Li Auto Cuts Forecast as Price War Weighs on Margins

Li Auto Inc., a leading Chinese electric vehicle manufacturer, reported mixed quarterly results and issued a weaker-than-expected outlook, highlighting the growing pressure from intense price competition and slowing domestic demand.

Company overview

Li Auto is one of China’s major premium electric vehicle manufacturers, with a business model centred on extended-range electric SUVs (EREVs) and a growing portfolio of fully electric models. The company competes in the upper segment of the Chinese EV market against domestic peers and global players, focusing on family-oriented vehicles with longer driving range and proprietary software integration.

Quarterly performance

Revenue declined 36.2% year over year to 27.4 billion yuan ($3.8 billion), exceeding consensus expectations by approximately 3.8%. However, the company reported a net loss of 0.6 billion yuan ($90 million), compared with market expectations for a net profit of 0.28 billion yuan.

Vehicle deliveries for the quarter totalled 93,200 units, down 39% year over year. Management attributed the decline primarily to logistics disruptions and one-off factors, including the recall of the Li MEGA model.

Margin pressure intensifies

Gross margins deteriorated amid one-time costs and lower volumes. Vehicle margin fell to 15.5%, compared with 20.9% a year earlier and 19.4% in the previous quarter. Excluding the Li MEGA recall, vehicle margin would have stood at 19.8%.

Total gross margin, including services such as charging and accessories, declined to 16.3%, versus 21.5% a year ago and 20.1% in the prior quarter. Without recall-related impacts, adjusted gross margin would have reached 20.4%.

Costs and profitability

Operating expenses decreased 2.5% year over year to 5.8 billion yuan ($790 million). Research and development spending rose 15% to 3.0 billion yuan ($420 million), reflecting higher investment in new models and advanced technologies. Selling, general and administrative expenses fell 17.6% year over year due to a high comparison base in the prior year.

Operating margin turned negative at -4.3%, compared with 8.0% a year earlier and 2.7% in the previous quarter. Net margin declined to -2.2%, versus 6.6% last year and 3.8% in the prior quarter, partly offset by higher other income.

Management commentary

Management acknowledged short-term challenges but expressed confidence in longer-term prospects. The company highlighted growing demand for its fully electric models and reported that usage of its proprietary driver-assistance system reached 91% among its user base.

Executives noted that recent results were affected by temporary logistics constraints and recall-related costs, while reiterating a strategic focus on innovation and cost optimisation.

Outlook

Li Auto’s guidance for the fourth quarter of 2025 fell short of market expectations. The company forecast deliveries of 100,000 to 110,000 vehicles, representing a year-over-year decline of 31% to 37%, compared with a consensus estimate of 125,700 units.

Revenue is projected at 26.5 to 29.2 billion yuan, implying a year-over-year decline of 34% to 40%, well below the market expectation of approximately 39 billion yuan.

Strategic perspective

The company continues to position technological innovation, model expansion and potential overseas growth as key drivers over the medium term. However, ongoing price competition, margin compression and demand uncertainty remain significant near-term challenges for the sector.