In Depth: Mega Blunder Adds to Li Auto’s Troubles as Huawei Rivalry Hots Up

Li Auto Inc. faced significant challenges despite starting 2023 with a strong financial performance. The company, based in Beijing, reported a profit of 11.8 billion yuan ($1.66 billion) on vehicle sales of 120.3 billion yuan for 2023, marking the first annual profit among China's major EV upstarts and topping the deliveries chart with 376,030 vehicles sold last year [para. 2].

Enthusiasm ran high with the upcoming launch of their Mega electric vehicle (EV), designed as a seven-seat multi-purpose vehicle reminiscent of a bullet train [para. 3]. The launch, however, was marred by a viral edited image, comparing the vehicle to a hearse, and subsequent lower-than-expected orders [para. 5][para. 6]. Investors filed a class action lawsuit against Li Auto, alleging overstated market demand, following which the company reported Q1 2024 sales of 24.3 billion yuan, which fell short of the estimated 26.7 billion yuan [para. 6].

Initial high expectations for the Mega, aiming for monthly shipments of 8,000 units, were unmet as only 1,000 units were sold by mid-May 2024 [para. 8]. CEO Li Xiang expressed concerns over organized cyber defamation impacting the vehicle's image and announced intentions to take legal actions [para. 9].

Market experts like Li Yanwei criticized the ambitious sales target, noting that only one model, the BMW X5 SUV, had consistently sold over 8,000 units monthly in the high-price bracket that the Mega targeted [para. 10]. Faced with disappointing sales, Li Auto revised its Q1 sales target downward but still managed to deliver 80,400 vehicles, close to the lower end of its revised target [para. 11]. Li Xiang acknowledged misjudging the product lifecycle stage of the Mega, indicating a need to revert the strategy to a product validation phase [para. 12].

Adding to Li Auto's difficulties was its competition with Huawei's premium EV brand, Aito, which launched its M7 model in 2022—direct competition for Li Auto’s Li One SUV. The M7 quickly gained traction, forcing Li Auto to cut the Li One’s prices and expedite the launch of new models [para. 23]. This competition led to widened net losses and increased financial strain for Li Auto [para. 25][para. 27].

Despite releasing the L6 to compete with Aito’s M5 at a similar price point, Aito continued to outsell Li Auto for three consecutive months from January to March 2024 [para. 30]. Industry observers predict that while Tesla and BYD currently dominate the 200,000-yuan-plus segment of China's new-energy vehicle market, Aito may soon join the top ranks, potentially disrupting Li Auto's standing [para. 34][para. 37].

In response to Huawei’s growing market presence, Li Auto planned to intensify its focus on pure battery-electric vehicles, pushing the launch of new all-electric models to next year. The company also aims to enhance its intelligent driver-assistance systems and smart car cabin interfaces to compete more effectively [para. 38][para. 40].

The competition within China's new-energy vehicle market is expected to become even fiercer, with sales projected to grow significantly in 2024 [para. 41]. Amid these challenges, Li Auto remains committed to refining its market strategies and evolving product offerings to sustain growth and counter competition from formidable rivals like Huawei [para. 42].