Li Auto Inc warned of a sharp decline in fourth-quarter deliveries after a difficult third quarter marked by shrinking revenue, rising losses and weakening cash flow, prompting founder Li Xiang to announce sweeping organisational changes and a strategic shift toward developing "embodied intelligent robots."
Speaking at the company's third-quarter earnings call late on Thursday, Li struck an uncharacteristically sober tone. "The third quarter of 2025, which is also the first quarter of Li Auto's second decade, has seen us grapple with a series of challenges brought on by product cycles, public relations issues, supply chain ramp-up and policy changes," he said.
Li Auto reported revenue of 27.4 billion yuan, down 36.2% from a year earlier. Deliveries fell to 93,211 vehicles, also down by more than a third. The company posted a net loss of 624 million yuan, reversing from a profit a year ago, while gross margin fell to 16.3% from 21.5% in the same period last year.
The outlook underscored the pressure facing the company: it expects fourth-quarter deliveries to fall 37% year-on-year to 30,700 units.
Li Auto's profitability deteriorated across key indicators. Vehicle gross margin slid to 15.5% from 20.9% a year earlier, reflecting heavier discounting and a weaker scale effect as deliveries fell.
The company also saw a steep drop in cash flow. Operating cash flow fell to negative 7.4 billion yuan, while free cash flow dropped to negative 8.9 billion yuan.
Chief Financial Officer Li Tie attributed the decline in cash flow to lower quarterly deliveries and shorter payment cycles to suppliers. He said the company currently settles accounts within 60 days using telegraphic transfers or bank acceptance bills to ensure liquidity.
Li said the group had also booked a 1.1 billion yuan charge in the third quarter related to the recall of 11,411 units of the 2024 Li Auto MEGA after a vehicle fire incident in Shanghai on Oct. 23. He added that battery production was being prioritised for recall replacements, limiting deliveries of the 2025 MEGA.
Founder Ends Experiment With Professional-Manager Model
Faced with falling performance, Li Xiang said the core problem stemmed from three years of what he described as misguided organisational strategy.
"Over the past three years, we worked very hard to establish a governance system led by professional managers. After genuinely experiencing and implementing it, we realised it was making us increasingly inefficient versions of ourselves," he said.
Li argued that the professional-manager model suits industries with stable technology cycles, a secure competitive position and a less-motivated founding team — conditions he said do not apply to the fast-moving electric-vehicle (EV) sector.
"NVIDIA and Tesla are still managed like startups today. If the world's most powerful companies operate with an entrepreneurial mindset, why would we give up what we do best?" he said.
Beginning in the fourth quarter, Li Auto will revert to what Li called "startup management," emphasising active dialogue, user-value-driven decision-making, efficiency improvements and direct problem-solving.
The shift signals a formal break from Li Auto's attempt over the past three years to replicate the governance structure of legacy carmakers.
Pivot Toward 'Embodied Intelligent Robots'
Li also outlined a broader strategic shift for the company's products. Rather than treating cars as electric vehicles or intelligent terminals, he said the company now views them as "embodied intelligent robots" that perform both physical and digital functions.
He argued that EV competition focused solely on specifications or incremental smartphone-like features is "limited in value" to users. Instead, he said Li Auto aims to develop vehicles that behave like robotic service providers — capable of autonomous driving, parking, charging, and offering personalised assistance.
"Competition in products lies in how advanced their automated and proactive abilities become," Li said.
The earnings call highlighted the gap between Li Auto's near-term financial strain and its long-term ambitions in areas such as self-developed chips, operating systems and embodied intelligence.
The company faces a series of market challenges: weakening momentum for its once-popular range-extender SUVs, intensifying competition from technology firms such as Xiaomi and Huawei, and accelerating transitions to pure EVs from both new entrants and traditional automakers.
Growth in China's EV market remains robust, but Li Auto's 39% drop in deliveries starkly contrasts with overall industry expansion.
Li Auto's first pure EV flagship, the MEGA, saw a lukewarm market response, and the recall added financial pressure. Meanwhile, its new pure EV SUVs — the i6 and i8 — have collected over 100,000 orders, but production ramp-up issues have prevented them from offsetting declines in the older L-series models.
Ma Donghui, the company's president, said Li Auto will adopt a dual-supplier model for the i6 battery starting this month to address bottlenecks, targeting a monthly production capacity of 20,000 units early next year.
Ma outlined preliminary details for the 2026 overhaul of the L-series, including streamlined SKUs, 5C fast-charging capability as a standard feature and upgraded luxury features. He said the aim was to offset market volatility through "definitive technological upgrades, a predictable delivery pace and certain user value."
Addressing China's upcoming increase in purchase-tax rates to 5% in 2026, Ma said the policy may cause short-term fluctuations but does not alter long-term growth trends. He estimated China's NEV penetration rate could reach 55%–60% by 2026, with the high-end segment surpassing 60%.
Li Auto has launched a "Worry-Free Car Purchase Plan" to absorb the tax difference for Li L6 customers who lock orders before year-end but take delivery next year. All 2026 models will comply with the new requirements, Ma said.
Li said he plans to move away from rigid quarterly reporting formats and instead engage investors through more in-depth discussions, echoing the organisational shift he is promoting internally.
Li Auto is facing its most difficult financial period since its founding, but Li framed the moment as an opportunity for reinvention, supported by three pillars: a return to startup-style management, a long-term bet on embodied intelligent robots and the development of full-stack in-house technology capabilities.
Whether the transformation represents a defensive move by a company under strain or the early stage of a bold strategic shift remains an open question for the market.
