The failure of Lixiang MEGA and the sales trend of Lixiang L6 suggest that its brand positioning for high-end pure electric SUVs is vague, and its future performance in the pure electric market remains to be seen.

@SciTechInsight Original

Lixiang Auto is still too 'idealistic,' expecting every new car model to become a bestseller since its inception. However, the first MPV model, Lixiang MEGA, launched in March this year, failed to meet expectations due to its high price and controversial rear design.

Fortunately, the subsequent launch of Lixiang L6 reversed the declining sales trend for Lixiang Auto. With an 'affordable' price below 300,000 yuan and above-average specifications, Lixiang L6 gained popularity among consumers, and its sales continued to climb, even exceeding 20,000 units for multiple consecutive months. This week, Lixiang Auto announced its sales figures for the 38th week of the year (9.16-9.22), reaching 12,000 units, ranking first among new energy vehicle brands in the Chinese market for 22 consecutive weeks.

However, according to Lixiang Auto's financial report for the first half of the year, the company paid a significant price for the low price and thin margins of Lixiang L6. Data shows that in the first half of 2024, Lixiang Auto recorded revenue of 57.312 billion yuan, an increase of 20.81% year-on-year, but net profit was only 1.695 billion yuan, a year-on-year decline of 47.7%, almost halved. After the financial report was released, its share price plummeted by over 25 billion yuan overnight.

Investors' concerns about Lixiang Auto are not unfounded. On the one hand, Lixiang Auto's attempt to 'break into the high-end market' with its first MPV model, Lixiang MEGA, has clearly hit a roadblock. On the other hand, Lixiang Auto's strategy of 'trading price for volume' not only severely undermines its profitability but also poses risks to its efforts to further establish a high-end brand image. Therefore, investors are increasingly concerned about Lixiang Auto.

Part.1

The chill in the market and the positioning challenge of MEGA

In fact, before the launch of Lixiang L6, Lixiang MEGA was considered the next bestseller for Lixiang Auto, with an internal sales target of 8,000 units per month, even aiming to be the top-selling model among cars priced above 500,000 yuan.

However, it appears that Lixiang Auto's expectations have not been met. Public data shows that from March to June 2024, Lixiang MEGA's sales were 3,229, 1,145, 614, and 589 units, respectively, showing a clear monthly decline. Although there was a slight recovery in July and August, with sales of 654 and 746 units, respectively, these figures fell far short of the monthly sales target of 8,000 units.

In contrast to the setback suffered by Lixiang MEGA, Lixiang L6's sales have soared since its launch in April 2024, to some extent compensating for the disappointment caused by Lixiang MEGA's underperformance.

Automobile retail data shows that from April to June, Lixiang L6's sales were 2,381, 12,965, and 23,864 units, respectively, showing a gradual increase, with a particularly sharp rise in June. Although sales fluctuated slightly in July, reaching 21,278 units, sales hit a new high of 24,897 units in August.

Undoubtedly, Lixiang L6 has become a bestseller for Lixiang Auto, and the shadow cast by Lixiang MEGA's underperformance seems to be gradually dissipating.

However, Lixiang Auto has undertaken an internal review of Lixiang MEGA's failure. According to Jiemian News, on March 21, Lixiang Auto CEO Li Xiang issued an internal letter to all employees stating that Lixiang MEGA encountered a timing issue, mistakenly treating its stage from 0 to 1 (commercial validation period) as stage 1 to 10 (rapid development period). Furthermore, Lixiang Auto was overly focused on sales and competition from top to bottom, allowing ambition to outweigh value.

However, industry insiders disagree. While many attribute Lixiang MEGA's poor sales to its controversial rear design, the consensus among insiders is that the model failed to accurately target its intended audience in terms of marketing and pricing strategies, resulting in a lack of consumer interest.

In reality, with numerous consumer choices, Lixiang Auto touted Lixiang MEGA as an MPV suitable for large families while pricing it above 500,000 yuan. However, competitors like the Alphard and Mercedes-Benz V-Class, which are essentially commercial vehicles, justify their high prices.

When it comes to family use, these brands' MPVs are priced below 500,000 yuan. This significant deviation between Lixiang Auto's target market and its actual marketing audience led to the over-500,000-yuan price tag becoming a significant barrier for consumers making purchasing decisions.

Moreover, from a competitive perspective, there are many new energy MPVs on the market, with Tengshi D9 selling over 10,000 units per month, outperforming the likes of Buick GL8, and newcomers like Zeekr 009 and Xpeng X9 entering the fray, all priced lower than Lixiang MEGA. It's no wonder few Chinese families are willing to pay an extra 10-20 yuan for a controversial Lixiang MEGA.

Part.2

Profitability challenges behind soaring L6 sales

As mentioned earlier, the growth in Lixiang L6 sales has also negatively impacted Lixiang Auto's profitability. A closer look at its financial report reveals that while Lixiang Auto recorded a net profit of 1.695 billion yuan in the first half of 2024, its operating profit actually incurred a loss of 1.169 billion yuan, indicating that the company was operating at a loss during the period.

The profitability figures shown in Lixiang Auto's financial report are due to interest income and investment gains totaling approximately 1.439 billion yuan, which covered its operating losses and may explain the sharp drop in its share price.

