Why was Li Auto overtaken by AITO Auto?

Home » Why was Li Auto overtaken by AITO Auto?

Recently, Chinese new energy vehicle manufacturer Li Auto released its full-year financial report for 2023, which is quite eye-catching. The financial report shows that Li Auto achieved annual revenue of $17.2 billion, net profit of $1.64 billion, and cash reserves of $14.4 billion.

Unlike the beautiful financial results, the ideal car in reality is not outstanding.

2023 is an important year in the development history of Li Auto. It has achieved development beyond its own expectations with the three models of L7, L8 and L9. Behind the scenes, Li Auto did do something right.

First of all, Li Auto did not simply follow Tesla’s pure electric route, but pragmatically chose the extended-range route that combines gasoline and electricity, which allowed it to gain a wider range of user groups. Facts have also proven that currently, except for Tesla and BYD, no pure electric car company has achieved large-scale sales. The reason why NIO and Xpeng have gradually lagged behind Li Auto is largely due to their excessive focus on pure electric models with a smaller market size.

Secondly, Li Auto has successfully avoided the mid-sized car and compact markets, which are the most competitive markets, and instead chose the medium-to-large and large SUV markets. In the past, these two markets were mainly monopolized by the three luxury brands BBA (BMW, Mercedes-Benz and Audi), which had considerable market demand.

However, because BBA’s prices were too expensive, a large number of consumers were discouraged from these two types of products. Li Auto has launched the L7 and L8, two mid-to-large SUV products, and the L9, a full-size large SUV product, at half the BBA price, successfully attracting consumers who like large models but were previously discouraged by the price.

Thirdly, Li Auto also performs well in terms of product appearance design and configuration. The combination of these three will contribute to the hot sales of the three ideal models in 2023.

However, the above three advantages will not be sustainable in 2024.

First of all, the range-extending technology route chosen by Li Auto has begun to lose its differentiation. On the one hand, it has been adopted by a large number of new energy vehicle manufacturers such as AITO, Deepal, Leapmotor and Voyah. On the other hand, plug-in hybrid technology, which is better than range-extended technology, has also begun to be used in major vehicles such as BYD, Geely, Great Wall and Chery. Manufacturers are widely available.

Secondly, the mid-to-large SUV and large SUV markets that Li Auto focuses on have begun to become extremely crowded, and more cost-effective products have emerged. The most representative one is the AITO brand empowered by Huawei. Its AITO M7 and M9 launched in 2023 are completely comparable to Li Auto’s L7 and L9. In particular, the AITO M7’s starting price of $34,740 is a fatal blow compared to the L7’s starting price of over $41,600.

Thirdly, Li Auto has also lost its differentiation in terms of product strength. The large space, large refrigerator, massage seats and other configurations that it initially targeted at home users lacked technical thresholds, and were soon completely imitated by various competitors.

sales of car brand in China market

The gradual loss of the above advantages will cause Li Auto to suffer a blow as soon as it enters 2024. First, in January, Li Auto’s monthly sales volume was 31,165 units, losing to AITO’s 329.73 million units. In February, AITO continued to maintain its lead. According to the latest sales data of new energy brands in the Chinese market from February 1 to February 25 officially released by Li Auto, AITO once again led Li Auto with a sales volume of 17,000 units, which was 16,200 units. tower.

What is even more worth mentioning is that the AITO M9 has just started delivery recently, and the above sales are mainly achieved by relying on the M7 model. This means that AITO has defeated Li Auto’s three models with just one model. In the future, with the large-scale delivery of M9 and the completion of new product lines, AITO will be able to completely leave Li Auto in market share.

BYD has not yet fully exerted its power.

An AITO industry empowered by Huawei has easily defeated Li Auto. BYD, the strongest player in China’s new energy vehicle industry, has yet to make efforts in Li Auto’s main market.

Currently, BYD has four major brands: BYD, Denza, Formula Leopard and Yangwang. Previously, the BYD brand mainly focused on the medium-sized, compact and small car market of less than $42,000. The Denza brand mainly focused on the large MPV market of more than $42,000.

