Li Auto: The collapse of the extended-range model, can the i6's explosive orders save the crumbling Li Auto?

$Li Auto(LI.US) released its Q3 2025 financial report after the Hong Kong market closed and before the U.S. market opened on the evening of November 26, Beijing time. The quarter was negatively impacted by increased costs due to the Mega recall event, although the actual Q3 performance was decent, the guidance for Q4 remains disappointing. Specifically:

① Vehicle gross margin dragged down by Mega recall, actual vehicle gross margin slightly increased quarter-on-quarter: Due to the negative impact on costs from the Li Auto Mega recall event this quarter (estimated recall cost of 1.1 billion yuan), the vehicle gross margin appears "dismal," dropping significantly by 3.8 percentage points quarter-on-quarter to 16.3%.

However, excluding this one-time impact, the actual vehicle gross margin for the quarter was 19.8%, a slight increase of 0.4 percentage points quarter-on-quarter, aligning with Li Auto's previous guidance of maintaining a vehicle gross margin between 19%-20% (as Q3 sales volume was on par with Q1), with the quarter-on-quarter increase mainly due to a rise in vehicle selling prices.

② Q3 vehicle selling prices rose quarter-on-quarter, leading to vehicle revenue exceeding expectations: Q3 vehicle revenue was 25.9 billion yuan, higher than the market expectation of 25 billion yuan, mainly due to a 17,000 yuan quarter-on-quarter increase in vehicle selling prices to 277,000 yuan. This quarter, Li Auto's pure electric Mega and i8 models drove the continued upward trend in model structure, offsetting the discount strategy applied to the L series base models.

③ Q3 actual net profit slightly exceeded expectations: Driven by the quarter-on-quarter increase in "actual" gross margin, although R&D expenses continued to increase, the "actual" net profit after excluding the impact of the Mega recall was 490 million yuan, slightly exceeding the market expectation of 320 million yuan.

④ However, Q4 guidance remains disappointing, with the L series base models facing severe "internal and external challenges": Q4 sales guidance is only 100,000-110,000 units, implying an average monthly sales of only 34,000-39,000 units in November/December (32,000 units in October), significantly below the market expectation of 138,000 units. The sales guidance implies a significant quarter-on-quarter decline in sales of the L series extended-range models compared to Q3, especially as Li Auto continues to increase discounts on the L series, indicating that the "internal and external challenges" for the L series are more severe than imagined.

Dolphin Research's overall view:

At first glance, Dolphin Research can only describe Li Auto's financial report as "dismal," with a significant drop in gross margin and net profit turning from profit to loss.

However, upon closer examination, it was found that the main culprit for the "dismal" financial report this quarter was the negative impact of nearly 1.11 billion yuan in costs due to the Mega recall event. Excluding the impact of this one-time event, the overall performance slightly exceeded market expectations.

However, Dolphin Research needs to remind that from the perspective of expectation deviation, Li Auto's overall fundamentals have been continuously deteriorating since Q2, with the deterioration in Q3 further intensifying – a trend that has been directly reflected in the stock price performance: from the pre-i8 launch high of $32, Li Auto's stock price has retreated to the current $17.8, nearly halving.

In Q3, the launch of the first pure electric i8 model led to sales falling short of expectations, but instead eroded the L series extended-range base models. Meanwhile, the L series faced external competition from new large-size SUVs launched by competitors, directly eating into Li Auto's L series market share. Under the dual pressure of "internal and external challenges," Li Auto's Q3 deliveries saw a significant year-on-year decline for the first time, dropping 39% to 93,000 units, further dragging down revenue and net profit significantly year-on-year.

In Li Auto's Q4 guidance, sales and revenue guidance again fell significantly short of expectations:

Even with the i6 and i8 pure electric models contributing an incremental 30,000-40,000 units, the overall sales guidance only increased by 7,000-17,000 units quarter-on-quarter. The implied sales of the L series extended-range models are expected to decline significantly quarter-on-quarter compared to Q3, especially as Li Auto continues to increase discounts on the L series, indicating that the "internal and external challenges" for the L series are more severe than imagined.

With sales guidance falling short of expectations, continued increased discounts on the L series, and the i6's "lower oil than electric" pricing potentially leading to an actual gross margin lower than the L6, Li Auto's historically stable vehicle gross margin level of around 20% may face a breach in Q4.

Therefore, Dolphin Research mentioned in the article "Li Auto: i6 Orders Boomed, Why Did the Stock Price Still "Die on the Vine"?" that for Li Auto, pure electric is a war that must be won, but even if pure electric succeeds, it is a success that comes at a cost of self-harm: the success of the pure electric i6 model is achieved by sacrificing the L series base models (priced lower than the L6), while also facing a situation of gross margin bleeding.

