Li Auto

Li Auto’s first product never reached a single customer. The tiny two-seat electric vehicle that founder Li Xiang (李想) spent three years and ¥200 million developing was killed by regulators before it could legally drive on a Chinese road. What happened next — a desperate pivot, more than 100 investor rejections, and a technology bet the industry called backward — produced China’s first profitable EV startup. Then success nearly destroyed it.

The technology everyone mocked

When Li Xiang chose extended-range electric vehicle technology for his SUVs in 2018, the decision invited ridicule from every direction. Competitors called EREV architecture — a battery paired with a small combustion engine that generates electricity but never drives the wheels — a transitional compromise for companies lacking real battery expertise. Investors pressured him to go pure BEV. Industry commentators dismissed the approach as technologically unserious. Li Xiang himself would later make the strategic irony explicit, publicly calling EREV “TMD backward technology” in a combative Weibo post that went viral.

His logic was simpler than the mockery suggested. Chinese families spending ¥300,000 or more on an SUV expected to drive their children to grandparents’ homes during Spring Festival — journeys of 500 kilometres or more through provinces where charging infrastructure barely existed. Pure electric vehicles in 2018 could not reliably make that trip. Extended-range vehicles could. Li Xiang had spent a decade running Autohome (汽车之家), China’s dominant automotive portal, and the consumer data told him what ideology could not: range anxiety was not a perception problem. It was a product problem. By 2024, EREVs captured 13% of China’s new energy vehicle market, and every major competitor had launched extended-range models of its own. The technology everyone mocked had become the category everyone copied.

A factory built for the wrong product

Li Auto began as Chehejia (车和家) in July 2015, and its founding vision was not one product but two. Li Xiang planned a micro-sized Smart Electric Vehicle for urban commuting alongside a large family SUV. The SEV was the near-term bet: a 350-kilogram two-seater with a removable battery you carried home to charge, designed for a low-speed EV category that China had not yet legalised but was widely expected to approve. Li Xiang invested ¥2 billion in a Changzhou factory with 200,000-unit annual capacity, signed car-sharing partnerships with Clem in France and SCOOT in San Francisco, and launched a pilot programme in Paris. Trial production began in August 2017.

The regulations never came. In January 2018, China’s failure to legalise the low-speed EV category killed Li Auto’s founding product outright. Three years of development. ¥200 million in sunk costs. A factory tooled for a vehicle that could not legally exist. Li Xiang made one decision that distinguished the failure from mere waste: he compensated every supplier in full. The gesture was expensive and unnecessary. It was also the kind of institutional behaviour that builds a reputation among the manufacturers and component makers whose cooperation a startup cannot survive without.

The pivot was immediate. Li Xiang killed the SEV, acquired 100% of Lifan Motors’ (力帆汽车) Chongqing facility for ¥650 million to secure the NEV production qualification unavailable through standard licensing, and retooled the Changzhou factory for the Li ONE — a six-seat extended-range SUV aimed squarely at the family market the SEV was never designed to serve. By October 2018, the brand name Lixiang Zhizao and the Li ONE concept were public. By April 2019, the vehicle debuted at the Shanghai Auto Show with retail centres opening across five cities.

But the company was running out of money. Li Xiang approached more than 100 institutional investors during an 18-month funding drought. Every one said no. His first product had failed, his chosen technology was unfashionable, and the Chinese venture capital market had not recovered from the 2015 stock crash. The rescue came from a single relationship: Meituan (美团) founder Wang Xing, a friend since 2015, led a $530 million Series C in August 2019. Mass production began at Changzhou in November. The first customer deliveries shipped in December. After four years, two product deaths, and 100 rejections, Li Auto had finally delivered a car.

The hearse that cost ¥100 billion

By the end of 2023, the company Li Xiang built on EREV technology that nobody wanted had become the first Chinese EV startup to achieve annual profitability: ¥11.8 billion net income on ¥123.9 billion revenue, with 376,030 deliveries and a 22.2% gross margin. The L-series lineup — L9, L8, L7 — dominated the premium NEV segment above ¥200,000 for twelve consecutive months. Li Auto had proven the EREV thesis, built a vertically integrated direct-to-consumer operation spanning 500 retail stores in 150 cities, and accumulated ¥112.8 billion in cash reserves. Success, as it turned out, was the most dangerous product of all.

The Li MEGA launched on March 1, 2024. It was Li Auto’s first pure battery-electric vehicle — a ¥559,800 MPV that represented the company’s strategic bridge to BEV technology. Internal targets called for it to outsell every vehicle above ¥500,000 in China. Within 72 hours, the futuristic design was being mocked as a lingche (灵车) — a hearse — across Chinese social media. Photoshopped images comparing the MEGA to a coffin went viral. More than 10,000 orders were cancelled. The stock crashed 30% in three weeks, wiping out approximately ¥100 billion HKD in market cap. Monthly MEGA sales collapsed to roughly 600 units — less than one-tenth of the target.

