Li Auto urgently needs a second wave of surge

Author | Chai Xuchen

Editor | Wang Xiaojuan

Li Auto urgently needs a second wave of growth

Summary: Stability and concerns.

In the fiercely competitive year of 2024, Li Auto concluded with a mixed performance.

On March 14, Li Auto announced its performance, with annual revenue exceeding 100 billion, reaching 144.5 billion in 2024, of which the fourth quarter contributed 44.3 billion, both breaking the company's historical records. This was driven by annual sales of 500,000 units and fourth-quarter sales of 159,000 units.

This demonstrates Li Auto's strong operational resilience in last year's cutthroat competitive environment.

Specifically, in the fourth quarter, Li Auto's operating profit surged 22% year-on-year to 3.7 billion; the operating profit margin reached a historical peak of 8.4%. The financial report reveals a breakthrough in profitability under cost control.

In the fourth quarter, R&D expenses decreased by 31% year-on-year to 2.408 billion, with the R&D expense ratio dropping by 3 percentage points; although the vehicle gross margin decreased by 3 percentage points year-on-year, the impact of raw material price fluctuations was offset by supply chain optimization and improved production efficiency.

However, the concerns behind Li Auto's stability cannot be ignored.

From a profit perspective, Li Auto's performance showed a decline: the net profit for the entire year and the fourth quarter fell by 31.9% and 38.6%, recording 8 billion and 3.5 billion, respectively.

Clearly, under the dual impact of the entry-level model L6 being the main sales driver and the price war, Li Auto sacrificed profits last year to meet the annual sales target of 500,000 units. This is also reflected in the gross margin, which recorded a 19.7% in Q4, a decrease of 1.2 percentage points compared to the previous quarter, lower than the investment banks' expectation of over 20%.

This indicates that Li Auto's product sales structure is shifting towards the lower end, with revenue and profits showing a significant marginal diminishing effect. To maintain sales, Li Auto is increasingly reliant on promotions. More critically, it seems that after surpassing the million delivery milestone, Li Auto has entered a bottleneck period.

In the fourth quarter of last year, Li Auto's sales growth rate slowed to 20.4%, and the growth rate of vehicle sales revenue (8.1%) was significantly lower than the sales growth rate. For the first quarter of this year, Li Auto provided a sales guidance of 88,000 to 93,000 units, implying a sales expectation of 32,000 to 37,000 units in March. Based on the revenue guidance, the per vehicle revenue in the first quarter is expected to decline by nearly 22,000 to 247,000 yuan.

On the other hand, a strategic game regarding "short-term profitability versus long-term investment" is quietly unfolding. Compared to aggressive industry peers, Li Auto's R&D investment is somewhat conservative. The R&D expense ratio is expected to drop to 5.4% in 2024, far below the industry average.

This conservative strategy has sparked considerable controversy in the market, especially against the backdrop of Tesla, BYD, and other automakers significantly increasing their R&D investments, raising concerns that Li Auto's "stability" may evolve into a strategic passivity In response, the capital market quickly reacted. On March 14, Li Auto's stock price in the U.S. pre-market fell by 6.4% at one point.

Industry insiders believe that as more competing products emerge, the range-extended family SUV market that Li Auto once exclusively enjoyed is gradually being shared, and it inevitably gets caught up in a more perilous competitive red ocean.

A week ago, Richard Yu announced the launch of two new models, the M9 and M8. The updated M9 will be launched on March 20, nearly a quarter ahead of the original schedule, with a pre-sale price starting at 478,000 yuan. As of March 12, the small order quantity exceeded 30,000 units.

The Aito M8 is planned to be launched around the Shanghai Auto Show, with both range-extended and pure electric versions being released simultaneously, starting at a pre-sale price of 368,000 yuan, with a small order quantity of 58,000 units within a week. It will become one of Aito's main models this year alongside the updated M9 and M7.

In addition to Aito, in the second half of the year, ZEEKR, Deep Blue, Denza, and IM Motors will also launch mid-to-large SUVs, increasing the pressure Li Auto faces in the family SUV segment. More importantly, the story of Li Auto consistently surpassing BBA is now facing more skepticism due to product downscaling.

Long-term observers of luxury cars point out that the most popular models from BBA are not the entry-level products, but rather mid-range models like the Mercedes-Benz E-Class and C-Class, Audi A6L, and Q5L. This is also the profit fortress and brand moat of BBA, which is very different from the situation of Li Auto's L6.

In other words, the explosive popularity of entry-level models is quietly diluting Li Auto's "gold content" in the luxury segment.

To revive its market value and morale, Li Auto must tell a more compelling story and initiate a second wave of growth. At this performance meeting, Li Auto showcased its AI and pure electric strategies.

Li Xiang revealed that this year, two pure electric SUVs, the i8 and i6, will be released in July and the second half of the year, respectively, similar to the release rhythm of last year's L9/L8, aiming for better sales in the second half of the year and to store orders for Q1 next year.

At the same time, in the atmosphere of equal rights in intelligent driving, Li Auto has also begun to develop the next generation of VLA (Vision-Language-Action) intelligent driving large models to enhance product capabilities, with the goal of launching it in July alongside the pure electric SUV i8.

It is understood that VLA is one of the core competitions in intelligent driving this year, with Geely and Yuanrong Qixing actively promoting VLA, all hoping to achieve early implementation.

In addition, how to maintain existing user stickiness while exploring new markets is also a key proposition for Li Auto in the next stage. The previously "ambiguous" overseas expansion plan of Li Auto has finally gained attention.

At this performance meeting, Li Auto's president, Ma Donghui, stated that this year will be the inaugural year for Li Auto's overseas expansion. The company has clearly defined internationalization as one of its core strategies this year, and Li Auto will seriously explore overseas markets, building relevant organizational capabilities in brand marketing, sales channels, and after-sales systems.

It is understood that at the beginning of this year, Li Auto drew a group of experienced employees from within the company to establish an independent overseas market department. Ma Donghui emphasized that this year, they will increase investment in the Latin American, Middle Eastern, and European markets, selecting a batch of high-quality dealers overseas as partners to jointly explore the market AI + pure electric + going overseas, Li Auto has provided a blueprint for continued growth in 2025, which is also a key step towards becoming a giant and securing a ticket to the finals.

Ma Donghui predicts that the domestic market will shift from incremental to stock competition, with consumers tending to choose well-reputed leading brands, and market concentration will further increase; the competition in technology will also become increasingly fierce, especially in advanced autonomous driving technology. Li Auto will undoubtedly continue to spur ahead.

In fact, facing a cutthroat market, Li Auto still has ample confidence, with 112.8 billion yuan in cash on hand providing solid support for its stable operations. This "cash is king" strategy has built a safety barrier for itself during the industry's winter period.

With chips and cards in hand, it remains to be seen whether Li Auto can implement the above plans one by one.

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