Changing Lanes: Li Auto's Drive from Green Plates to Pure Watts
Will CATL's Batteries Energize or Ensnare Li Auto's Ambitions?
Things that Caught Our Attention
A "Power Bank" Fueled by Gasoline
Balance Dance with Battery Suppliers
Production Capacity Challenges
Breakthroughs and Barriers in Autonomous Trends
Dynamics in the New Energy Vehicle Market
Things that Caught Our Attention
Alibaba’s cloud backbone is considering seeking up to 20 billion yuan ($2.8 billion) in funding from state-owned firms before proceeding with a Hong Kong IPO, as reported by Bloomberg. We deep-dived into China’s cloud computing market, with particular attention to Alibaba Cloud in March this year.
On September 10, Daniel Zhang completed the scheduled handover with Joseph Tsai for the position of Chairman of the Board of Alibaba Holding Group. What was unexpected, however, is that Daniel did not take on the role of "Chairman and CEO of Alibaba Cloud Intelligence Group" as mentioned in June. Instead, he continued to step down and retired from Alibaba Group with the esteemed title of "Meritorious Alibaba Veteran". (source).
Chinese EV maker Xpeng plans to expand in Europe, targeting Germany, the UK, and France by 2024, as announced by President Brian Gu at the IAA Mobility show in Munich. In Germany, they aim to use traditional dealerships and are discussing partnerships with major retail chains. Xpeng will also launch its G9 and P7 models in Israel next year and will introduce the G6 as its inaugural right-hand drive vehicle. The company already operates in the Netherlands and Norway. (Source: Jiemian)
Douyin's food delivery service, internally referred to as "Group Purchase Delivery" (Tuangou Peisong 团购配送), has expanded its coverage in two phases in early July and September, now reaching 30 cities. This indicates that since its launch at the end of last year, Douyin's food delivery has gradually moved beyond its initial small-scale pilot phase and started expanding to more cities. Additionally, Douyin has introduced a regional agency model in these cities to accelerate the onboarding of food and beverage merchants. (source). In March, we explored how Douyin charged into Meituan's group-buying territory, teamed up with an unlikely partner and takes aim at food delivery.
Shein became the second largest fashion e-commerce platform in Europe. European Cross-Border Commerce CCE recently released the 2022 European fashion and beauty e-commerce value rankings. German fashion retailer Zalando ranked first in the fashion field and second in the overall list. (source) We last wrote about Shein’s operations here.
Introduction
Not long ago, we discussed the electric vehicle start-up NIO (Weilai 蔚来), once touted as China's Tesla. Today, let's shift our focus to Li Auto, a brand that once rivaled NIO in both sales and market cap, targeting the same premium EV market segment. The days of referencing “NIO and Li” in the same breath seem somewhat passé now.
Freya Zhang, Ed Sander & Rui Ma
(click on the images above for information on the Tech Buzz China team)
As we journey past the midpoint of 2023, the star in China's automotive sphere isn't BYD; it's Li Auto … at least based on the stock price. Boasting stellar sales, impressive profits, a stock price surge of 83.4% on the NYSE, and an 87.9% jump in the Hong Kong market. In Q2 2023 alone, Li Auto delivered 86,500 vehicles, almost doubling the combined sales of NIO and XPeng (Xiaopeng 小鹏).
While growing its revenue, Li Auto has consistently shown a prowess for profit. With a Q2 gross margin reaching 21.8%, an increase from the previous quarter’s 20.4%, the company reported a net profit of 2.31 billion yuan, resulting in a net profit margin of 8%. For context, remember when Tesla scaled up its Model 3 production in 2019 and started turning a profit in Q3? During that profitable quarter, Tesla delivered around 88,400 cars with a gross margin of 20.62% and a net margin of just 1.1%. Li Auto is projected to surpass its annual sales target by 10-20% this year. The original target stood at 306,000 vehicles, and the revised forecast is between 336,000 and 366,000 units, mirroring Tesla's 2019 sales figures of approximately 367,000. Today, Li Auto seems to be exhibiting a profitability trajectory even steeper than Tesla's, but we must remember the EV landscape today, marked by rapid growth and fierce competition, is quite different from four years ago.
