To The Moon

In the last 2 days, the share price of $Li Auto(LI)$ $LI AUTO-W(02015)$ fell sharply. Take Hong Kong stocks as an example, after plunging 7.7% yesterday, they once fell another 6.3% today.

The reason for this drop is that Huawei launched a new M7 model in conjunction with Ceres, which is positioned as a large 5-seat SUV with extended range, similar to the L7 model of Li Auto, but the new M7 starts at a lower price.

After the launch of the new M7, the good news continues. According to Huawei CEO Yu Chengdong, there are more than 1500 new M7 orders daily:

In addition to the new M7, Huawei will also jointly launch the flagship SUV WenJie M9 as the main competitor of Li L9 in December this year. M9 is positioned as a large SUV, which priced at about 500,000.

It is not the first time that Huawei and Ceres have partnered with each other. Last March, they began to deliver WenJie M5 model, sales were once soaring, setting a record of more than 10,000 vehicles delivered in five months on the market. But with the decline of consumer enthusiasm, Ceres sales have been declining since their peak in October last year and have been in the doldrums so far:

Sales of the new M7 are booming this time, but it is not known whether it can open high after listing. Even so, Li stock price still fell sharply in response, mainly because investors are concerned about the deterioration of the competitive landscape of new energy vehicles.

Because of the earlier layout of new energy vehicles and the newly established company, $NIO Inc.(NIO)$ $NIO Inc.(NIO.SI)$ $NIO-SW(09866)$ $XPeng Inc.(XPEV)$ $XPENG-W(09868)$ and Li Auto are known as the new force of car manufacturing. Before Li Auto fall, the sales and share prices of Xpeng and NIO first collapsed.

Take the earliest crash of Xpeng as an example, its product positioning of about 200,000 mass models, is the lowest pricing of NIO, Xpeng and Li Auto. In terms of sales volume, from September 2020 to June 2022, Xpeng's sales continued to rise, and then fell from 15,000 units per month to about 5,000 units.After major organizational reforms, sales rebounded again, but so far failed to break through the all-time high:

Behind the slump in sales is the deterioration of the competitive pattern of new energy vehicles, including $BYD Co., Ltd.(BYDDF)$ $BYD COMPANY(01211)$ $ZHEJIANG LEAPMOTOR TECHNOLOGY CO., LTD.(09863)$, GAC Aion and other car companies to join the competition. When the consumer choice becomes wider, Xpeng lost its first-mover advantage and was gradually defeated in the fierce competition.

Due to the positioning of NIO as a high-end brand, the competitive pattern is slightly better, but the sales volume has also been maintained at the level of 10,000 units per month for a long time, and it is only recently that sales have been brought to a new level through the launch of cheaper models:

Compared with NIO and Xpeng focused on pure electric models, Li Auto mainly focuses on extended range SUV, which was once regarded as a backward technology by car companies, only an interlude in the process of transforming fuel cars into trams, coupled with LI car price of about 400,000 yuan, so the competitive pattern better than NIO and Xpeng.

Looking to the future, although the previous cooperation between Huawei and Ceres has not had an impact on Li Auto, as Huawei making every effort to increase investment and other car companies joining the extended-range track, Li Auto competition situation will deteriorate sooner or later.

From the perspective of $Tesla Motors(TSLA)$ , the originator of new energy vehicles, its profitability far exceeded that of traditional fuel car companies before the competitive pattern has not deteriorated. With BYD, NIO, Xpeng, Li Auto and other traditional fuel vehicle companies transforming the new energy market, Tesla's competitive pattern has deteriorated. After a big price war and repeated price cuts this year, Tesla's gross profit margin and net profit margin dropped sharply:

From the history of Tesla, Xpeng and NIO, the highlight moment is mainly from the first-mover advantage, once the competition intensifies, new energy vehicles still can not get rid of the fate of traditional fuel vehicles, that is, fierce competition, low profitability, can not get rid of the economic cycle.

Is Li Auto's good luck running out?