Has the ideal become a reality?

On the evening of February 26th, LI AUTO (02015, LI.US) CEO Li Xiang stated during the earnings conference call that there is "no plan to launch models below 200,000 yuan within five years."

According to Zhitong App, the domestic new energy vehicle market has seen a surge in new products and a full-scale price war since last year. Many medium to large-sized electric vehicle models have lowered their prices to below 200,000 yuan, making the competition extremely fierce.

In the current market environment focusing on market penetration and price wars, Li Xiang's bold statement indicates that the management believes LI AUTO has successfully established itself in the mid-to-high-end market segment of domestic new energy vehicles, as evidenced by the latest 2023 annual report.

Achieving Billion-Yuan Revenue in the Traditional BBA Market

The financial report shows that in 2023, LI AUTO's L series of three models saw a year-on-year delivery volume increase of 182.2%, reaching 376,000 units for the whole year. The increase in vehicle deliveries drove a rapid growth in the company's vehicle sales revenue.

In the fourth quarter of last year, LI AUTO achieved historical highs in multiple financial indicators. During the reporting period, the company's revenue increased by 136.4% year-on-year to 41.73 billion yuan, with an annual revenue growth of 173.5% to 123.85 billion yuan. At the same time, the company's gross profit margin reached 23.5%.

Throughout 2023, the company achieved vehicle sales revenue of 120.295 billion yuan, a year-on-year increase of 172.7%; vehicle gross profit margin of 21.5%, an increase of 2.4 percentage points year-on-year; total revenue of 123.851 billion yuan, a year-on-year increase of 173.5%; gross profit of 27.497 billion yuan, a year-on-year increase of 212.8%; net profit of 11.809 billion yuan, turning losses into profits year-on-year.

In comparison with the 2022 financial data of domestic car companies, only six listed whole vehicle enterprises in China achieved annual revenue exceeding one hundred billion yuan, namely SAIC Group, BYD, Geely Auto, Great Wall Motors, Changan Auto, and GAC Group. Among them, only SAIC Group and BYD had a net profit exceeding ten billion yuan. This means that in 2023, LI AUTO became the third domestic car company with a net profit exceeding ten billion yuan.

It is worth mentioning that LI AUTO achieved billion-yuan revenue and ten-billion-yuan profit not by "high volume" but by an average transaction price of 370,000 yuan. This price has clearly penetrated the price range of traditional mid-to-high-end fuel vehicles represented by BBA.

Currently, LI AUTO has launched three products priced above 300,000 yuan, all of which are extended-range hybrid products, including the full-size Ideal L9 in the 400,000-500,000 yuan price range, Ideal L8 and Ideal L7 in the 300,000-400,000 yuan price range. As planned, in the second quarter of this year, Li Auto will launch the fourth product in the L series, the L6, a mid-size SUV priced between 200,000 and 300,000 yuan. It is the lowest-priced product in the current L series, competing with Model Y, BMW iX3, X3, Mercedes-Benz GLC, Audi Q5, and others.

Looking at the sales performance of BBA in 2023 may highlight Li Auto's success in 2023. According to Zhitong App, in 2023, Mercedes-Benz, BMW, and Audi delivered 765,000, 825,000, and 729,000 vehicles respectively in China. The overall sales of BBA rebounded compared to the same period in 2022.

However, in terms of the average transaction price of whole vehicles, from 2021 to 2023, the average transaction price of whole vehicles for the three BBA companies has decreased for three consecutive years. Taking the BMW 3 Series as an example, in 2022, the transaction price of the 3 Series was concentrated between 300,000 and 350,000 yuan, with sales reaching 151,000 units. However, in 2023, the sales volume of the BMW 3 Series in this price range dropped to only 15,000 units, with approximately 132,000 units shifting to the 250,000 to 300,000 yuan range. In the weak new energy field of BBA, the official guide price of the BMW i3 is 350,000 to 410,000 yuan, but the bare car price in Shanghai is only 240,000 to 280,000 yuan, not as competitive as Li Auto's L8 model at the same price.

Although Li Auto's market impact on BBA is not as shocking to consumers as BYD's "798 Qinwang sweeps the Six Harmonies" action against domestic joint venture brands, the market still recognizes Li Auto's high-end route based on performance.