It is worth noting that due to Lixiang L6's low price and modest gross margin, its soaring sales have contributed significantly to revenue but have also dragged down the company's overall gross margin, leading to a sharp decline in vehicle gross margin.

Financial report data shows that in the first half of 2024, the company's gross margin declined from 20.5% in the same period of 2023 to 19.5%, while the vehicle gross margin fell to 18.7%. Notably, this indicator was 21% in the second quarter of 2023 and 19.3% in the first quarter of 2024.

Apart from dragging down Lixiang Auto's overall gross margin, Lixiang L6 also faces numerous competitors in the market, making it uncertain whether its sales will continue to grow in the future.

For example, at the recent Chengdu Auto Show, many new models were unveiled, including Avitar 07. Equipped with Huawei's Kunlun Intelligent Driving System ADS 3.0 and an extended-range powertrain, this model directly challenges Lixiang Auto.

In comparison, some consumers find Avitar 07's sci-fi styling more appealing, both in terms of exterior and interior design, with eye-catching visual impact. In terms of design and intelligent driving, some media outlets even consider Avitar 07 to be ahead of Zeekr's new model, the 7X.

Furthermore, Avitar 07 offers optional sports packages, long-range driving capabilities, and ADS 3.0, undoubtedly providing a superior driving experience. Compared to Lixiang L6, Avitar 07 may have a greater competitive advantage. The upcoming sales battle between the two models promises to be highly anticipated.

From a branding perspective, Lixiang L6's soaring sales are not entirely a positive development for Lixiang Auto. The launch of Lixiang MEGA demonstrates that Lixiang Auto still has aspirations for high-end 'family cars.' After Lixiang MEGA's setback, the company hopes to continue its efforts in the high-end pure electric and MPV segments.

However, these niche segments are also fiercely competitive, with brands competing not only on product capabilities but also on brand strength. Lixiang L6's rising sales are unlikely to enhance its brand strength in its future pursuit of the high-end market.

Part.3

The waning advantage of 'extended-range' technology, and the challenge of breaking into the pure electric market

Secondly, the latest national policies may not favor the promotion and sale of EREVs. For instance, since January 1, 2023, Shanghai has stopped granting new energy vehicle license plates to EREVs, indicating that they are no longer considered new energy vehicles in the city. Although no other cities have followed suit yet, Shanghai, as the leading city in new energy vehicles, has a significant influence on national policies. If Lixiang Auto continues to rely heavily on EREVs, it may face increasing challenges.

Thirdly, one of the main selling points of Lixiang Auto's EREVs in recent years has been the elimination of 'range anxiety.' However, this advantage is based on the premise that domestic charging infrastructure is not fully developed. As this infrastructure gradually improves, the benefits of EREVs are diminishing or even disappearing.

In fact, Lixiang Auto is aware of this crisis and has pinned its hopes for breakthrough on high-end pure electric vehicles. Nevertheless, the high-end pure electric segment is also highly competitive, and as a latecomer, Lixiang Auto faces many uncertainties in entering this market.

Firstly, market data indicates that demand and potential for high-end pure electric vehicles are limited, especially compared to high-end plug-in hybrid and EREV SUVs. Moreover, without the inherent advantage of 'range anxiety-free' driving, Lixiang Auto's ceiling in the high-end pure electric SUV segment is foreseeable.

Secondly, competition in the high-end pure electric SUV market is intense, with rivals like NIO's ES8, ES7, EC7, and Xpeng's popular G9 model posing significant challenges. AITO, which has not yet launched relevant models, is also likely to enter the market in the future.

As a relative newcomer to the pure electric market and given the failure of Lixiang MEGA, Lixiang Auto faces challenges in breaking into this segment. Perhaps due to these uncertainties, Lixiang Auto has postponed the launch of several planned pure electric models from 2024 to the first half of 2025. However, this delay will not resolve the immediate issues, and Lixiang Auto's performance in the pure electric market remains to be seen.

Over the past few years, with a limited number of models, Lixiang Auto has delivered more impressive results than other new energy vehicle makers. However, since the first half of 2024, the setback in Lixiang MEGA sales and the soaring sales of Lixiang L6 indicate that Lixiang Auto is blurring its brand positioning. The greater cost of 'trading price for volume' may still be ahead.

Therefore, while the future of Lixiang Auto is still worth looking forward to, it is also worrying.

Reference materials:

1. "Revenue of 57.3 Billion! Lixiang Auto, Net Profit "Halved"" Kanjian Finance

2. "Lixiang Auto Makes a Profit But Stock Price Plummets, Gross Profit of Entire Vehicles Drops to 18%" Taimedia

3. "Three Consecutive Quarters of R&D Investment of 3 Billion, Lixiang Auto Releases Q2 2024 Financial Report"

4. "At Least Three Auto Companies Suspected of Participating in the Lixiang MEGA Online Army Attack Incident, Xiaopeng Responds First" Jiemian News

5. "Lixiang Auto Quarterly Report Interpretation: L6 Becomes a New Hit, R&D Investment of 3 Billion, Increased Investment in Intelligent Driving Safety" Leidi