I'm not necessarily after more challenge, but more unpredictable, varied, logical and - most importantly - fun gameplay. Improving AI isn't just making things tougher. It's about finding a balance which gives the maximum entertainment. And that is something Xenonauts 2 could still do a lot better.
While I think the cover system Xenonauts 2 currently has is elegant and works fine, there's one critical issue that really brings the tactical game down.
The issue is that you don't need to use a cover to be in cover. It's completely irrelevant if you are hunkering behind a waist high concrete wall or if the said concrete wall just happens to be in between you and the shooter. It just doesn't make sense and makes tactical choises too easy. It just doesn't matter that much where you move your units, as there's almost always some cover in the line of fire (which means you are as good as in cover anyways)
Proposition: kneeling next to a cover provides double kneeling buff.