Founded by a titan in China’s entrepreneurial community and backed by a battle-hardened internet billionaire, on July 30 Li Auto became the second Chinese new energy vehicle (NEV) maker to list on an American stock market after its $1.1 billion Nasdaq IPO. 

However, until recently, little was known about the five-year-old company. The EV maker has kept a relatively low profile compared to its peers. Li Auto knows it doesn’t have to be well-known internationally—it’s already found its sweet spot in China, the world’s largest auto market.

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The company’s strategy is uniquely low-key. Instead of pursuing fully electric vehicles, Li Auto is focused on plug-in hybrid vehicle technology. It hopes this will calm customers’ anxiety over vehicle range and reduce the high cost of EV ownership in China.

While competitors Nio and Xpeng have modeled their tactics after Tesla’s flashy approach, Li Auto has fashioned itself in Toyota’s image. It has applied the Japanese automaker’s cost-cutting strategies to the premium vehicle market. 

But investors are concerned about the long-term prospects of a company that is built on the technology that drives hybrid electric cars: They are uncertain whether Li Auto can effectively transition into competitive zero-emission electric vehicles.

So far, Li Auto’s approach has paid off. The company delivered 10,000 vehicles—an oft-celebrated figure among the small EV makers—faster than any of its Chinese rivals. It was also the first Chinese EV maker to report a positive quarterly gross margin in the first quarter of 2020, while Nio was still in the red.

Li Auto still has several hurdles to overcome—and the clock is ticking. Its all-electric competitors are lowering prices, and the government is working to provide them with an extensive charging network.

Key facts about Li Auto

  • Founded in Beijing in 2015, Li Auto raised more than $2 billion with a valuation of $4.05 billion before it listed on the Nasdaq.
  • Founder Li Xiang owns a 25.1% stake in the company but has 70.3% of the voting power, followed by Meituan founder Wang Xing with a 23.5% stake and 9.3% of the voting rights.
  • The company’s first mass-market model, the Li One, is a six-seat premium plug-in hybrid electric SUV with a starting price of RMB 328,000 ($46,800)—cheaper than Tesla’s China-made long-range Model 3 (RMB 344,000), but pricier than most of its Chinese counterparts.
  • Li Auto delivered 10,473 vehicles between December and June 2020. The company plans to increase its retail footprint threefold to 60 stores by the end of the year. 
  • Despite its fast rise and future ambitions, it remains a small player in China’s EV industry. In the first half of 2020, its market share was 2.4%, selling 9,500 NEVs. A total of 397,000 of these kinds of vehicles were sold in China during the same time period, government figures show (in Chinese). 

Betting on transitional technology

While loss-making rivals jumped into the deep end with pure electric vehicles, Li Auto took a more conservative approach. Dubbed extended-range electric vehicles (EREVs), the cars it markets can be charged by a gas engine when the battery is low. Unlike conventional plug-in hybrids (PHEVs), which use both electric and gas-driven motors in tandem for power, EREVs are always driven by electric motors. 

  • Plug-in hybrids, and now EREVs, are considered a bridge technology that could reduce car owners’ reliance on gasoline until the technical and operational hurdles of EV adoption are overcome. 
  • When an EREV’s battery is low, the gas motor kicks in to charge it, providing the “extended range.” Because the vehicle’s battery can be charged by the gas engine during a trip, EREVs require a smaller battery pack compared with all-electric vehicles, reducing the cost of ownership.
  • Li Auto expects EREVs to overcome some of the biggest bottlenecks of EV adoption in China: the relatively high cost of EVs and the lack of convenient charging stations.
  • But previous EREV launches by major Chinese automakers have fallen flat. Geely and Chery released their EREV models in 2010 but failed to reach mass production due to high costs and little consumer interest.
  • The market for these types of vehicles in China is still small. Li Auto is currently the first and only manufacturer to “successfully commercialize” EREVs in China, according to its prospectus.
  • The market for these types of vehicles in China is still small. Li Auto is currently the first and only manufacturer to “successfully commercialize” EREVs in China, according to its prospectus.

‘China’s Toyota’

The cornerstone of Li Auto’s approach to its business is cutting costs, just like Toyota. The company aims to bring Toyota’s approach to manufacturing premium SUVs. 

In a post on popular messaging app Wechat in June, Li Auto founder Li Xiang described some of the company’s cost control measures when commenting on rival EV maker Byton’s recent collapse

  • Employees of Li Auto are required to book corporate travel at rock-bottom prices, including the cheapest economy flights, Li said.
  • Employees of the same gender are also required to share hotel rooms during business trips, the CEO added. 
  • The launch event of its first mass-production model Li One cost just around RMB 2 million. This is rare in a cash-burning industry known for events that cost tens of millions of yuan. The company secured more than 10,000 orders in return, Li boasted. Nio is rumored to have spent up to RMB 80 million on its first launch event in 2017, Chinese media reported
  • Li is proud of a modest net loss of RMB 4 billion over the past two years, around a fifth of Nio’s losses in the same time period. He believes these measures to reduce costs will ensure the company reaches profitability early in the battle for China’s upscale consumers.