Formula Leopard mainly focused on the medium-sized off-road SUV market. Yangwang mainly focused on the selling price The market for ultra-high-end large off-road SUVs and supercars priced at RMB 1 million+ has little overlap with the target users of Li Auto.

By 2024, BYD’s various brands will officially begin to enter the core markets where Li Auto is focused. For example, the Dynasty series under the BYD brand will launch the medium and large SUV Tang L, which will directly challenge the Li L7 and Li L8.

The Denza brand will launch the full-size large SUV N9, which will directly challenge the Li L9. Formula Leopard brand will launch The large off-road SUV model Leopard 8 will also eat into the market share of the Li L9.

On the one hand, there is the easy overtaking of the AITO brand, and on the other hand, there is the siege of BYD Tang L, Denza N9 and Formula Leopard 8. Li Auto’s sales in 2024 are not optimistic.

BYD has obvious technical advantages.

No matter how the market changes, the public has always had greater confidence in BYD. But people are not so sure about the prospects of ideal cars. The root cause behind the analysis is that BYD has its own technological moat, while Li Auto does not. What it has is only a temporary tactical advantage.

For example, BYD has recently shocked the industry in two ways. The first is that BYD’s brand products have considerable price advantages, and the newly launched Honor Edition products such as Qin Plus, Destroyer 05, Han, and Tang in 2024 will further lower their prices. This will allow BYD to continue to expand in the cost-effective market.

The second is that BYD’s ultra-high-end brand Yangwang has launched a new supercar model U9 with a price starting at $220,000 , in addition to the U8 product with a price starting at $150,000, creating a new position for Chinese automobile brands. A new history of the million-dollar luxury car market.

BYD yangwang U9

One is caused by product price reduction, and the other is caused by the ultra-high pricing of products. These may seem like two completely different dimensions, but behind them are actually the same root cause, that is, BYD’s industry-leading technological innovation capabilities.

Among them, the BYD brand focuses on the cost-effective market. In this market, consumers are very price sensitive, so whoever has the strongest cost advantage and whose products are more cost-effective will have the initiative in competition. The realization of cost advantages does not depend on simple cost and expense savings, but most fundamentally depends on the technological innovation of enterprises.

For example, in the automotive industry, 80% of the cost of a product is determined by design, and 20% is determined by procurement. The design method adopted by automobile manufacturers for their products basically determines the cost level of the products. BYD’s core competitiveness in the field of cost control lies in optimizing product design through technological innovation to obtain cost advantages that its peers do not have.

Looking up at the ultra-high-end market where the brand focuses, consumers are less price sensitive and care more about the excellent performance of the car, and the core of excellent performance comes from unique technological innovation. Wang Chuanfu, founder of BYD, once summarized the success logic of high-end car brands. He said, “Throughout the development history of the automobile industry, the birth of high-end car brands is often accompanied by the maturity of top core technologies. Super technology creates high-end brands.”

The reason why the Yangwang brand has been able to successfully break through in the ultra-high-end market is that, in addition to BYD’s common core technologies such as blade batteries, super hybrids, Yunnan and CTB, there is also a proprietary technology “Yi Sifang” to support it. “It is a power system with four motors as the core independent drive, which can achieve industry-leading performance and safety.

The Leopard 5, the first model of the Fang Leopard brand, won its first battle because it was equipped with the proprietary super hybrid off-road platform DMO. After the success of the large MPV model D9, the Denza brand is also using vehicle intelligent technology as its trump card for future competition. Therefore, BYD’s high-end strategy is not simply positioning itself as high-end, but is based on the cornerstone of high-end technology.

Looking back at Li Auto, except for some innovations in the tactical dimension, it has almost no differentiated core technologies, which makes it extremely easy to be imitated. Therefore, it quickly fell into homogeneous competition and was ignored by those who asked the question. In this way, companies with stronger operating capabilities quickly catch up.

Click to learn: Why Import BYD Cars From China

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