Li Auto incorrectly treated a period of commercial validation as a period of rapid growth with the Li Mega, and this strategic miscalculation was the essential reason for the model's issues, its CEO said.

(Image credit: Li Auto)

Li Xiang, founder, chairman and CEO of Li Auto (NASDAQ: LI), reflected on the company's recent situation, after the Li Mega MPV (Multi-Purpose Vehicle), which had been highly anticipated, fell short of expectations.

In an internal letter today, Li talked about what went wrong with the company's first battery electric vehicle (BEV) model, which was launched on March 1, and how to fix it.

Li Auto mistook a commercial validation period for a high-growth period with the Li Mega, and that strategic miscalculation is essentially the reason for the model's issues, according to the internal letter, which was seen by CnEVPost.

The Li Mega and Li Auto's future high-voltage all-electric models will have to go through a similar validation phase as the Li One and other extended-range electric vehicles (EREVs), and won't be able to have the strong momentum that the L-series had soon after launch, Li said.

Li Auto will then patiently complete the commercial validation period for the Li Mega, focusing on core user groups and cities with strong consumption of premium electric vehicles (EVs), he said.

Li Auto has three models in the L series -- Li L7, Li L8 and Li L9 -- all of which are EREVs, essentially plug-in hybrids. The Li Mega, its first BEV, began deliveries on March 11.

The company launched the Li Mega on March 1 alongside the 2,024 L-series EREVs.

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Below is the full text of Li's internal letter, translated by CnEVPost.

How to address the issues facing Li Auto today

Review the essential causes and solutions to our March problems.

First, Li Mega's pacing issue

Essential cause: We mistakenly operated Li Mega from stage 0 to 1 (commercial validation period) as if it were from stage 1 to 10 (high speed development period).

The Li Mega and the high-voltage pure electric models had to go through a 0 to 1 phase similar to the Li One and the other extended-range electric vehicle (EREV), and could not achieve the 1-to-10 business potential that Li Auto's L-series had as soon as they were launched.

This is a miscalculation of the pace of our pure electric strategy.

The chaos in the Li Mega's rhythm also caused the sales team to drastically reduce the time and effort to serve L-series customers, and the main model, the Li L8, didn't even have a place in the stores.

Solution: We will patiently operate Li Mega according to the rhythm of 0 to 1, focusing on the core user groups and cities with strong high-end pure electric consumption ability.

We will abandon the sales strategy of full-scale advancement, and instead will focus on large retail centers in big cities for product experience and test drives, and accelerate the construction of supercharging stations in these cities.

After effectively completing the stage from 0 to 1, we will then promote it to more cities and larger user groups.

Second, the problem of excessive desire to focus on sales

Essential reason: We are too concerned about sales and competition from top to bottom, letting desire overtake value, making our original best user value and operational efficiency appear to decline.

The pursuit of desire turns us into people we hate.

Solution: Reduce expectations and desires for sales and return to healthy growth. Focus on users rather than competition, focus on value rather than desire. Return to what we do best, the improvement of user value, and return to what we do best, the improvement of operational efficiency.

Strictly follow our three major codes of conduct:

- Put user value in the first place.

- Reach consensus through co-creation.

- Seek truth from facts and learn from mistakes.

The problems of March 2024 are an enhanced version of our 2022 problems. We need to be realistic and learn from our mistakes.

We are confident that with joint efforts, we will focus on user value, focus on operational efficiency, patiently control the pace, and serve our users in a long-term and healthy way by solving problems on the ground.

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