Written by | Xu Zhi

Edited by | Wang Pan

On the evening of October 31, Beijing time, Li Auto released its third-quarter financial report for 2024, with both revenue and delivery volumes reaching record highs.

Benefiting from the robust sales of the L series, Li Auto's third-quarter revenue reached 42.9 billion yuan, an increase of 23.6% year-on-year and 35.3% quarter-on-quarter. In the third quarter, the total vehicle delivery volume was 152,831 units, an increase of 45.4% year-on-year and 40.7% quarter-on-quarter. With the growth of various financial indicators, Li Auto's quarterly operating cash flow was 11 billion yuan, and its cash reserves reached 106.5 billion yuan.

On October 18, Li Auto's cumulative deliveries exceeded 1 million units, making it the first Chinese new energy vehicle brand to reach the milestone of 1 million deliveries. It took only 58 months since the delivery of the first complete vehicle in December 2019.

In the third quarter, the top three brands in the 200,000+ NEV market accounted for more than 50% of the market share, with Li Auto accounting for 17.3% of the market share, continuing to rank first in sales among Chinese brands.

In terms of intelligent driving, Li Auto achieved a key breakthrough by fully deploying a new intelligent driving solution combining end-to-end (E2E) and visual language models (VLM) to over 320,000 Li Auto AD Max owners in October, officially entering the era of AI large models.

Both operating revenue (42.9 billion yuan) and gross profit margin (20.9%) exceeded market expectations of 41.27 billion yuan and 20.2%, respectively. The net profit for the third quarter was 2.8 billion yuan, an increase of 0.3% year-on-year. Since achieving profitability for the first time last year, Li Auto has been profitable for eight consecutive quarters, which is quite impressive in the current fiercely competitive new energy vehicle market.

However, the capital market did not respond favorably. By the close of U.S. markets on the evening of the 31st, Li Auto's share price had fallen by more than 13%. On November 1, within half an hour of the Hong Kong stock market opening, Li Auto's share price had fallen by more than 10%.

The reason for the contrasting performance between the financial report and share price is mainly due to Li Auto's conservative revenue and delivery forecasts for the fourth quarter, which were viewed as a signal of slowing growth by the outside world. Specifically, Li Auto expects to deliver 160,000 to 170,000 vehicles in the fourth quarter, with a total expected revenue of 43.2 to 45.9 billion yuan, both representing single-digit quarter-on-quarter growth rates.

On the other hand, facing an increasingly competitive landscape, Li Auto has not provided, nor can it provide, the answers the market desires regarding how to optimize its product mix and further enhance its core competitiveness.

Increasing revenue without increasing profit, Li Auto still needs to "charge up"

Compared to the substantial growth in revenue, Li Auto's net profit growth appears somewhat underwhelming: the net profit for the third quarter of 2024 was 2.8 billion yuan, an increase of only 0.3% year-on-year.

This is coupled with rising costs. The sales cost for the third quarter of 2024 was 33.6 billion yuan, an increase of 24.5% year-on-year and 32% quarter-on-quarter. Operating expenses were 5.8 billion yuan, an increase of 9.2% year-on-year and 1.5% quarter-on-quarter. However, it should be noted that both year-on-year and quarter-on-quarter R&D investments decreased in the third quarter. Additionally, due to scale benefits, vehicle manufacturing costs should have been significantly reduced. Nevertheless, the vehicle gross profit margin of 20.9% has decreased from 21.2% in the third quarter of 2023.

This may be due to the increasing proportion of the lower-priced L6 and the declining proportion of the higher-priced, higher-margin L9, as Li Auto gradually shifts its product sales mix towards lower-priced models, affecting the overall profit level.

Visible Alpha analysts pointed out that after a challenging second quarter, investors will closely monitor Li Auto's vehicle gross profit margin and overall profit margin to assess its cost control capabilities and profitability.

In contrast, Thalys' third-quarter financial report showed a year-on-year increase of 636.25% in revenue, with a net profit attributable to shareholders of listed companies of 2.413 billion yuan in the third quarter, achieving a significant turnaround from a loss to a profit year-on-year.

Furthermore, Li Auto recorded negative interest income and investment income in the third quarter, totaling a loss of 21.979 million yuan. It is worth noting that Li Auto's net profit for the first half of 2024 was 1.672 billion yuan, of which interest income and investment income amounted to 1.439 billion yuan, meaning approximately 85% of its profit came from investment and wealth management.

The investment performance in the third quarter failed to sustain the "myth" of the first half, instead incurring losses, despite the bull market in China's A-shares and the rise in the Nasdaq index.

