Li Auto CEO calls on China to establish mechanism to facilitate M&As between automakers

Li Auto CEO calls on China’s policy makers to establish a mechanism to facilitate mergers and acquisitions between auto companies, amid widespread discussions over HiPhi’s production halt.

(A screenshot shows Li Xiang, founder, chairman and CEO of Li Auto, speaking in a video.)

Li Xiang, founder, chairman and CEO of Li Auto (NASDAQ: LI), called on China’s policymakers to establish a mechanism to facilitate mergers and acquisitions among car companies, amid widespread buzz over the production halt of Human Horizons’ HiPhi brand.

“It’s time for the country to establish and guide a system for mergers and acquisitions of auto companies, including qualification-related issues,” Li wrote on Weibo today.

Earlier today, auto blogger Yuan Qicong shared an image on Weibo showing someone selling the HiPhi Y, which has an official starting price of RMB 339,000 ($47,150), for only RMB 199,900.

The blogger said that if a brand has a clear existential crisis, then its vehicles should not be purchased even if they are cheap. Li shared his opinion while retweeting the blogger’s post.

A number of new brands are likely to run into operational and financial problems next, albeit all as a result of reasonable market competition, Li said.

If the societal loss from a merger or acquisition due to poor management is 10, the loss from closure is 100, he said.

The big three in the US were the results of intense competition and mergers of hundreds of car companies back in the day, Li noted.

Li used the case of Li Auto’s acquisition of Hyundai’s No. 1 plant in Beijing to explain what kind of social value there would be in revitalizing an automotive plant that had been out of production for a long time.

A plant with a production beat of 45 JPH (Jobs Per Hour) would require roughly 4,500 employees to run at full capacity, Li said.

To support that plant, suppliers at all levels would need to provide six times as many jobs, Li said, adding that this is the general situation in the global automotive industry and that more may be needed in China.

So an automotive plant could add 30,000 stable jobs, he said.

Such a plant can add more than RMB 100 billion in economic output at full production. “A healthy increase in economic output is the blood that runs a modern society,” Li said.

At the same time, the plant could contribute up to more than RMB 10 billion in tax revenues, Li said, adding that these tax revenues would serve as the basis for education, social security, infrastructure construction, and economic development.

“So, establishing a sound merger and reorganization mechanism for automotive companies, I think, is very important,” he concluded.

Li Auto’s current vehicles — the Li L7, Li L8, and Li L9, all of which are extended-range electric vehicles (EREVs) — are produced at its plant in Changzhou, Jiangsu province, in eastern China.

The company took over Hyundai’s No. 1 plant in Beijing’s Shunyi district, and in October 2021 it began remodeling it. When it reaches production, the plant will have a capacity of 100,000 pure-play electric vehicles per year, according to a previous government announcement.

Li Auto will launch its first battery electric vehicle (BEV) model, the Li Mega MPV (Multi-Purpose Vehicle), on March 1.

The Beijing municipal government said on its WeChat account yesterday that officials from the city visited Li Auto’s Beijing factory, which will begin mass production at scale in March.

(Li Xiang accompanies Beijing officials on a tour of Li Auto’s Beijing factory.)

($1 = RMB 7.1897)

Premium Chinese EV brand HiPhi halts production for 6 months