-high-end family users, maintaining a stable product iteration rhythm, and offering an integrated vehicle intelligence solution, it aims to redefine the product attributes of the entire vehicle.

Admittedly, this focused strategy has provided Li Auto with a clear commercial closed loop and stable profitability, helping it establish a firm foothold in the mid-to-high-end market amidst homogenization.

However, the highly focused scenario positioning also limits the company's growth potential. The bet on intelligent technologies requires time to yield results. As more automakers enter the home extended-range and family intelligence sectors, Li Auto's exclusive scenario barriers are weakening, and pressure is mounting.

02 NIO and Leapmotor: Different Paths to Systemic Strength and Efficiency

Of course, this does not mean that NIO and Leapmotor are neglecting intelligence or technology. Rather, it highlights NIO's systemic capabilities and Leapmotor's efficiency and cost-effectiveness as their defining characteristics.

NIO's core focus extends beyond 'cars' to 'user relationships.' It has built a comprehensive long-term system, encompassing battery swap networks, user communities, service systems, and brand identity. The essence of its business model is a long-term subscription model rather than a one-time transaction.

This asset-heavy, service-intensive operational model has enabled NIO to break free from the low-price competition in the mid-range market. Leveraging a stable brand premium and high user loyalty, it has constructed a unique high-end market barrier.

However, the asset-heavy model also comes with inherent structural challenges. Continuous investment in battery swap infrastructure, offline service networks, and high-end operational systems has driven up fixed costs and operational pressure. This business model relies on sustained user payments, repurchases, and ecosystem consumption.

NIO is well-aware of these challenges. The strategic layout of its second brands, 'Leapmotor' and 'Firefly,' aims to help NIO achieve 'scale' goals faster and further amortize system setup costs. Moving forward, NIO can focus on selling cars, maintaining product quality, and enhancing the value of its systemic capabilities to remain competitive.

In contrast, Leapmotor has taken a distinctly different path. It does not rely on grand narratives or boundary-pushing imaginations but instead focuses on transforming cars into standardized industrial products.

With a background in Dahua Technology, Leapmotor's founder, Zhu Jiangming, understands the intricacies of industrial manufacturing. Thus, Leapmotor has chosen the development path most aligned with physical manufacturing. Through extreme cost control, vertical integration, and scale efficiency, it leverages strong industrial capabilities to build itself into a 'manufacturing efficiency model' capable of continuous cost optimization.

It is reported that 65% of Leapmotor's vehicle costs come from core components that are self-researched and self-produced, with a target of reaching 80% by 2026. The self-research rate for core three-electric components is 92%. Within the same platform models, the commonality rate of vehicle components is 88%. Even across different platform models, the underlying electronics, software, and three-electric modules can be shared.

As evident, Leapmotor's full-domain self-research and 'good but affordable' approach have been pushed to the extreme under the 'manufacturing efficiency model.' Benefiting from its strong focus on the mass-market segment, Leapmotor has maintained a stable delivery scale and cash flow level amidst fierce price wars.

This is the confidence behind Leapmotor's goal of 'selling one million units annually.' However, it should not be overlooked that extreme cost orientation makes it difficult to cultivate brand premium. Leapmotor's upcoming second brand may be the key to breaking this cycle.

03 What Will the Final Outcome of the Industry Be?

Analyzing the strategic layouts of the four NEV startups, it is clear that despite their differing development paths, their core transformation logic is highly unified:

Escaping the low-margin involution trap of traditional vehicle manufacturing by redefining corporate positioning, iterating business models, and seeking sustainable long-term growth logic.

Xpeng anchors technological boundary expansion, Li Auto deeply cultivates vertical scenario value, NIO operates a high-end user ecosystem, and Leapmotor pursues ultimate industrial efficiency. These four business models have no absolute superiority or inferiority; they are all strategic choices made by companies based on their own DNA during the industrial transformation cycle.

Currently, China's domestic NEV industry is still in a chaotic phase of dynamic transformation. AI technology iteration, autonomous driving system implementation, overseas market dynamics, and corporate profit models remain undefined.

Thus, the harsh reality is that the current corporate differentiation is merely a phased exploration of the NEV industry, not its final outcome.

However, one fact must be clear: the era of extensive growth in China's domestic NEV industry is indeed coming to an end. A new battle has already been initiated by NIO, Xpeng, Li Auto, and Leapmotor.

In this new transformation, companies that cling to traditional automotive thinking and rely on product involution and price wars will gradually be eliminated by the market. In contrast, companies that actively break free from rigid operational models, redefine their core positioning, and build new business systems will become the new core players.

In other words, the future NEV industry may no longer contain purely traditional automotive companies in the conventional sense. The long-term path for all automakers requires upgrading beyond traditional car manufacturing identities to achieve rebirth in the new cycle of AI technology and industrial transformation.

Editor: Shi Jie Editor: He Zengrong

THE END