In other words, Li Auto's investment performance has been extremely volatile, much like a rollercoaster, which has greatly impacted market confidence.

The popularity of L6 cannot save the failure of MEGA

Returning to product performance, Li Auto's performance this year cannot be described as outstanding.

The "nested doll" product structure has always been a major criticism of Li Auto. The popularity of L6 largely stems from cannibalizing the market share of its older siblings, the L7, L8, and L9. Sales growth comes from internal competition rather than breakthroughs in new areas, adding more pressure on Li Auto's future development.

Sales of Li Auto's first pure electric vehicle, the MEGA, have yet to show any signs of improvement, with monthly sales consistently failing to exceed 1,000 units. The far-below-expected order volume has forced Li Auto to postpone the launch of its new pure electric vehicle, originally scheduled for 2024, to 2025.

Li Auto is also constrained by its "monolithic" situation: a single model type, a single power form, and a single price range. Especially in terms of product mix, Li Auto has yet to introduce a sedan model. On the one hand, this means Li Auto still has many cards to play and can calmly respond to the second half of market competition. On the other hand, as Xiaomi and Xpeng continuously launch "hit" sedans, Li Auto's disadvantage of entering the market late will become increasingly apparent.

Internal concerns remain unresolved, while external pressures are increasing.

It is noteworthy that Li Auto's outstanding performance in the third quarter was, to some extent, due to its competitors "stepping aside" rather than a leap in its own brand power or product strength.

As Li Auto's strongest competitor, AITO showed strong momentum from the end of last year to the first half of this year. Especially in the first half of this year, Li Auto delivered approximately 188,900 vehicles, closely followed by AITO's 182,000 vehicles. However, starting from July, sales of AITO's three models began to decline to varying degrees, gradually widening the gap with Li Auto.

A possible turning point came in early July when Huawei sold the AITO text and graphical trademarks to Thalys. Before this, the AITO brand was in a gray area, and users could easily perceive it as a "direct offspring" of Huawei. However, the transfer of the brand completely changed this perception, causing a large number of Huawei fans and potential users to abandon AITO and switch to other brands. In a sense, Li Auto unexpectedly gained a modest advantage.

Meanwhile, as more players enter the extended-range race, Li Auto's first-mover advantage is diminishing: In the high-end segment, there is AITO with a stronger brand positioning and technical capability; in the cost-effective segment, there is Zero Run, often referred to as the "half-price Li Auto," which has dominated the market and directly blocked Li Auto's path to "sinking" into lower price points.

In the field of intelligent driving, Li Auto is also not at an advantage. It goes without saying that established competitors like Tesla, HarmonyOS Intelligence, and Xpeng pose a threat. Xiaomi also announced the full deployment of its urban autonomous driving feature a few days ago, with end-to-end and visual language large models expected to be rolled out as early as December.

Li Auto, it's time to find a new growth point.

Is the overseas expansion a well-prepared strategy or a forced move?

Recently, Li Auto established a top-level overseas expansion department, primarily targeting the Middle Eastern market. It has also switched from parallel exports to a direct sales model to strengthen the company's business presence and competitiveness in the international market. The department is headed by Wang Jin, who previously oversaw Huawei's Chile operations, which is seen by the outside world as a signal that Li Auto hopes to expand into the Latin American market.

Although Li Xiang expressed as early as 2020 that overseas expansion was the future direction for Li Auto, the company previously primarily relied on parallel export channels for overseas sales. This involved non-automotive companies purchasing vehicles at market retail prices through official channels or authorized dealers and then re-exporting or importing them.

Last July, Li Xiang stated that Li Auto would not enter overseas markets before 2025. The current high-profile expansion may be a reluctant move due to the intense domestic competition that Li Auto cannot escape.

Li Auto, which has long been indecisive about its overseas expansion strategy, seems to be reacting to the current situation rather than acting on a well-prepared plan.

Although overseas expansion represents the next growth trajectory for Li Auto, this path is bound to be fraught with challenges. Tariff barriers in European and American markets are insurmountable obstacles. Compared to its competitors who have long been established overseas, Li Auto's operational and sales experience is relatively weak, especially in establishing a localized system, which is not accomplished overnight.

A source said, "The challenges in establishing a direct sales system are significant. Li Auto is recruiting dealers and wants to sell cars in places that have already been market-validated." Overseas expansion is an unavoidable proposition for Chinese automakers, and Li Auto, which is hastily embarking on this journey, still has many trials and tribulations ahead.