2/28/24, 2:26 PM Chinese EV Billionaire Boosts His Wealth To Almost $10 Billion

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Chinese EV Billionaire Boosts

His Wealth To Almost $10
Billion
Yue Wang Senior Contributor
I write about interesting Chinese companies.

Feb 27, 2024, 03:08am EST

Li Xiang, founder of Li Auto. QILAI SHEN/BLOOMBERG

Li Xiang, chairman and CEO of electric vehicle maker Li Auto, saw

his wealth jump $1.5 billion to $9.6 billion on Monday as investors
approved his discounting strategy in China’s fiercely competitive
EV market. But analysts warn that an intensifying price war might
eventually hurt Li Auto’s margins down the road.
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2/28/24, 2:26 PM Chinese EV Billionaire Boosts His Wealth To Almost $10 Billion

Following the release of fourth quarter earnings on Monday, shares

of the dual-listed company jumped as much as 26% in Hong Kong
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on Tuesday after rallying almost 19% in the Nasdaq overnight. Li,
who derives his net worth from a Li Auto stake, ranked on Monday
as one of the five biggest wealth gainers worldwide, according to
Forbes’s Real-Time Billionaires List.

The 42-year-old is proving that price cuts have not eaten into Li
Auto’s bottom line. To defend itself against rivals such as the
Huawei-backed Aito, which is targeting the same family market
with its hybrid SUVs, Li Auto started in August to offer at least
15,000 yuan ($2,000) discounts on its extended-range vehicles that
retail for more than $42,000.

These hybrids include a gasoline-powered engine so that batteries

can be charged on the go. In addition to alleviating range anxiety —
the cars can travel up to 1,100 kilometers with gas-generated
electric power — Li Auto’s hybrids boast extra interior space and
even a small refrigerator for longer trips.

In the fourth quarter of 2023, sales of its three models — the five-
seat Li L7, six-seat Li L8 and six-seat Li L9 – more than doubled
year-on-year to $5.9 billion. Net profit came in at $810 million, up
2,068% from a year earlier. Gross margins for its vehicles reached
23.5%, even higher than Tesla’s 17.6% margin during the same
period, and that was after the American EV maker slashed prices in
multiple markets including China. Wang Hanyang, a Shanghai-
based analyst at research firm 86Research, says investors are now
increasingly convinced of Li Auto’s profit prospects.

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“The company launched sales promotions in Q4,” says Wang. “In

the meantime, the company could still keep its vehicle margin
stable. It shows Li Auto’s strong supply chain and cost management
capabilities.”

For 2024, billionaire Li is aiming to sell 800,000 cars, according to

a January post on his social media account. If achieved, that goal
would mark a 113% jump from the 376,030 vehicles delivered in
2023.

The company said on a Monday analyst call it aims to do that by

launching more models. On March 1, Li Auto plans to introduce Li
Mega, a pure electric multi-purpose vehicle with a starting price
under $84,500. It will rely solely on batteries for power, as will
other models to be launched later.

The EV maker believes an increase in charging facilities and

advances in battery technologies are alleviating range anxiety
among potential customers. The company has previously said it
plans to build 3,000 charging stations by the end of 2025. It
currently has 330 charging stations across China.

“Management has also provided a clear path to achieve its FY24

(fiscal year 2024) sales target and is still quite self-disciplined in
costs and expansion,” Shi Ji, a Hong Kong-based analyst at CMB
International, wrote in a Feb 27 research note.

But 86Research’s Wang sounded a note of caution. He wonders if

Li Auto will be able to maintain margins over 20% if it’s forced to

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2/28/24, 2:26 PM Chinese EV Billionaire Boosts His Wealth To Almost $10 Billion

cut prices more amid cut-throat competition.

This month, billionaire Wang Chuanfu’s BYD, which overtook Tesla BETA

as the world’s largest EV company by deliveries in January, slashed

the price of its popular Qin Plus sedan by $1,400. The EV leader is
seeking to use its discount strategies to expand in China’s EV
market, in which growth is slowing. Deliveries are projected by the
China Passenger Car Association to increase 25% to 11 million units
this year, down from 36% growth in 2023 and 90% in 2022.

“In my view, the market seems to be overly optimistic after the Q4

earnings were announced,” says Wang. “The price war has just been
initiated by BYD this year. Every EV company needs to rethink how
to balance profitability and sales volume, including Li Auto.”

Yue Wang

I am a Beijing-based writer covering China's technology sector. I contribute to Forbes,

and previously I freelanced for SCMP and Nikkei. Prior to Beijing, I... Read More

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