Li Auto also reflected on its strategy during the strategic meeting:

The main reason for the loss of the L series base models is still that Li Auto's pace of play is too slow. The four-year platform iteration cycle can no longer keep up with the current competitive angle. The L series extended-range models had too little modification this year and are facing multiple attacks (direct competitors such as the Aito M series new products, ZEEKR 9X, Lynk & Co 900, Denza N9/N8L, etc.), causing the peak monthly sales of 50,000 units to retreat to less than 20,000 units.

From Li Auto's stock price perspective, the current stock price corresponds to a 2025 P/S multiple of nearly 1.2 times. With the fundamentals continuing to be under pressure in Q4, Dolphin Research believes that such a valuation is still not cheap.

However, Li Auto has already started strategic adjustments, accelerating the product pace, shortening the original four-year platform iteration to two years, and breaking the previous "cookie-cutter" design route. The differentiation of models will rely on design definition rather than configuration differences to adapt to the "white-hot" competition in the new energy vehicle market.

Looking ahead to Li Auto in 2026:

In the first half of the year, Li Auto is set to launch a major facelift of the L series extended-range models (using a "large battery + small fuel tank" approach), directly increasing pure electric range. Although facing similar extended-range model plans from competitors (such as Xiaomi, XPeng, etc.), if Li Auto's stock price can retreat to a 2025 P/S of 1 times (corresponding to a market value of 110 billion yuan, with the stock price retreating to around $15-16), the short-term risk will be largely cleared, making it a more suitable entry point, especially with nearly 90 billion yuan in net cash on Li Auto's books and the upward option of intelligent driving, Li Auto still has enough time to make strategic adjustments.

Here is the detailed analysis:

Since Li Auto's sales have already been announced, the most important marginal information is: 1. Q3 vehicle gross margin; 2. Q4 2025 performance outlook.

1. Mega recall drags down gross margin, actual vehicle gross margin rises quarter-on-quarter

Starting with the vehicle business, which is the market's main concern, due to the negative impact on costs from the Li Auto Mega recall event this quarter (estimated recall cost of 1.1 billion yuan), the vehicle gross margin appears "dismal," dropping significantly by 3.8 percentage points quarter-on-quarter to 16.3%.

However, excluding this one-time impact, the actual vehicle gross margin for the quarter was 19.8%, a slight increase of 0.4 percentage points quarter-on-quarter, aligning with Li Auto's previous guidance of maintaining a vehicle gross margin between 19%-20% (as Q3 sales volume was on par with Q1), slightly exceeding the market expectation of a vehicle gross margin of 19.3%.

(Note: Q2 2022 vehicle sales gross margin data excludes the impact of over 800 million yuan in contract losses, and Q2 2023 vehicle sales gross margin data excludes the impact of 400 million yuan in warranty reserves)

From the perspective of single vehicle economics:

1. Single vehicle price improved quarter-on-quarter, model structure upward offset discount impact

This quarter, the vehicle selling price was 277,000 yuan, a quarter-on-quarter increase of 17,000 yuan, significantly exceeding the market expectation of 266,000 yuan, mainly due to the continued upward trend in model structure driven by Li Auto's pure electric Mega and i8 models, offsetting the discount strategy applied to the L series base models.

① Pure electric Mega and i8 drive model structure upward

This quarter, Li Auto's model structure continued to optimize, with the pure electric series i8 launched at the end of July, and the Mega pure electric model seeing increased sales after the facelift. The proportion of the high-priced i8 and Mega models in the model structure increased by 14 percentage points quarter-on-quarter to 17%, offsetting some of the discount impact on the L series models.

The model structure actually shows a slight quarter-on-quarter improvement trend, with the highest-priced Mega's proportion in the model structure increasing by 0.5 percentage points quarter-on-quarter, and the low-priced L6's proportion decreasing by 0.9 percentage points quarter-on-quarter, offsetting some of the price reduction impact on clearing old models.

② However, Li Auto is still increasing discounts on the L series base models

In Q3, the L series base models still faced significant pressure. On one hand, the L series had too little modification, and on the other hand, competitors launched models targeting the L series, causing Li Auto to be unable to withstand the pressure of the declining L series sales base, leading to increased promotional efforts in September.

In terms of discount intensity, Li Auto offered full payment discounts (L6/L9 full payment discount of 21,000/20,000 yuan, L7/L8 full payment discount of 28,000 yuan, Mega 12,000 yuan), with the overall discount intensity larger than the discount intensity for clearing old L series models in Q2. Additionally, Li Auto continued to increase insurance subsidies for the L series, but still could not stop the continuous decline in L series sales momentum.

