Article by | Leng Zelin
Edited by | Wu Xianzhi
On May 10th, Li Auto released its first quarter financial report ahead of other Chinese EV companies.
According to the report, Li’s total revenue for the first quarter was RMB 9.56 billion, up 167.5% YoY. Li’s automotive sales revenue for the first quarter was RMB 9.31 billion, up 168.7% YoY. The gross profit margin for the first quarter was 22.6%, while the gross profit margin for the vehicles was 22.4%. The net loss for the first quarter was RMB 10.9 million, compared with RMB 360 million in the same period last year.
Overall, Li Auto still maintains its strong cost control capability by maintaining the growth of gross profit margin and vehicle gross profit margin despite a significant increase in supply chain costs. The company’s management revealed in a conference call that the main reason for this was the offsetting of rising raw material prices through some inventory hedging.
However, the beginning of this year has not been friendly to new energy vehicle (NEV) companies. In the latest statistics, Li Auto delivered only 4,167 units in April, while NIO delivered around 5,000 units and XPeng sold around 9,000 units but also experienced a sharp decline from the previous month. This situation may still be difficult to recover quickly in the short term. Li Auto’s delivery guidance for the second quarter is 21,000 to 24,000 units, which means that the average delivery volume for the next two months will not exceed 10,000 units.
The L9 launch event has also been delayed due to the COVID-19 uncertainty, which is not good news for Li Auto, who relies heavily on a single model for sales. The company acknowledged the uncertainty caused by the pandemic and its impact on production during the first quarter conference call.
Gross profit margin steadily rising, research and development in top three
In March of this year, Li Auto’s CEO, Li Xiang, posted on social media that the battery cost increases in the second quarter were outrageous. A few days later, Li One’s price was raised from RMB 338,000 to RMB 349,800, an increase of RMB 11,800.
According to Li Auto officials, this price adjustment has taken into account most of the cost increase situations. In other words, Li Auto’s vehicle prices will be relatively stable in the short term.
Compared to other auto companies, Li Auto is considered “generous” for publishing the price adjustment notice eight days in advance, whereas some auto companies make the announcement just before midnight. Li Auto’s target customers are less sensitive to price, so the company has a more stable purchase intention for mid- to high-end models in the context of rising prices in the new energy industry.
In the first quarter, Li Auto’s gross profit margin showed some pressure.
Li’s gross profit margin and vehicle gross profit margin both showed only a small increase in the first quarter, compared with the upward trend of the previous quarters. However, Li Auto is still among the few auto companies that maintain the upward trend of gross profit margin. NIO’s vehicle gross profit margin declined in the second and third quarters of last year, while XPeng’s vehicle gross profit margin declined in the fourth quarter of last year.The new car model L9 from Li Xiang’s company “Li Xiang Automotive” is expected to be released this year with a selling price of around 450,000 to 500,000 RMB, which may further increase the gross profit margin.
In the fourth quarter of last year, Li Xiang Automotive achieved net profit for the second time, reaching 296 million RMB. However, in that quarter, the net loss was 10.9 million RMB, mainly due to the increase in research and development and sales expenses.
In the first quarter, Li Xiang Automotive’s research and development costs were 1.37 billion RMB, a year-on-year increase of 167%, accounting for 14.3% of total revenue; sales, general, and administrative costs were 1.2 billion RMB, a year-on-year increase of 135.9%, accounting for 12.6% of total revenue.
It can be seen that since the fourth quarter of last year, Li Xiang Automotive’s investment in research and development has gradually exceeded that in sales, and has become the primary focus. This is mainly due to the continuous increase in the number of R&D personnel and new product development.
However, due to the launch of the pure electric vehicle model next year, Li Xiang Automotive’s construction of charging infrastructure will result in an increase in operating costs. Currently, they have already formed a team for the construction of charging piles.
It is worth noting that Li Xiang Automotive’s charging infrastructure construction strategy differs from that of other car companies, as they will first consider the establishment of a replenishment system between highways.
On the other hand, during the conference call, Li Xiang revealed that Li Xiang Automotive will launch three products, including L9 and a mid-size car priced between 200,000 to 300,000 RMB next year. The increase in the number of models and the development of two technology routes in range extension and pure electric will also lead to an increase in Li Xiang’s R&D costs.
Li Xiang Automotive has always adhered to the strategy of concentration, believing that making cars is a space, and there is a lot Li Xiang can do in this space, rather than venturing into other spaces like Nio’s foray into producing smartphones, or the investment layout of XPeng. Therefore, Li Xiang Automotive’s production line focuses on one product, a large SUV that was popular last year, which brought them early cash flow and resource concentration. Li Xiang Automotive also lags behind in entering the field of pure electric and autonomous driving.
From March 10 to April 6, Li Xiang Automotive conducted a long-term pre-release promotion of their new car model L9 through their official WeChat account and Li Xiang’s personal social media interactions.Due to the impact of the epidemic, the scheduled Ideal L9 launch event on April 16 has been postponed. Currently, Ideal official has not announced a specific date.