Customer complaints

Despite success in keeping costs low, Li Auto has a long way to go if it wants to build China’s Toyota. The Japanese legacy carmaker is known for making reliable cars. Li Auto has limited experience in vehicle development—and has faced multiple complaints about the quality of its cars. 

  • The company’s first car, the Li One, has been criticized by multiple owners for quality issues ranging from the vehicle incorrectly reporting faults to the driver to suspension problems (in Chinese).
  • These complaints exclude a recent car fire in the central Chinese city of Changsha. The company said the issue resulted from carelessness rather than a defect. Its staff left materials from a pre-delivery check in the car’s engine compartment, which eventually led to the fire, it said. 
  • On the bright side, Li Auto’s cars have received wide praise for their driving feel, luxurious interior, and reasonable price point.

Who is Li Xiang?

Li Auto CEO Li Xiang is no stranger to entrepreneurship. In fact, the EV maker is not the first company he’s taken public. In 2005, Li founded Autohome, a recognized Chinese auto portal that listed on the New York Stock Exchange eight years later. The company now has a market cap of around $10 billion, nearly 10 times that of close rival Bit Auto.

  • A high-school dropout, Li’s hero was Michael Dell, the billionaire founder of US tech giant Dell Technologies. Li started his first business in 2000 when he was just 18. The company was an online forum for digital gadgets called 
  • Six years later, the company was China’s third-biggest consumer electronics portal. Li found himself worth RMB 200 million and in charge of 900 employees, according to an interview (in Chinese) with state broadcaster China Central Television.
  • When starting Li Auto, Li Xiang also invested in now-rival EV maker Nio. Li is a friendly competitor to Nio founder and CEO, William Li. Li Xiang owned 1.8% of Nio as of mid-2018, according to the company’s IPO prospectus.
  • The two founders, along with Xpeng Motors CEO He Xiaopeng, have a close-knit relationship. Li Xiang in April said he hoped Nio and Xpeng would be the only two “comrades” left alongside his own company in the Chinese EV market after weaker players are pushed out.
  • Li’s founding of an EV company last year caught the eye of Chinese tech billionaire Wang Xing, a serial entrepreneur known for starting dozens of failed projects before founding Meituan, China’s biggest food delivery platform. Wang spoke highly of Li as an admirable innovator focusing on user demand and team management, when leading Li Auto’s $550 million Series C last year.

Prospects after IPO

As investors’ enthusiasm for Tesla has spilled over to other companies in the industry, Li Auto stock looks even more appealing than its peers. The company’s second-quarter financial details showed a double-digit gross margin of 13.3% and a 128% quarter-on-quarter growth in deliveries. But Li Auto is far from a safe bet. 

  • Li Auto’s monthly deliveries have fallen sequentially for two months after the company delivered a record 2,622 vehicles in April, raising widespread concern in Chinese media that existing orders had been exhausted. Li Auto did not reveal details about its current order flows when contacted by TechNode. 
  • Analysts also point out that Li Auto doesn’t have enough physical stores to maintain continued sales growth—and it’s precisely this expansion that would be an important driver of short term growth. Li Xiang has clearly identified this risk, announcing in June that the company plans to run a total of 60 stores nationwide, not 20, as initially planned. 
  • Industry watchers also voiced concerns that a weak, blurred identity could hinder the young EV brand from becoming popular. The benefits of EREVs are more difficult to communicate to customers than Nio’s fancy customer-oriented strategy built upon luxurious clubhouses or Tesla’s automated driving capabilities.
  • Another longer-term concern is a relatively small budget for research and development. Last year, Li Auto spent RMB 1.17 billion on research, compared to Nio’s RMB 4.4 billion. The company plans to start developing Level 4 self-driving capabilities later this year, with an investment of at least RMB 1 billion, its founder said.

It is plausible that extended-range technology is a pragmatic solution to key bottlenecks in EV adoption. But there are risks. As the affordability of EVs improves and more charging stations are rolled out, Li Auto will need to scale up fast in order to survive a shakeout in the industry—one that has already taken its toll on dozens of EV startups in China.

Li Xiang in April said he believed the company could achieve profitability with just another $1 billion funding injection. However, the narrow window for EREV technology is closing, fast.

Jill Shen is Shanghai-based technology reporter. She covers Chinese mobility, autonomous vehicles, and electric cars. Connect with her via e-mail: or Twitter: @yushan_shen