Twenty days after the launch, Li Xiang issued an internal letter to the entire company that stands as one of the most candid CEO crisis communications in Chinese corporate history. “From top to bottom, Li Auto focused too much on sales and competition, letting desire exceed value,” he wrote. “The pursuit of desire turned us into the people we used to despise.” The letter diagnosed the failure with institutional precision: the company had mistaken a 0-to-1 product introduction for a 1-to-10 scaling exercise. It had applied the playbook that worked for extending an established EREV lineup to a vehicle in an entirely new category, at an entirely new price point, with an entirely new powertrain.

The institutional consequences were severe. The 2024 sales target was slashed from 800,000 to between 560,000 and 640,000 units. Three planned BEV SUVs were postponed. Store expansion plans halted. More than 5,600 employees — 18% of the workforce — were laid off in May, the heaviest reductions falling on the intelligent driving and recruitment departments that had been staffed for an expansion that would not come. Q1 2024 free cash flow swung to negative ¥5.1 billion from positive ¥6.7 billion in Q1 2023. A US class-action securities fraud lawsuit was filed. The crisis exposed not merely a product misjudgement but an institutional culture that had outgrown its own operational discipline — the frugality and focus that had carried Li Auto through the SEV failure and the funding desert had been diluted by the intoxicating validation of profitability.

The machine that survived itself

What makes Li Auto’s trajectory unusual among crisis-tested companies is not that it recovered from the MEGA disaster — any well-capitalised automaker can absorb a product failure — but that it recovered while simultaneously recording its best delivery year. Li Auto shipped 500,508 vehicles in 2024, a company record, and earned ¥8.0 billion in net income. The EREV lineup that Li Xiang had staked everything on in 2018 continued to perform even as the BEV strategy collapsed around it. The Li L6, a compact SUV launched in April 2024 at ¥249,800, became the volume workhorse, surpassing 300,000 cumulative deliveries by mid-2025.

The business model that sustained those numbers through crisis reflects a company built for margin discipline rather than growth at all costs. Li Auto’s marketing spend runs at approximately 0.6% of revenue — roughly one-third of the industry average. Li Xiang personally approves expenses as small as ¥20,000 and models for the company’s own advertisements rather than paying for celebrity endorsements. It operates two owned manufacturing plants: Changzhou for EREV production at more than 300,000 annual capacity and Beijing Shunyi for BEV production at approximately 100,000 capacity. It runs its own supercharging network of 1,874 stations with over 10,000 stalls, and operates 500 retail stores across 150 Chinese cities with 488 service centres — all company-controlled, not franchised. The vertically integrated structure — design, manufacturing, retail, service, and charging infrastructure — produces gross margins that have consistently hovered near 20%, a figure no other Chinese EV startup has matched at scale. The frugality is not cultural performance. It is the scar tissue of a company that spent its first four years one funding round from death.

In October 2024, Li Auto delivered its one millionth vehicle — the first Chinese EV startup to reach the milestone. The company that began with a product that could not legally drive on a public road had, in five years of actual production, built and sold a million cars. Revenue had scaled from ¥284 million in 2019 to ¥144.5 billion in 2024. The EREV architecture that investors and competitors had dismissed as backward underpinned every one of those deliveries.

The restart and the road out

The MEGA crisis did not end in 2024. Full-year deliveries in 2025 fell 18.8% to 406,300. The third quarter recorded Li Auto’s first quarterly loss in three years. The company dropped from first to fifth among Chinese EV startups as BYD, AITO, and others surged past. Li Xiang’s response was structural: in November 2025, he dismantled the professional management system he had installed during the growth years and declared a return to startup-mode leadership, with the founder personally directing strategy and operations. The pattern — crisis, admission, institutional reorganisation — had repeated for the third time in seven years.

The international chapter opened simultaneously. Li Auto entered four markets in the final quarter of 2025 — Uzbekistan, Kazakhstan, Azerbaijan, and Egypt — through authorised dealer partnerships, departing from the direct-sales model it uses domestically. A Munich R&D centre, the company’s first overseas facility, began work on product localisation for markets beyond China. A Hong Kong overseas headquarters was established with a HK$2 billion investment to coordinate global IP management and supply chain operations. The footprint is modest compared to peers: XPeng operates in more than sixty markets, BYD is present globally. But for a company that did not exist a decade ago, that nearly died twice before delivering its first car, and that absorbed the most public product disaster in Chinese EV history without missing a profitability year, the trajectory speaks to something more durable than momentum. It speaks to an institutional survival instinct forged in repeated failure — a pattern of crisis, confession, and reconstruction that has defined Li Auto since its founding. Whether the pattern holds through the current downturn remains the most consequential open question in Chinese electric vehicles.

Last updated: March 16, 2026