Summary of Key Points
Li Auto has made it clear that they will not produce sedans. The main reasons are the conflict between product design and brand philosophy (sedans have a low profile, which results in limited space and comfort, not aligning with the brand's concept of a "mobile home") and commercial viability (sedans offer low profits and require significant research and development efforts). Additionally, the global market share for sedans is continuously declining (in China, it has dropped from nearly 50% to 40%, and in the United States, it is less than 20%). SUVs have become the mainstream due to their higher prices and better fit with consumer needs. However, sedans are not completely doomed; they are transitioning from being a "necessity for every family" to a "personal, enjoyable item for young people or families looking to add a second vehicle," as evidenced by the success of the Xiaomi SU7.
1. Li Auto's Decision Not to Produce Sedans: Not Because It Can't, But Because It's Not Economically Feasible and Doesn't Align with Their Philosophy
Li Xiang's reasons are practical:
- Brand Philosophy Inconsistency: Li Auto aims to create a "comfortable and practical mobile home," but traditional sedans are designed for sportiness, typically with a height of around 1.4 meters, resulting in cramped legroom for passengers in the back seat and difficulty getting in and out of the car. Raising the height of the sedan would make it less attractive and lose its distinctive appearance.
- Economic Viability: Sedans are difficult to sell at high prices (there is little room for premiumization globally), resulting in thin profits. For example, NIO, which produces both sedans and SUVs, faces greater financial pressure due to the additional costs of developing two separate platforms. At present, Li Auto is focusing its resources on SUVs, as this offers a better cost-performance ratio—similar to how Great Wall abandoned sedan production to focus on SUVs.
2. Electric Sedans Are a Challenging Segment: Difficult to Develop and Profitable
Sedans were challenging to produce even in the era of internal combustion engines, and electrification has made things even more difficult:
- High R&D Barriers: The low-profile design of sedans imposes strict requirements on aerodynamics, body stiffness, and chassis performance. Adding battery packs raises the vehicle's center of gravity, reduces headroom, and makes getting in and out of the car more inconvenient. It is also challenging to balance good aerodynamics with ample interior space.
- Profitability Issues:
- Mass-market Sedans: Models priced around 100,000 yuan compete fiercely on price, and dealers often lose money on each sale. Only leading brands like BYD and Wuling can profit through strict cost control. Smaller brands struggle to survive in this market.
- Mid-range Electric Sedans (300,000-500,000 yuan): Models like the Zhijie S7 and NIO ET7 sell only in the thousands or hundreds of units per month because consumers compare them to luxury brands like BMW's 5 Series and compete with SUVs at the same price range.
- High-end Sedans: Luxury models like Huawei's Jianghuai Zunjie S800 (million-dollar range) are profitable but mainly for wealthy buyers looking to upgrade their vehicles, making it difficult to achieve significant sales volumes.
- Break-even Point: Sedans need to sell at least 300,000 units per year to be profitable (a rule that remains true in the new energy era). Without reaching this volume, the high R&D and production costs become unfeasible.
3. Global Trend: Declining Sedan Market Share, with SUVs Taking Over
China is following the path taken by the United States:
- United States: In 2009, sedans accounted for half of the market; now they account for less than 20%. Companies like General Motors, Ford, and Fiat Chrysler have discontinued their affordable sedan models to focus on SUVs and pickups. For example, General Motors sold just 130,000 Malibu units in 2023, a 13% increase, but this only represented 5% of total sales, making it more profitable to convert factories to produce electric SUVs.
- China: In 2022, sedans accounted for nearly 50% of the market; by the first quarter of 2026, this figure had dropped to 40.7%. Consumers prefer the larger space and better visibility offered by SUVs, while automakers benefit from their higher prices (for example, Great Wall's focus on SUVs results in higher profits per vehicle compared to companies like Geely and Changan with a more balanced product portfolio).
4. The Rebirth of Sedans: From a "Necessity" to a "Personal, Enjoyable Item"
Sedans are not doomed; they have simply shifted their focus:
- Changing Target Audience:
- Young people, singles, and DINKs (Double Income, No Kids) do not require large spaces and prefer the low-profile design and handling of sedans for a personalized driving experience.
- Families adding a second vehicle: They already own an SUV for family transportation and choose a sedan for its stylish appearance, good performance, and ease of parking. Space is no longer a primary consideration.
- Success Case: The Xiaomi SU7 is a prime example. With 135,000 units delivered in 2024 and an Ultra version priced at 529,900 yuan expected to be released in 2025, which received over 10,000 pre-orders within two hours, the SU7 captures the interests of young consumers and families looking for a second vehicle.
Conclusion: Sedans are no longer a "must-have" for all households, but when crafted with a strong focus on technology and unique design, they can still represent a market with significant potential. The key is to reposition sedans as "personal, enjoyable items" rather than simply meeting basic transportation needs.