2. However, single vehicle cost also increased quarter-on-quarter

This quarter, the single vehicle cost was 222,000 yuan, a quarter-on-quarter increase of 13,000 yuan, mainly due to:

① Increased single vehicle amortized cost due to quarter-on-quarter sales decline: The L series base models faced "internal and external challenges" - internally, lower-priced pure electric models created internal competition with the L series, and externally, competitors launched large-size extended-range SUVs targeting the L series, leading to intense competition pressure.

Although the i8 began to increase in volume in Q3, it still could not support the declining L series models, resulting in a 16% quarter-on-quarter decline in sales to 93,000 units, marking the first quarterly year-on-year negative sales since Li Auto began selling vehicles (a 39% year-on-year decline), leading to increased single vehicle amortized costs quarter-on-quarter.

② Increased single vehicle variable cost due to increased i8 proportion

This quarter, the proportion of i8+Mega increased quarter-on-quarter, leading to increased single vehicle variable costs.

However, the i8's launch price is 10,000-30,000 yuan lower than the L8, and because the i8 is equipped with a larger battery compared to the L8 (battery energy is 45kWh higher, with an estimated battery cost of 20,000-25,000 yuan higher), it is expected that the overall gross margin of the i8 model is lower than that of the L8 (lower selling price, higher BoM cost), thus the increase in gross margin this quarter is relatively limited (actual vehicle gross margin only increased by 0.4 percentage points quarter-on-quarter).

3. Finally, Q3 actual single vehicle gross profit was 55,000 yuan, higher than the market expectation of 51,000 yuan

Excluding the impact of the Mega recall, the actual profitability per vehicle in Q3 was 55,000 yuan, a quarter-on-quarter increase of 4,000 yuan, and the vehicle gross margin also slightly increased by 0.4 percentage points quarter-on-quarter to 19.3%.

2. Q4 guidance remains disappointing, with the implied L series base models expected to decline quarter-on-quarter

a) Sales guidance is disappointing, with the L series "internal and external challenges" more severe than imagined

Q4 sales guidance is 100,000-110,000 units, a year-on-year decline of 31%-37%. With the explosive sales of the i6 starting to increase (i6 currently has a waiting time of 16-19 weeks, with orders scheduled until before the Spring Festival), coupled with the demand-side stimulus from the purchase tax reduction, the market expected Li Auto's Q4 sales to reach 138,000 units, but Li Auto's actual sales guidance did not meet market expectations.

Since Li Auto's October sales of 32,000 units have been announced, the implied average monthly sales for November/December is 34,000-39,000 units. In Q4, the peak season begins, and Li Auto continues to increase subsidies for the L series (L series price discounts range from 33,000-45,000 yuan, exceeding the Q3 discount range of 18,000-21,000 yuan, and increasing insurance subsidies), yet Li Auto's actual sales guidance remains below market expectations.

This sales guidance indicates that the i6's production ramp-up speed is below expectations (i6 cumulative orders exceed 70,000 units, with Li Auto originally planning i6 production capacity to reach 23,000/25,000 units in November/December), but more importantly, it implies that the L series extended-range models' sales are expected to decline significantly quarter-on-quarter compared to Q3, especially as Li Auto continues to increase discounts on the L series, indicating that the "internal and external challenges" for the L series are more severe than imagined.

b) Q4 revenue guidance also significantly below expectations, vehicle gross margin expected to be under pressure

Li Auto's Q4 revenue guidance is 26.5-29.2 billion yuan, a year-on-year decline of 34%-40%, also significantly below the market expectation of 37.8 billion yuan, mainly due to the overly disappointing sales guidance.

From the revenue guidance's implied vehicle selling price, assuming other revenue of 1.58 billion yuan in Q4, the expected vehicle selling price for Q4 is 250,000 yuan, a quarter-on-quarter decline of 27,000 yuan from Q3. The quarter-on-quarter decline is mainly due to increased discounts on the L series and the increased proportion of the low-priced i6 in Q4, with the model structure continuing to decline.

In Q4, with sales falling short of expectations (only increasing by 7%-18% quarter-on-quarter), vehicle selling prices continuing to decline, increased discounts on the L series, and the i6's "lower oil than electric" pricing potentially leading to an actual gross margin lower than the L6, the market will certainly worry about the pressure on Li Auto's vehicle gross margin in Q4. Li Auto's historically stable vehicle gross margin level of around 20% may face a breach in Q4, depending on how management guides during the conference call.

3. R&D investment continues to increase, sales and management expenses are reasonably controlled

1) R&D expenses: Product configuration adjustments lead to quarter-on-quarter increase in R&D expenses

This quarter, Li Auto's R&D expenses were 2.97 billion yuan, a quarter-on-quarter increase of 160 million yuan, also exceeding the market expectation of 2.82 billion yuan. The continued quarter-on-quarter increase in R&D expenses is mainly due to increased related expenses from product configuration adjustments, and Li Auto's R&D investment continues to prepare for intelligence and next-generation models.