Zhitong App observed that after the annual performance disclosure, Li Auto's stock price on the US stock market surged by 18.79% on February 26, reaching $41.34, hitting a new high for the year. On February 27, Li Auto's Hong Kong stock followed suit, with the stock price opening high and rising, with the highest increase reaching 25.45% at one point. The stock price also reached 175 Hong Kong dollars, approaching the highest level since its listing.

Li Auto's Chairman and CEO, Li Xiang, stated, "In the fiercely competitive new energy vehicle market in 2023, Li Auto achieved excellent results with the three models in the L series, with an annual delivery volume increasing by 182.2% year-on-year to 376,000 units, becoming the sales champion of new energy vehicles priced above 300,000 yuan in the Chinese market."

For the first quarter of 2024, Li Auto expects revenue to be between 31.25 billion and 32.19 billion yuan, a year-on-year increase of 66.3% to 71.3%; The delivery volume is between 100,000 to 103,000 vehicles, with a year-on-year growth of 90.2% to 95.9%.

When will it enter the global market?

In fact, achieving revenue of one trillion and net profit of one hundred billion is just the beginning for LI AUTO. To become a automotive giant, it is essential to gain global market recognition by expanding overseas.

In 2023, China's total vehicle exports exceeded Japan for the first time, ranking first in the world. According to data released by the China Association of Automobile Manufacturers, China's vehicle exports in 2023 approached nearly 5 million vehicles. Among them, exports of new energy vehicles exceeded 1.2 million vehicles, with a year-on-year growth of over 77%.

However, on the flip side of this good news, Toyota Group, as a flagship of the Japanese automotive industry, achieved a global vehicle sales volume of 11.233 million units in 2023, surpassing Volkswagen and retaining its position as the world's largest automaker. According to Toyota's financial report for the first half of the fiscal year 2024 (April to September 2023) previously released, its revenue was 21.98 trillion yen, with a net profit of 2.59 trillion yen, a significant year-on-year increase of 121.1%, equivalent to 129.65 billion yuan.

Referring to Toyota's success story and the current size of the domestic automotive industry and the trend of "internal competition," it is almost inevitable for new energy vehicle companies to expand overseas if they want to grow and strengthen.

From the perspective of market penetration rate, according to Marklines data, in October 2023, the penetration rates of new energy vehicles in Germany, France, the UK, and the US were 24.7%, 22.5%, 21.7%, and 9.7% respectively, much lower than in China. However, with the long-term plans for carbon neutrality and carbon peaking in various European and American countries, the ban on the sale of fuel vehicles is an inevitable trend, thus there is significant room for development in the overseas new energy vehicle market.

According to previous market research on the European automotive market, in the first 11 months of 2023, pure electric vehicles accounted for 16.3% of new car sales in Europe, surpassing diesel vehicles. Combined with plug-in hybrid vehicles accounting for 8.1% market share, the market share of new energy vehicles in Europe currently approaches 1/4.

From a market competition perspective, according to Cleantechnica data, in November 2023 and from January to November, the top two in sales of new energy vehicles in Europe were Tesla Model Y and Model 3. Their combined market share in November was 13.0%, and 11.7% for the first 11 months, showing absolute dominance compared to other models. It is evident that apart from Tesla, there is a lack of strong competitors in the European and American markets, with popular models priced above 250,000 yuan, creating a relatively clear competitive environment. In July last year, LI AUTO CEO Li Xiang once posted on Weibo, stating, "Before 2025, LI AUTO will not enter overseas markets and will concentrate all resources to achieve the goal by 2025." However, Li Xiang also mentioned, "Two weeks before July, more than 200 cars were privately exported, mainly to Central Asia and the Middle East." Recently, there have been rumors in the market that LI AUTO will explore the Middle East and North Africa markets in 2024.

In fact, it wouldn't be surprising if LI AUTO ventures overseas ahead of schedule. After all, since 2022, domestic car exports have been significantly accelerating. Against the backdrop of increasing competition in the domestic market, overseas markets have become a new lifeline for Chinese brand cars. For LI AUTO, compared to traditional domestic car manufacturers, its biggest advantage lies in its ability to accurately understand the vehicle needs of Chinese consumers. However, whether LI AUTO can win over overseas consumers with extended-range hybrid technology and competitive features remains uncertain.