A lot of us are going to hit this at level three, and likely blunder into combat. Like a lot of combats, this one is doable if you prepare beforehand (snipers on the high ground, etc.), and very hard if you don't.
Thing is, preparing for combat against them doesn't make a heck of a lot of RP sense. Trusting Lae'zel aside, we don't have any way of knowing that the dragon and its rider are going to run away at the start of the fight. With them still around for the fight, we're toast. Literally.
What's the player expected to do here, besides save and reload?
Currently the game crashes if you try to organise your party before starting the engagement. I tried to do that, and my game crashed because it spawns everyone in the cutscene :X.
You can win this fight with how it is OP, you can reload the save before the fight to get your party at the start of the turn line, and then you can run everyone up to high ground

.