After facing setbacks with its pure electric products, Li Auto swiftly revised its strategy in the second quarter of 2024. With the launch of the new model L6 and the comprehensive rollout of advanced no-map intelligent driving capabilities, Li Auto is gradually emerging from its low point. In the second quarter, the company’s sales reached 108,000 units, achieving a year-on-year revenue growth of 10.6% and maintaining a healthy gross margin of 19.5%. These results stand out in a generally loss-making new energy vehicle market.
**Current competitive landscape of the new energy vehicle market**
In an increasingly competitive automotive market, intense internal competition has led many companies to sell at a loss. For example, Xiaomi auto incurs a loss of 60,000 yuan for every car sold, and the recently launched AITO M7 Pro suffers a loss of 30,000 yuan per vehicle. Despite this market environment, Li Auto has maintained profitability and continues to invest 3 billion yuan quarterly in research and development, particularly in intelligent driving and charging networks.
**Deepening the rollout of intelligent driving technology**
In July, Li Auto fully rolled out its no-map NOA feature, significantly improving user acceptance of intelligent driving, which led to an increase in related order proportions. By the end of August, the company had also launched a large-scale beta testing recruitment for its end-to-end + VLM autonomous driving technology, showcasing its continuous progress in intelligent driving technology.
Li Xiang, Chairman and CEO of Li Auto, noted that for the upcoming new pure electric SUV, the company needs to focus on two key issues: product design and providing over 2,000 supercharging stations at the time of delivery.
**Market positioning and success factors of the L6 model**
This year, the newly introduced L6 is positioned for the market under 300,000 yuan, featuring more compact dimensions and a lower price while retaining the advantages of extended-range all-wheel drive to meet the diverse needs of young families. The success of the L6 can be attributed to its precise market positioning, spacious interior, comfortable features, price advantage, and positive reputation.
This year is crucial for Li Auto. Although its first pure electric product failed and other pure electric models have been temporarily suspended, the company still managed to achieve a dual growth in sales and gross margin in the second quarter.
**Consumer recognition and market competition**
Consumer acceptance of intelligent electric vehicles is gradually surpassing that of traditional fuel vehicles, and price competition in the new energy vehicle market is becoming increasingly fierce. In this context, sufficient cash reserves and profitability have become solid backing for corporate development.
In the second quarter, Li Auto invested 3 billion yuan in R&D, accounting for 10% of its revenue. This marks the third consecutive quarter of such investment levels, with ongoing R&D spending showing significant technological results.
**Breakthroughs in intelligent driving technology**
Intelligent driving is one of the major achievements of Li Auto’s R&D investments. In the past, the company was relatively lagging in this field. However, with the transformation of its technological approach, Li Auto seized the opportunity to catch up. In July, the no-map NOA was fully rolled out to all AD Max users, marking a significant leap in technology.
Currently, only three automakers in the country have achieved a full rollout of the no-map NOA, with Li Auto ranking second in terms of rollout timing, just after Huawei. The advanced technical framework positions Li Auto advantageously for future development, enhancing its product competitiveness and driving sales.
According to statistics, following the release of the no-map NOA, the proportion of users choosing AD Max increased from 37% in May to 49%. In terms of individual models, 75% of L9 users opted for AD Max, while the figures for L8 and L7 were 56% and 65%, respectively.
**User feedback and significant increase in mileage**
Li Auto President Ma Donghui stated that the efficiency of returns on investment in intelligent driving has always been high. Since the full rollout of the no-map NOA in July, user acceptance of intelligent driving has risen significantly, with daily activity levels and driving mileage for urban NOA showing substantial growth.
In the two months following the July rollout, the average daily mileage for Li Auto’s urban NOA tripled, while daily active user metrics increased eightfold. According to statistics, from 2022 to the end of August 2024, the cumulative mileage for Li Auto’s intelligent driving grew from 400 million to 2.2 billion kilometers, with expectations to reach 3 billion kilometers by the end of this year.
**Safety and charging network development**
According to the latest testing results released by the China Insurance Research Institute, the Li MEGA and L6 received a G+ (excellent) rating in occupant safety and vehicle assistance safety, with scores of A (good) for crashworthiness and repair economy. All of Li Auto’s models achieved the highest ratings in the CIR testing, demonstrating the company’s commitment to its “equal safety technology” philosophy.
In addition to investments in intelligent driving and safety, Li Auto has not overlooked the development of its charging network. In March of this year, the company launched its first pure electric model, the MEGA, but due to poor performance in its first month, it did not meet its sales targets.
After experiencing market fluctuations, Li Auto undertook a significant organizational overhaul. CEO Li Xiang reflected on the overemphasis on sales and competition, deciding to halt the release of new pure electric models and focus on enhancing and optimizing existing products.
**Future strategy and outlook**
During the earnings call, Li Xiang stated that the company will meticulously refine its products, anticipating the launch of a new pure electric SUV in the first half of 2025. For this pure electric SUV, Li Auto needs to address product design and the establishment of supercharging stations.
As of September 1, 2024, Li Auto has built 752 supercharging stations and 3,528 charging piles across the country. Data shows that the average charging time for MEGA users is 14.3 minutes, significantly shorter than the 28.3 minutes typical for users of other brands.
In terms of new vehicle development, Ma Donghui reported that progress is on track, with multiple small-batch prototypes successfully produced and several key performance tests completed.
Regarding supply chain and production capacity, Ma Donghui indicated that overall progress is smooth, with the construction of the manufacturing facility for complete vehicles completed and the four main production lines currently in debugging phase. Li Auto plans to equip its vehicles with self-developed core components, which are also undergoing performance testing.
**Improving gross margin and operational efficiency**
Li Xiang has repeatedly emphasized the importance of gross margin to corporate success, referring to it as the “lifeblood” of a company. Li Auto has implemented relevant measures across all product stages to prevent a loss in gross margin, including platform-based design and a direct sales model.
In summary, through organizational adjustments, halting the release of inefficient products, and lowering prices across its entire lineup, Li Auto has reduced sales expectations and is focusing on healthy growth.
In the second quarter, Li Auto maintained its gross margin at a healthy level. With the launch of new models and improvements in sales operational efficiency, Li Auto delivered 108,600 new vehicles, reflecting a year-on-year growth of 25.5% and a quarter-on-quarter growth of 35%. The L6 accounted for nearly half of the sales, achieving sales of 39,000 units and becoming a bestseller.
**Conclusion: Looking forward to the second half of the year and beyond**
Looking ahead to the second half of the year, Li Xiang believes that industry concentration will further increase. As consumer recognition of intelligent electric vehicles rises, Li Auto’s market share is expected to reach 16% by the fourth quarter of 2024.
Li Auto CFO Li Tie indicated that with optimized scale effects and adjustments in sales policies, the vehicle gross margin is expected to rebound to over 19% in the third quarter, with overall gross margin surpassing 20%. Additionally, Q3 delivery volumes are projected to be between 145,000 and 155,000 units, representing a 38%-47.5% increase from Q3 2023.
According to Q3 delivery guidance, Li Auto is expected to maintain sales momentum of around 50,000 units in September, aiming to achieve the milestone of 1 million cumulative deliveries in October, making it the first Chinese new power brand to reach this achievement.