It's worth noting that selling cars at a loss in 2023 isn't groundbreaking. The industry is in a tumultuous phase of transformation, grappling with sky-high R&D and infrastructure costs, which escalate the average costs. If a new model fails to translate into immediate sales upon its launch, salvaging future orders becomes an uphill battle, often forcing companies to slash prices just to maintain a semblance of dignity. Against this backdrop, Li Auto emerged as the first Chinese EV player to achieve profitability for three consecutive quarters.
In the first half of the previous year, Li Auto's sales were primarily driven by their flagship, Li ONE. The latter half saw the responsibility shouldered by the Li L9 and Li L8. Thanks to the overwhelming response to the L series, the benefits of scale kicked in, allowing Li Auto to reverse its loss-making trend of the previous three quarters by the end of last year. Furthermore, with a total vehicle sales revenue of 44.1 billion yuan and an annual delivery volume of 133,246 vehicles, the average price per vehicle stands at 330,000 yuan (about $45,000). This solidifies Li Auto's robust foothold in the premium car market. This year, the Li L series has undoubtedly entered what many might call a "harvesting phase".
A "Power Bank" Fueled by Gasoline
While NIO emphasizes its battery-swap strategy, Li Auto focuses on extended-range electric vehicles (EREVs). EREVs are essentially hybrid electric cars that can be powered either by an electric motor or by a gasoline engine. They combine the advantages of both electric and gasoline vehicles, offering the energy efficiency of electric vehicles and the longer range of gasoline cars. When the battery is sufficiently charged, EREVs operate in electric mode; when the battery is low, they can switch to the gasoline engine mode. In simple terms, an EREV is like an all-electric vehicle with an added "power bank" fueled by gasoline. Overall, while EREVs can reduce battery costs to some extent, they also introduce additional costs associated with the gasoline generator.
Li Auto's main product is an EREV with an onboard battery capacity of 35-40 kWh. By 2025, this will increase to 45-60 kWh. An EREV with a 60 kWh battery capacity is considered top-notch, beyond which the vehicle would be categorized as all-electric. NIO believes that EREVs won't be the main trend in future vehicle development, whereas Li Auto argues that all-electric vehicles will face challenges in rapid advancement in the short term. Li expects that by 2025, new energy vehicles will account for 70-80% of the market, with hybrids playing a significant role.
EREVs, which once faced skepticism, especially from pure electric vehicle enthusiasts, are now not only increasingly available in the Chinese market but also seeing rising sales. For instance, Chang'an Shenlan (长安深蓝) has launched EREV versions of its SL03 and S7 models. Similarly, NETA's flagship sedan, besides its all-electric variant, also offers an EREV model. The Leap Motor C11 also has a hybrid model, and the starting price is just 159,800 yuan. In 2023, new energy vehicles comprised 40-50% of total vehicle sales, of which 20% were all-electric and the rest were hybrids.
Li Auto believes that consumers prefer hybrids due to unresolved issues associated with all-electric vehicles, whether it's about charging or battery replacement. These concerns are especially pronounced for consumers in China's first-tier cities. In cities like Beijing, Shanghai, Guangzhou, and Shenzhen, there are restrictions on the purchase of new vehicles to control the number of cars on the road. They use lottery systems or auction systems to distribute limited numbers of license plates. To promote the adoption of NEVs, some cities offer incentives like an easier process to get a green license plate or exemptions from certain restrictions. Challenges like license plate restrictions, inadequate charging infrastructure, and battery life anxiety drive some customers towards EREVs.
More automakers are either currently developing EREVs or planning to. Given the imperfect state of the new energy charging network, EREVs, with their fuel flexibility, absence of range anxiety, and green plate benefits, present an optimal solution for consumer pain points. In many domestic regions, EREVs are also categorized as new energy vehicles, enjoying benefits like subsidies and no license plate restrictions. These vehicles, with an all-electric range from a little over a hundred to more than two hundred kilometers, meet daily commuting needs and can function as a gasoline car on longer trips or during holidays.
In 2023, a 13-year old national subsidy was completely withdrawn. Before this, standard electric passenger cars with a range exceeding 400 kilometers and priced below 300,000 yuan received a subsidy of 12,600 yuan; those with a range between 300 and 400 kilometers received 9,100 yuan. For automakers, amidst the end of state subsidies and expensive battery materials, EREVs, with their mature technology, smaller batteries, and reduced costs, provided financial relief.
However, satisfying consumer demands isn't the only factor drawing automakers to EREVs. Beyond consumer needs, the reduction in production costs is a significant driver for companies to pursue EREVs.