How to reconstruct the ideal growth logic?

In 2025, the new energy vehicle market in China is undergoing a profound reshuffle against the backdrop of the impending phase - out of the purchase tax policy and the intensifying price war.

Leapmotor has temporarily taken the lead in sales among new - force automakers with its cost - effective strategy. NIO and XPeng are accelerating their efforts to reduce losses. However, Li Auto, once a "top performer in profitability", reported a 36.2% year - on - year decline in revenue and a net loss of 624 million yuan in the third quarter.

Surprisingly, the capital market reacted in an unexpected way. After the release of the financial report, the stock price rose instead of falling. Behind this seemingly contradictory performance is the market's re - evaluation of Li Auto's short - term pain and long - term layout.

Price Increase, but Decline in Sales and Profitability

Li Auto is facing the most severe performance challenge since the fourth quarter of 2022. According to the company's third - quarter 2025 financial report, Li Auto's revenue in the quarter was 27.365 billion yuan, a 36.2% year - on - year decline and a 9.5% quarter - on - quarter decline.

The profitability indicators have generally weakened. The gross profit margin in the third quarter was 16.3%, a decrease of 5.2 percentage points compared with 21.5% in the same period last year. Among them, the vehicle gross profit margin was 15.5%, a year - on - year decrease of 5.4 percentage points.

The core problems are concentrated in two aspects: pressure on sales volume and one - time recall costs.

First of all, the significant decline in revenue is mainly due to the remarkable contraction in delivery volume. In the third quarter, Li Auto's delivery volume decreased by 39.0% year - on - year and 16.1% quarter - on - quarter. Due to the intensifying market competition, the main L - series models were squeezed by new models such as Xiaomi SU7 and AITO Wenjie. Coupled with the lack of product iteration, there was an obvious gap in sales volume.

The only good news is that the optimization of the product structure has pushed the average selling price up from 260,000 yuan in the second quarter to 277,000 yuan, indicating that the launch of the high - priced pure - electric models i8 and i6 was successful and has initially improved the profitability quality.

According to a research report by Soochow Securities, the increase in the average price brought about by the optimization of the product structure has provided a certain buffer space for Li Auto during the trough period of sales.

Secondly, the recall of the MEGA has significantly dragged down profitability. Li Tie revealed in a conference call that the company set aside about 1.1 billion yuan for the MEGA recall in the third quarter. This not only directly impacted the current profit but also led to a decline in the delivery volume of the 2025 MEGA, as the company prioritized most of the batteries for the recalled vehicles.

In fact, if the estimated cost of the MEGA recall is excluded, the vehicle gross profit margin could reach 19.8%, and the total gross profit margin would be 20.4%. This "true picture" shows that the company's basic profitability remains intact.

However, this still cannot deny that the recall incident has exposed the challenges the company faces in quality control and supply - chain management in the early stage of the pure - electric vehicle segment. That is, prioritizing the replacement of battery packs for old users has directly restricted the delivery capacity of the 2025 MEGA.

Affected by the decline in delivery volume and the general adjustment and shortening of the payment cycle of suppliers under regulatory control, as of the end of the period, its net operating cash flow was a negative 7.4 billion yuan, and the free cash flow was - 8.9 billion yuan.

BOCOM International Securities stated bluntly that after excluding the impact of the MEGA recall, Li Auto's actual gross profit margin still remains at a healthy level, but the negative impact of the operating leverage caused by the decline in sales volume cannot be ignored.

Is the Foundation of Extended - Range Vehicles Shaking? Li Auto's Growth Logic Needs to be Re - established

Deep down, the root cause of Li Auto's financial report dilemma lies in the fact that after the penetration rate of the new energy vehicle market has entered a period of low - speed growth, the industry's competitive landscape is changing rapidly.

In the third quarter of 2025, there were significant changes in the internal structure of the new energy vehicle market. According to information revealed by Li Bin of NIO in the third - quarter earnings conference call, the sales volume of pure - electric vehicles increased by 26% year - on - year, while the sales volume of extended - range and plug - in hybrid vehicles decreased by 12% and 7% respectively. In the first three quarters, the sales volume of pure - electric vehicles increased by 33%, while the sales volume of extended - range vehicles only increased by 3%.

