AsianFin -- Li Auto Inc.'s American depositary receipts (ADRs) edged up 0.6% on Wednesday, underperforming broader markets after the Chinese electric vehicle (EV) maker reported its first quarterly loss in three years and delivered a sharply downbeat fourth-quarter outlook. The results reflect mounting pressure from intensifying competition in China's crowded EV sector and unexpected costs tied to a major vehicle recall. Meanwhile, CEO Li Xiang unveiled a strategic pivot toward developing vehicles as "embodied AI" robots, aiming to differentiate the company as it navigates near-term headwinds.
Credit：Li Auto
The Beijing-based automaker posted an adjusted net loss of RMB359.7 million ($50.5 million) for the third quarter, missing Wall Street’s forecast for adjusted net income of RMB115.7 million. Total revenue plunged 36% year-over-year (YoY) to $3.8 billion, the steepest drop since the company's 2020 U.S. listing, weighed down by a 39% decline in vehicle deliveries to 93,211 units. Chief Financial Officer (CFO) Tie Li cited supply chain bottlenecks and costs related to recalling over 11,000 Li MEGA multi-purpose EVs following a fire incident.
For the current quarter, Li Auto expects revenue of between RMB3.7 billion and RMB4.1 billion, significantly below analysts’ anticipated RMB5.1 billion. Vehicle deliveries are projected at 100,000 to 110,000 units, falling short of analysts expectation of 135,633 units. The company′ s ADRs closed at $18.43, lagging behind the 0.7% gains posted by both the S&P 500 and Dow Jones Industrial Average.
During the earnings call, CEO Li outlined a vision to transform vehicles into "embodied AI" machines that proactively serve users rather than passively respond to commands. The company plans to deliver its first AI system powered by internally developed M100 chips in 2026, which executives claim will achieve three times the performance-to-cost ratio of current high-end chips. This strategic shift accompanies a management overhaul back to a "startup company model," abandoning the professional manager system.
Q3 Performance Marked by Sharp Deterioration
Li Auto's third-quarter vehicle sales totaled RMB25.9 billion, down 37.4% from a year earlier. Gross margin compressed to 16.3% from 21.5% in the prior-year period, though excluding the Li MEGA recall costs, gross margin would have reached 20.4%. The company swung from operating income of 3.4 billion yuan in Q3 2024 to an operating loss of 1.2 billion yuan, producing a negative 4.3% operating margin. Net loss came in at 624.4 million yuan, a dramatic reversal from net income of 2.8 billion yuan a year ago.
Vehicle margin fell to 15.5% from 20.9%, primarily due to recall-related expenses. Excluding the MEGA recall impact, vehicle margin would have been 19.8%. Free cash flow turned negative at 8.9 billion yuan, compared to positive 9.1 billion yuan in the year-ago quarter, reflecting the cash strain from declining deliveries and recall costs.
Weak Q4 Guidance Signals Prolonged Pressure
The company's fourth-quarter outlook underscores expectations for continued weakness. Projected deliveries of 100,000 to 110,000 vehicles represent a year-over-year decline of 30.7% to 37.0%, while revenue guidance of 26.5 billion to 29.2 billion yuan implies a 34.2% to 40.1% drop from the prior-year period. This falls far short of analyst consensus, which had anticipated 37 billion yuan in revenue.
Li attributed part of the expected near-term softness to China's reduction of EV subsidies, which he said would cause a significant dip in first-quarter 2026 deliveries as customers rush to complete orders before year-end. The CEO also apologized for delivery delays on the i6 models, caused by supply chain constraints and slower-than-expected production ramp-up. Monthly production capacity for the i6 should steadily increase to 20,000 units starting early next year, he added.
Strategic Pivot to AI and Product Overhaul
Looking beyond immediate challenges, Li announced that the company would redefine its products as "embodied AI" robots focused on understanding and serving the physical world. The M100 AI inference chip, designed in-house and currently undergoing large-scale system testing, will enable vehicles to transition from passive functionality to proactive automation when commercially deployed next year. Chief Technology Officer (CTO) Xie Yan said the chip's performance-to-cost ratio would exceed current high-end alternatives threefold when integrated with the company's foundation model compiler and software systems.
President Ma Donghui outlined plans for a major 2026 refresh of the L series, which will standardize 800-volt high-voltage platforms and 5C ultra-fast charging across the lineup. The company will streamline SKU offerings while enhancing entry-level configurations, aiming to recapture leadership in extended-range vehicles while significantly boosting battery-electric penetration. On battery technology, Li Auto plans to mass-produce its self-branded 5C batteries next year, having built full-stack capabilities around the 5C ultra-fast charging ecosystem.
Li's results mirror disappointing outlooks from domestic rivals NIO Inc. and Xpeng Inc., suggesting a challenging final quarter across China's EV industry. The company's Hong Kong-listed shares have tumbled more than 20% this year and lost over half their value since peaking in August 2023, as investors reassess its positioning amid escalating competition for extended-range electric vehicles from local peers.
