Is Li Auto's EREV model its biggest competitive edge?

If I had to encapsulate Li Auto's 2024 in a single sentence, 'Navigating through challenges towards hope' would be apt.

The challenges stem from the underwhelming sales of Li Auto's pure electric vehicle, the Mega, and fierce competition from AITO in the EREV segment. The hope lies in Li Auto's cumulative sales surpassing 1 million units, solidifying its position as a leading player among new energy vehicle startups. Notably, Li Auto is one of only four profitable new energy vehicle companies (alongside Thalys, BYD, and Tesla).

Image source: Li Auto

This year, Li Auto emerged as a model for numerous automakers, with various 'mini Li Autos' and 'alternatives to Li Auto' products appearing on the market. In a sense, it has set the benchmark for competitors. Strategically, Li Auto established a dedicated overseas expansion department, targeting the Middle East and Latin American markets; restructured its autonomous driving team, forming an independent end-to-end department; accelerated its charging network deployment; and more. In terms of products, Li Auto introduced its first pure electric model, the Mega, and its 'younger sibling,' the L6, while also adjusting prices across the L series in response to market dynamics.

To understand the ebb and flow of success, one must learn from history. As the year draws to a close, let's reflect on Li Auto's journey in 2024.

Sales Surpass 1 Million in 2024, Maintaining Top Spot for 35 Consecutive Weeks

This year, Li Auto finally surpassed 1 million in total sales.

On November 19, Li Auto announced that its brand sales had exceeded 1 million units. Among them, over 210,000 units of the discontinued Li ONE were delivered, while the Li L9, L8, and L7 delivered over 230,000, 200,000, and 250,000 units, respectively.

Image source: Li Auto

The Li L6, launched in April this year, delivered over 150,000 units in less than eight months due to its affordable pricing. As the first new energy vehicle startup to surpass 1 million sales, Li Auto achieved this milestone in just 58 months.

In consumers' minds, Li Auto is synonymous with EREV. As a pioneer, Li Auto has always been open about discussing the sales benefits that EREV has brought to the company. In its official '1 Million+ Sales' poster, Li Auto referred to its first product, the Li ONE, as the 'Pioneer of EREV.'

Besides EREV, another factor contributing to Li Auto's swift achievement of 1 million sales is its product strategy of creating a family of similar models. The four L series products, ranging from the largest Li L9 to the smallest Li L6, form a typical evolutionary ladder, comprehensively catering to family users with varying purchasing power within the 250,000 to 500,000 yuan price range.

Autonomous Driving Upgrades and Restructuring: Independent End-to-End Department

In 2024, Li Auto's autonomous driving system underwent several major iterations, evolving from initial light mapping to mapless and ultimately to end-to-end driving. With the end-to-end + VLM push, autonomous driving transformed from a mere feature into a capable system.

According to 36Kr, Li Auto's current autonomous driving team is primarily divided into three groups: one responsible for 'end-to-end' model algorithms and implementation; one focused on world modeling with an emphasis on technical pre-research; and one handling mass production research and development. Consequently, Li Auto has established an organizational path for both end-to-end autonomous driving mass production and L4 research and development. A similar parallel strategy of mass production and pre-research was previously employed by Xiaomi Motors.

Image source: Li Auto

During the second-quarter earnings call, Li Auto revealed that it had internally initiated a longer-term end-to-end VLA model, which integrates more deeply with multimodal large models and is considered by industry insiders as the next-generation end-to-end solution.

Lang Xianpeng, head of Li Auto's autonomous driving, also stated in an interview that the company is conducting internal pre-research on L4 autonomous driving. CEO Li Xiang publicly stated that with technological advancements and increased computing power, unsupervised L4 autonomous driving will be achieved within three years.

Establishment of a Dedicated Overseas Expansion Department, Targeting the Middle East and Latin America

Compared to peers like XPeng and NIO, Li Auto's overseas expansion has been relatively slow.

On November 1, Li Auto announced the establishment of a dedicated overseas expansion department, prioritizing the establishment of specialized after-sales service networks in the Middle East, Central Asia, and other regions, with the Li L9 and Li L7 being the first models introduced to these areas.

Li Xiang once posted on social media that 'we will not enter overseas markets before 2025 and will concentrate all resources to achieve our 2025 goals.' Now that the deadline has arrived, it is evident that Li Auto's establishment of a dedicated overseas expansion department is in preparation for next year's expansion plans.

Image source: Li Auto

Li Auto's inherent configuration and technological advantages are unmatched by other products in the same category. Furthermore, most Middle Eastern countries encourage 'large families,' which presents an opportunity for Li Auto, primarily targeting the family market.

The Middle East is rich in oil resources and has low demand for new energy vehicles. However, the advantage lies in the absence of exorbitant tariffs. Additionally, Li Auto focuses on EREV vehicles, which are essentially gasoline-powered cars. This makes them appealing to users in the oil-rich Middle East. Therefore, targeting the Middle East as Li Auto's first overseas market makes strategic sense.

Strengthening the Charging Network with Over 1,200 Supercharging Stations

As of December 11, Li Auto had launched its 1,200th supercharging station. Among them, there are 650 high-speed supercharging stations covering 9 national highways and 550 urban supercharging stations in 77 cities.

