Q3 Results Reflect Competitive Pressures and Recall Impact

Li Auto’s unaudited third quarter 2025 results highlight significant year-over-year and quarter-over-quarter declines across deliveries, revenues, and profitability, shaped by intensifying market competition, supply chain headwinds, and one-time recall costs for the Li MEGA model.

Sharp Decrease in Deliveries and Revenue Defines Q3

The company delivered 93,211 vehicles in Q3 2025—a 39.0% decline year-over-year and a 16.1% decline from the previous quarter. Revenues dropped to RMB27.36 billion (US$3.84 billion), down 36.2% from the same quarter in 2024 and 9.5% from Q2 2025. Lower deliveries were the primary driver of this decrease, with competitive dynamics and product mix changes also playing roles.

Margins Decline Sharply; Recall Weighs Heavily

Gross margin slid to 16.3% (down from 21.5% a year ago) and vehicle margin dropped to 15.5% from 20.9% last year. Both were impacted by higher unit costs amid reduced production volumes and approximately 4.3 percentage points of margin lost to estimated recall costs for the Li MEGA. Excluding the recall, the gross margin would have been a more robust 20.4%—underscoring how the recall meaningfully changed the bottom line.

Investment in R&D Signals Long-Term Growth Focus

Even as margins fell, Li Auto raised research and development spending by 15.0% year-over-year, reaching RMB3.0 billion (US$417.8 million). The company points to an expanding product portfolio and next-gen technologies, notably the launch of the Li i6 BEV and rapid adoption of its VLA Driver AI, as critical areas of investment to maintain product strength in an increasingly crowded EV market.

Cash Position Remains Solid Despite Operating Losses

The company posted a net loss of RMB624.4 million (US$87.7 million) in Q3 and a negative free cash flow of RMB8.91 billion (US$1.25 billion). Nonetheless, Li Auto maintains a robust cash position at RMB98.9 billion (US$13.9 billion) as of September 30, 2025—providing significant liquidity for future R&D and international expansion.

Product and Market Update: Expansion Amid Uncertainty

The third quarter marked major product launches and strategic milestones. The company launched the Li i6—a five-seat BEV with a 720km range—and started deliveries in late September. October deliveries improved to 31,767 vehicles. Overseas, Li Auto opened its first authorized retail store in Uzbekistan, marking a key move in global expansion. Its Li i8 also topped the 2025 China-Automobile Health Index for safety, efficiency, and environmental performance.

Looking Ahead: Guidance Reflects Market Headwinds

For Q4 2025, Li Auto guides to vehicle deliveries between 100,000 and 110,000 units and total revenue between RMB26.5 billion and RMB29.2 billion, both ranges implying year-over-year declines as competitive and supply chain pressures persist. Management remains committed to advancing R&D, scaling international reach, and innovating user experiences, signaling confidence in long-term potential despite current setbacks.

Key Takeaways for Investors

Li Auto’s Q3 results underscore a company navigating short-term volatility amid heavy investment in future product and market strength. While current margin and cash flow pressures are material—particularly from one-off recall costs—the robust cash position and strategic investments point to the company’s intention to emerge stronger as industry dynamics evolve. Investors should watch the next quarters for improvement in margin trends and signs that recent R&D and market expansion initiatives translate into regained sales momentum and profitability.

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