Li Auto is accused of exaggerating market demand for the Li Mega and the effectiveness of its operational strategy when it launched the model, allegations that the company refutes.

(Image credit: CnEVPost)

Li Auto (NASDAQ: LI) is being hit with a class lawsuit alleging that it inflated market demand for the Li Mega MPV (multi-purpose vehicle) when it launched the model.

Li Auto has been the subject of a recent class lawsuit by a group of investors alleging securities fraud, with the company and some of its executives accused of making false statements and violating securities laws that harmed investors, a law firm managed by Beijing-based attorney Hao Junbo said in a statement yesterday.

Investors applied to the court to order Li Auto to pay damages for losses caused by the drop in its share price as a result of its violations, the statement said, adding that the law firm could help investors participate in the class lawsuit free of charge.

Li Auto responded by saying that the allegations were baseless and that it would do its utmost to protect the company and shareholders' rights, according to a report by local media outlet Sina Tech today.

Another local media outlet, Caixin, also reported on the class lawsuit, noting that similar class action lawsuits are common in the US stock market.

Li Auto unveiled the Li Mega on the first day of the 2023 Guangzhou auto show on November 17, 2023, and began pre-sales of the model, which is its first battery electric vehicle (BEV). The company's previous models were all extended-range electric vehicles (EREVs).

On March 1 this year, the Li Mega went on sale at a starting price of RMB 559,800 ($77,560), making it Li Auto's most expensive model on sale. On the same day, 2,024 models of its L-series EREVs were also rolled out.

At the start of the pre-sale as well as the official launch, Li Auto's management emphasized the company's confidence that the Li Mega would be the number one seller of models priced above RMB 500,000, regardless of energy form or body style.

In an interview with local media, one of the company's executives said that the Li Mega will challenge the monthly sales of 8,000 units after its launch.

However, the Li Mega was met with a lot of negative comments after its launch, and initial acceptance was far less than expected.

On March 21, Li Auto lowered its delivery guidance for the first quarter to between 76,000 and 78,000 units, down from between 100,000 and 103,000 units, citing lower-than-expected order intake.

Earlier on March 21, Li Xiang, Li Auto's founder, chairman and CEO, said in an internal letter that the company had mistakenly treated the commercial validation period as a period of rapid growth with the Li Mega, and that this strategic miscalculation was essentially the cause of the model's problems.

On April 22, Li Auto drastically reduced the prices of all models except the newly launched Li L6, and the price of the Li Mega dropped by RMB 30,000, with the starting price reduced from RMB 559,800 to RMB 529,800.

Li Auto's US-traded shares fell 7.48 percent on March 21 and has been down 21 percent since March 20.

Li Auto exaggerated the market demand for the Li Mega and the effectiveness of its operational strategy when it launched the model, the law firm said in its statement.

The company's public statements during the pendency of this lawsuit were materially false and misleading, the firm's statement said.

The class lawsuit is one of Li Auto's recent troubles.

Earlier today, local media outlet 21jingji reported that Li Auto is undergoing massive layoffs that could involve more than 5,600 people, with sales falling short of expectations.

($1 = RMB 7.2180)

Li Auto CEO addresses what went wrong with Li Mega and how to fix it in internal letter