Image source: Li Auto

As early as 2023, Li Auto had firmly adopted the supercharging strategy in its energy replenishment layout. Li Xiang has repeatedly proposed integrating energy replenishment directly into the product, minimizing reliance on external services. This is one of the reasons why Li Auto, despite initially focusing on EREV electric vehicles, has been deeply involved in supercharging within the industry.

Li Auto aims to make charging as convenient as refueling to meet user needs. To achieve this, Li Auto has built China's first 5C high-voltage supercharging network. According to Diantong, this not only enhances users' charging experience but is also a key measure to change consumers' perceptions of pure electric vehicles. It also paves the way for the upcoming deployment of pure electric vehicle models.

Mega Sales Fall Short of Expectations, Unpromising Start for Pure Electric Vehicles

At the beginning of 2024, Li Auto's Mega became the target of widespread criticism.

On March 1, Li Auto officially announced the launch of the Mega, sparking intense discussions for an entire month. The Mega's streamlined front end, designed to reduce wind resistance and resembling a bullet train, offers a futuristic aesthetic. However, this design also garnered mixed reviews from netizens.

Subsequently, memes emerged on social media depicting the Mega as a 'new energy hearse.' Some netizens even altered photos of the Mega parked in underground garages, giving them a eerie appearance, and used captions to associate the car with 'funerals.'

After the 'hearse meme' went viral, the Mega's boxy exterior design seemed to become the scapegoat for its poor sales performance. According to Caixin Global, within 72 hours of the Mega's launch, there were approximately 3,218 confirmed orders nationwide but around 10,297 cancellations, in stark contrast to the previous L series models that sold well immediately after their launch.

On the afternoon of March 21, an internal letter from Li Auto, titled 'How to Solve the Current Problems Facing Li Auto,' was leaked online, further exacerbating the situation.

In this letter, Li Xiang 'reviewed' the underlying causes of the public uproar over the past month, acknowledged that the Mega had made misjudgments in timing and goals, and stated, 'Although we are in darkness, I still believe in light.'

AITO Continues to Exert Pressure, Forcing Price Drops for the L7/8/9

In response to price wars, Li Auto also reduced prices for its models in 2024.

On April 22, Li Auto announced price adjustments for four of its models, including the 2024 Li L7, L8, L9, and Mega.

According to the official announcement, the Mega's price was reduced by 30,000 yuan to 529,800 yuan, while the Li L7, L8, and L9 series saw price reductions ranging from 18,000 to 20,000 yuan, providing consumers with more competitive pricing.

Image source: Li Auto

Part of the reason for the price reduction of the Li L series was the overall market environment, but it was also influenced by the Li L6. The Li L6, launched with a starting price of 249,800 yuan, significantly differs from the starting prices of other Li Auto models. Therefore, many believed that the Li L6 might cannibalize some customers from the L7. Hence, the price reduction of the L series was also a strategy to balance the pricing system within the brand's model lineup.

However, external observers tend to believe that the price reductions were a response to competition from AITO's M5, M7, and M9 models.

Revenue Data Hits New Highs, Cash Flow Stabilized

On October 31, Li Auto released its unaudited financial results for the third quarter of 2024. The company's revenue for the third quarter was 42.9 billion yuan, up 23.6% year-on-year and 35.3% quarter-on-quarter, exceeding market expectations of 41.27 billion yuan and setting a new high.

In terms of sales, Li Auto has bounced back from the initial setback with the Mega. In the third quarter, Li Auto sold a total of 152,800 vehicles, with an average monthly sales volume exceeding 50,000 units and a year-on-year growth rate exceeding 40%.

Image source: Leitech

However, it should be noted that most of these sales were driven by the lower-end Li L6 model.

According to Li Auto executives, the Li L6 has delivered over 25,000 units per month since its launch, making it the best-selling new model this year. However, as the Li L6 sells well, the proportion of Li Auto's higher-priced, higher-margin models has also significantly decreased. The product sales structure, gradually shifting towards lower-priced models, has affected the overall profit level. According to the financial report, the average selling price of Li Auto's vehicles in the third quarter of this year was 270,000 yuan, compared to 319,800 yuan in the same period last year, a year-on-year decrease of 15%.

Competitors: Questioning Li Auto, Understanding Li Auto, Becoming Li Auto

In the second half of 2024, the automotive market saw numerous 'imitators' of Li Auto.

Among them, the more controversial ones were the Deep Blue S09, Leapmotor B10, and Denza N9. From their appearances and positioning, these vehicles bear some resemblance to Li Auto models. Li Auto employee @Yingge posted side-by-side photos of the Deep Blue S09 and Li L9 on Weibo, captioned 'The Li Auto series has grown again?,' mocking the obvious imitation of the Li L9 by the Deep Blue S09.

Liu Jie, Vice President of Li Auto, also shared his insights via Weibo on the evening of December 9: Looking back to the future, people may realize that the Li L9 is not just a product but a symbol of an era, leading the trend of new-generation automotive design in China.

Image source: Leapmotor

Questioning Li Auto, understanding Li Auto, becoming Li Auto. Judging from the trend of domestic new energy vehicles, 'becoming Li Auto' seems to have become the mainstream. Most new medium and large SUVs are obsessed with the concept of 'bringing the home into the car.'

What hidden dangers does Li Auto face in 2025? Can pure electric vehicle sales overcome the shadow of the Mega? Facing competition from latecomers in the 'dad car' and EREV technology segments, how should Li Auto plan for 2025? Diantong will continue the discussion in our outlook for Li Auto in 2025. Stay tuned.

Source: Leitech