In the first quarter of 2023, Li Auto demonstrated remarkable resilience despite the turbulence surrounding MEGA. The company reported a record revenue of 25.6 billion yuan, marking a significant year-on-year growth of 36.4%. This impressive performance placed Li Auto ahead of its competitors, including BYD and Tesla, with a net profit of 1.3 billion yuan after adjusting for equity incentive expenses. Notably, Li Auto has successfully maintained profitability for six consecutive quarters since the fourth quarter of 2022.

The rapid expansion of the new energy vehicle (NEV) sector has altered the competitive landscape dramatically. While some firms have reported decent sales figures, the majority continue to struggle with losses. Faced with a fierce market this year, Li Auto had to adjust its pricing strategy, yet it still achieved a gross margin of 20.6%, significantly surpassing many of its peers within the NEV industry.

Li Xiang, the CEO of Li Auto, firmly believes that both sales volume and gross margin are critical indicators for a healthy business. In a recent earnings call, he emphasized that the company has adherently focused on these metrics since its inception nine years ago.

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In light of market fluctuations and the implications of MEGA, Li Auto quickly adapted its strategies, unveiling a new pricing model and making necessary organizational adjustments. These responsive measures have played a pivotal role in restoring investor confidence in the capital markets. Morgan Stanley, in a report released on May 21, unequivocally expressed its long-term confidence in Li Auto, setting a target price of $53 for its U.S. shares and HKD 205 for its Hong Kong shares.

Li Auto's recognition of the market's shifting dynamics and its adeptness at devising effective solutions have fostered enduring confidence among both consumers and investors alike. This robust backing is no mere coincidence.

With a formidable war chest of nearly 100 billion yuan, Li Auto is enhancing its competitive edge amidst the stiffening rivalry in the EV market. The company's first quarter 2023 revenues exceeded 25.6 billion yuan, showcasing a remarkable growth rate of 36.4% compared to the previous year. This growth rate has solidified Li Auto's position amongst the top players in the Chinese automotive industry.

The rapid increase in revenue was largely driven by a surge in delivery numbers, with the company delivering 80,400 vehicles in the first quarter, representing an impressive year-on-year increase of 52.9%. However, the aggressive price competition has exacerbated market fragmentation, leading to a concentration of sales among several key players. Currently, BYD, Tesla, and Li Auto stand out as the trio dominating the NEV sector.

Significantly, Li Auto has consistently topped the luxury NEV sales charts for the past 18 months. According to statistics from the China Association of Automobile Manufacturers, Li Auto captured over 30% of the NEV market priced above 300,000 yuan, while BYD holds 35.6% of the market below this price point. This indicates that the Chinese NEV sector has given rise to two mega-brands; consumers over 300,000 yuan prefer Li Auto, while those under this threshold lean towards BYD.

In the first quarter, the models available from Li Auto included the MEGA, L7, L8, and L9. Notably, the MEGA, which was launched on March 11, serves as the company’s first fully electric MPV. Moreover, in March, the three L-series models underwent significant upgrades in their transition to the 2024 version, enhancing features related to range extension, suspension, family space, and AI intelligence, demonstrating a major leap forward in comfort, security, and smart technology.

Through the combined efforts of the L-series and MEGA, Li Auto has steadily increased its market share in the NEV sector above the 200,000 yuan mark, rising to 13.65%, a significant jump from 10.88% in the previous year’s first quarter. Li Xiang noted that the target demographic of families spending above 200,000 yuan will remain a steadfast focus for the company, emphasizing its commitment to developing user-centric products and services.

Beyond product upgrades, Li Auto continues to uphold its dedication to technological innovation. R&D is viewed as a lifeline for sustainable business growth and forms the cornerstone of its core competitiveness. The company adheres to a full-stack, in-house development philosophy, emphasizing breakthroughs in technology that align with user needs. The differentiated approaches taken with the AD Max and AD Pro platforms exemplify how Li Auto seeks to maximize user value through efficient R&D processes.

In the first quarter of this year, Li Auto's R&D expenses surged to 3 billion yuan, a staggering increase of 64.6% year-on-year, reaching a new peak for the same period. Reflecting its sustained long-term growth capacity, Li Auto has maintained a stable and abundant cash flow, which equips the company with ample resources to invest in R&D, forward-thinking product experiences, manufacturing, supply chain, and service networks, thereby enhancing competitive standing for the future.

Li Auto's expansion of its charging service network also reflects its commitment to improving customer experiences. By May 15, the company inaugurated its 400th supercharging station, a milestone achieved at a pace of one station per day, making Li Auto the fastest automaker to reach this significant number. The goal is to establish over 2000 supercharging stations by year-end, with a target of exceeding 10,000 charging piles across the nation, ensuring convenience for both Li Auto vehicle owners and the broader NEV community.

In terms of sales networks, Li Auto has successfully penetrated all tier-one, new tier-one, and tier-two cities across China, along with dominating 89% of tier-three cities. The company plans to expand into more urban markets steadily. Furthermore, the service network is rapidly developing, aimed at providing high-quality service to its customers. As of April 30, 2024, Li Auto boasted 481 retail stores across 144 cities and 361 service centers and authorized repair stations located in 210 cities.

Li Auto has maintained a healthy gross margin amidst wider industry losses, thereby marking its development trajectory ahead of the curve. Having recorded profitability for six consecutive quarters since Q4 2022, the company has managed to uphold a 20% gross margin threshold despite competitive pressures resulting in a lowered terminal price.

This year, the market for vehicles priced above 300,000 yuan has experienced a downturn, prompting Li Auto to readjust its target expectations. The company has undertaken a series of strategic shifts including the introduction of a new pricing structure, product enhancements, and organizational changes. Li Xiang confirmed in a recent earnings call that the company quickly repositioned its resources to align with this year’s operational objectives, with the effects of these adjustments expected to manifest from Q2 onward. To bolster operational efficiency, a dedicated Quality Operations department has also been instituted to focus on high-quality decision-making.

Following the MEGA incident, Li Auto has redirected its sales team's focus back to the L series, implementing distinct sales strategies for range-extended and high-voltage pure-electric models. The sales approach for the MEGA has prioritized intelligent design in cities with higher purchasing power within a select group of 17 core markets. Additionally, the Senior Vice President of Sales and Service, Zou Liangjun, indicated that the company is recalibrating its strategy in lower-tier cities.

The L series is expected to be the backbone of the company's sales and profitability for 2024. Given the internal adjustments made in terms of sales resources, the L series is projected to maintain its forecast of 650,000 units for the year, accounting for over 80% of total sales.

Following a variety of adjustments, Li Auto has received positive feedback, experiencing a significant increase in store visits. Notably, during the May Day holiday, the weekly order volume reached an all-time high. The L6, launched between April 18 and May 5, received over 41,000 orders, showcasing strong market demand.

L6 represents Li Auto’s first product priced below 300,000 yuan, and it was introduced to the market in April, bolstering the company's product portfolio and supporting sales growth. With the new car's strong sales and recovering orders, Li Auto anticipates Q2 delivery numbers to range between 105,000 and 110,000 units, reflecting a year-on-year increase of 21.3% to 27.1%. Revenue is projected between 29.9 billion and 31.4 billion yuan, indicating a growth of 4.2% to 9.4% compared to last year.

Li Auto’s agile adjustments underscore its resilience in facing market challenges. As Q2 unfolds, the new L6 model is driving overall vehicle sales, complemented by a robust cash reserve. The company’s long-term outlook remains promising.