This trend has directly impacted Li Auto, which started with the extended - range technology route. A report from Xinhua Huifu Financial pointed out that in the third quarter, Li Auto faced fierce competition from new models such as those from Xiaomi, NIO, and AITO. And its own product iteration lagged behind, putting obvious pressure on the old - style L - series models.

The supply - chain bottleneck has become a short - term constraint. Ma Donghui, President of Li Auto, admitted in a conference call that the production capacity ramp - up of the i6 model, which can improve profitability quality, is restricted by the supply - chain bottleneck of core components such as batteries, and the current delivery is delayed. The company plans to adopt a "dual - supplier" model for the i6 starting from November, and it is expected that the monthly production capacity will reach 20,000 units by early next year.

According to the analysis of Morgan Stanley, even if a second supplier is introduced, the battery shortage will be difficult to fill in the short term, and it is expected that the monthly production capacity will not reach 20,000 units until early 2026.

Li Auto's cautious guidance for the fourth quarter also indirectly confirms that these performance obstacles cannot be resolved in the short term. The company expects the vehicle delivery volume in the fourth quarter to be between 100,000 and 110,000 units, a year - on - year decrease of 37.0% to 30.7%. The revenue is expected to be between 26.5 billion and 29.2 billion yuan, a year - on - year decrease of 40.1% to 34.2%, and the decline is still expanding.

Has the Bad News Run Out? Li Auto's Road to Recovery is Still Long

Facing the challenges, Li Xiang, the founder of Li Auto, announced that the company will "firmly return to the management model of a startup company" starting from the fourth quarter.

Li Xiang reflected in a conference call: "In the past three years, my startup team and I have been working hard to learn the management system of professional managers and forcing ourselves to accept various changes, but I have become a worse version of myself." This adjustment aims to rebuild an agile decision - making mechanism and focus on enhancing user value and efficiency.

However, whether it can recreate the early "ability to create hit products" in the fierce competition remains to be seen.

In addition, the implementation of self - developed technology and the solution to the supply - chain problem are the other two key points for Li Auto's strategic breakthrough.

First, it is betting on the M100 chip and embodied intelligence. Li Auto plans to mass - produce the self - developed autonomous driving chip M100 in 2026 and install it in the new - generation L - series models. According to Xie Yan, the CTO, the performance - to - power - consumption ratio of the M100 is expected to be more than three times that of current high - end chips.

If this initiative is successful, it will significantly reduce the company's dependence on external supply chains and support its "embodied intelligence" strategy, which is to upgrade vehicles from means of transportation to "AI terminals that actively provide services".

Reflected in the financial report, although Li Auto has fallen below the profit curve again after 11 quarters, its R & D expenses in this quarter increased by 15% year - on - year to 2.97 billion yuan, aiming to increase investment in AI and self - developed technologies. This strategy of "bearing short - term pressure but adhering to long - term investment" also highlights its determination to transform.

Thirdly, it is about the aforementioned production - capacity bottleneck and the breakthrough in globalization. In terms of overseas expansion, the company has completed the initial layout in the core regions of the Middle East, Central Asia, and North Africa this year. The authorized retail center in the Central Asian market has been established. In 2026, it plans to enter Latin America, Europe, and Southeast Asia to ease the domestic competition pressure through globalization.

Li Auto's third - quarter performance essentially reflects the typical contradictions of an enterprise in the transformation period: the contraction of the traditional extended - range advantage segment and the lack of scale effect in the new and popular pure - electric segment.

As for the stock price's counter - trend rebound after the earnings announcement, it reflects the market's consensus that "the worst is over". However, whether it can truly reverse the situation depends on the implementation efficiency of the self - developed chips and pure - electric production capacity in 2026.

For investors, they need to continuously track the improvement progress of the supply chain and the market feedback of the redesigned L - series models, rather than just focusing on the single - quarter fluctuations.

This article is from the WeChat official account “Hong Kong Stock Research Club” (ID: ganggushe). Author: Hong Kong Stock Research Club. Republished by 36Kr with permission.