To ensure the success of this car model, Ideal has put a lot of effort into it. As a range-extended electric vehicle released before entering the pure electric track, Ideal L9 has addressed many “regrets” left by the previous model, such as equipping with lidar, Nvidia Orin-X processor and richer entertainment systems. In addition, the previous criticized three-cylinder range extender has been replaced in terms of vehicle power.
At the same time, Ideal has also prepared for the launch of this new car in terms of channels. As of April 30, Ideal’s retail center has reached 225 locations nationwide. Although the number of stores has increased by 296.2% year-over-year, due to the delayed launch of Ideal L9, these 225 stores will continue to maintain a single-product sale.
In today’s automotive industry, which is becoming more and more like consumer electronics, the product life cycle is becoming shorter and shorter, and the order of release will also affect the early sales volume. The delay of Ideal L9 launch puts it in the same time frame as NIO ES7 released in May, Xpeng G9 released in June, and even domestic MPVs with the same family-oriented positioning that appear in large numbers this year.
Interestingly, the three SUVs of ES7, G9, and L9 are highly similar in perception and intelligent configuration, all equipped with lidar and higher-spec perception systems, as well as SA8155 chips and Nvidia Orin-X intelligent driving chips.
For Ideal, its passenger vehicle sales ratio has consistently been above 95%. However, with the Ideal ONE on the market for nearly a year, how strong is its product vitality? At least from the delivery data in the first few months, it shows a downward trend, of course, partly due to the off-season and supply chain shortage issues.
However, regardless of the situation, Ideal L9 is particularly important for taking over Ideal ONE or for continuing to increase delivery volume. Focus does not mean a hundred percent explosive, but it increases the probability of creating an explosive product.
Looking at the overall market, NIO, Xpeng, and even traditional automakers have all made progress this year, while Ideal’s actions have been relatively small. In overseas markets, NIO and Xpeng have successfully established offline stores and began selling vehicles. According to Shen Yanan, the previous CEO of Ideal, Ideal will not enter the overseas market in the short term. Probably because Ideal cars are all customized for domestic families’ specific needs.But Li Xiang revealed an important information during the first quarter conference call – the form of Ideal electric vehicle models will not be found on the market and the products will be offered in combinations of pure electric and extended range power models in each price range, with a clear focus on the price range of RMB 200,000 to RMB 500,000. Li Xiang predicted that sales of models over RMB 200,000 would exceed 10 million in 2025, and Ideal’s goal is to achieve a market share of more than 20%, marking the growth from 1 to 10. Therefore, Ideal has a long way to go.
High-level changes, intensified competition in intelligent driving
In 2020, when Wang Kai, the former Chief Architect and Head of Autonomous Driving of Continental, joined Ideal as CTO, he mentioned that when the technology element is enhanced, the cost of manufacturing cars is relatively small compared with technology investment. Technology is the part that should be invested most so as to reflect the differentiation of the automaker.
In fact, the remarkable performance of Ideal ONE in the past year is closely related to this point. The biggest difference between the 2021 and 2020 models of Ideal ONE is in the intelligent driving ability.
At the beginning of 2021, Ideal’s intelligent driving began to switch from the supplier’s plan to the self-developed plan. The NOA navigation-assisted driving function was officially launched through OTA update at the end of the year, with a very fast efficiency, although the experience was also very bumpy.
Lang Xianpeng, vice president of Ideal Intelligent Driving, even made a military order, saying that “self-developed projects must have their own capabilities. Otherwise, I will be the first to resign.”
The team he led did not completely fix the bugs of the basic ADAS function and automatic parking function until the early morning of the day of the release conference of the 2021 Ideal ONE. This made Ideal the next automaker with full-stack self-developed NOA and AEB capabilities after Tesla and XPeng.
However, the intelligent driving ability of Ideal has not yet been fully displayed. In February of this year, Ideal’s official announcement of the departure of the CTO who had worked for less than two years. The business under his jurisdiction, such as autonomous driving, computing power platform, and LiOS, has been transferred to Ideal’s co-founder and chief engineer, Ma Donghui.
Although, according to media reports, Lang Xianpeng was mainly in charge of Ideal’s intelligent driving system and Wang Kai’s involvement was not strong, this year is obviously a year for automakers to compete for higher-level autonomous driving capabilities.
In the fourth quarter of this year, NIO will gradually open up the NAD autonomous driving system by region. ET7 equipped with NAD hardware facilities has begun to be delivered in March; XPeng plans to open NGP functions in urban areas at the end of the second quarter, the first batch of which will be mounted on P5.
The competition among automakers in the field of autonomous driving assistance systems has already reached a critical point where they must take action.The ideal may have been influenced by senior management changes or for confidentiality reasons. Even though the L9 has been equipped with hardware configuration for Level 4 autonomous driving assistance, the official has not disclosed more information about intelligent driving.
In the official display of the IDEAL L9 standard smart driving system AD Max video, only an unprotected left turn was demonstrated without indicating the specific launch time. According to the update rhythm of the NOA function of the 2021 MODEL of IDEAL ONE, it is unlikely to launch at the same time as the new car release.
This article is a translation by ChatGPT of a Chinese report from 42HOW. If you have any questions about it, please email bd@42how.com.