① Continued increased investment in intelligence:

Li Auto guides that R&D investment in 2025 will be 11-12 billion yuan, with over 6 billion yuan invested in AI, accounting for nearly half of R&D spending. Approximately 2.7 billion yuan will be used for AI infrastructure (accounting for 45% of AI investment), including base models, inference chips, operating systems, terminal computing power, and cloud computing power.

Meanwhile, 3.3 billion yuan of R&D investment will be allocated to AI product technology development (accounting for 55%), covering VC large models, Li Auto Assistant, intelligent agents, intelligent cockpits, intelligent industry, and intelligent commerce.

On the software side, Li Auto upgraded the VLA large model in Q3, further improving stability, flexibility, comfort, and user interaction capabilities. It is now equipped on all new models. On the hardware side, Li Auto is also increasing investment in self-developed chips. The self-developed chip M100 has completed sample production and will be mass-produced and equipped on its models in 2026.

② R&D investment in pure electric and next-generation extended-range models:

In Q3, Li Auto's pure electric new products were intensively launched (the pure electric new product i8 was launched at the end of July, and the i6 was launched in September). Li Auto will continue to launch flagship i9 models on the pure electric platform, and in 2026, a major facelift of the L series extended-range models will be introduced. Investment in new models and vehicle platforms is also increasing.

During the strategic reflection meeting, Li Auto mentioned that due to the past emphasis on R&D cost-effectiveness (cost-effectiveness = input cost ÷ output benefit), if revenue declines, R&D expenses must be compressed accordingly. However, excessive pursuit of cost-effectiveness leads to reduced R&D resource input, slower model launches, and AI innovation speed. It is expected that Li Auto's future R&D expenses may not continue to decrease with declining sales, and subsequent R&D investment may increase.

2) Sales and management expenses are relatively reasonably controlled, remaining basically flat quarter-on-quarter

This quarter, sales and management expenses were 2.77 billion yuan, a slight quarter-on-quarter increase of 50 million yuan, exceeding the market expectation of 2.65 billion yuan. However, with the launch of the i8 and i6 pure electric new models in Q3 and the continued addition of channels, the overall marketing expenses increased slightly quarter-on-quarter, and control is relatively reasonable.

In terms of channel construction, Li Auto continued to expand its channel layout in Q3, adding 12 retail stores and 35 retail centers, also preparing for the increase in pure electric models. Li Auto is optimizing store layouts, relocating inefficient stores, balancing the proportion of mall stores and center stores, and quickly entering fourth- and fifth-tier markets through the "Star Plan" lightweight stores to reduce costs and cycles and increase coverage.

4. Revenue side records another year-on-year negative growth

With sales already announced, Li Auto's total revenue in Q3 was 27.4 billion yuan, exceeding the market expectation of 26.5 billion yuan, but the revenue side recorded another year-on-year negative growth of -36%.

Among them, vehicle revenue performed as expected, mainly due to the vehicle revenue exceeding expectations driven by the i8 and Mega pure electric models. Q3 other business revenue was 1.5 billion yuan, slightly higher than the market expectation of 1.45 billion yuan, mainly due to higher-than-expected product and service revenue from increased vehicle sales volume and increased energy service revenue from supercharging station expansion.

In terms of gross margin, the overall gross margin for the quarter was 16.3%, and the actual gross margin after excluding the Mega recall event was 20.4%, a quarter-on-quarter increase of 0.3 percentage points, mainly due to the quarter-on-quarter increase in the actual vehicle gross margin to 19.8%. The other business gross margin was 30%, also a quarter-on-quarter decline of 3.5 percentage points, which Dolphin Research expects may be related to certain discounts in the insurance business and increased giveaways in parts sales.

5. Free cash flow continues to decline significantly quarter-on-quarter

This quarter, operating cash flow was -7.4 billion yuan, a significant quarter-on-quarter decline of 4.4 billion yuan, while capital expenditures continued to increase, leading to a quarter-on-quarter decline in free cash flow of 5.1 billion yuan. The decline in operating cash flow was mainly due to a significant reduction in upstream supplier payment occupation (reduced by 12.2 billion yuan) and a decline in net profit.

This quarter's capital expenditure was 1.5 billion yuan, a quarter-on-quarter increase of 700 million yuan, partly due to continued investment in Li Auto's supercharging stations and partly due to increased investment in computing power from AI. In terms of supercharging station construction, Li Auto added 569 supercharging stations in Q3, bringing the total number of supercharging stations to 3,508, with the supercharging station deployment progress basically on par with peers, also preparing for the increase in Li Auto's pure electric strategy.

For Dolphin Research's historical articles, please refer to:

Financial Report Reviews:

September 28, 2025 i6 Launch Event Review "Li Auto (including event transcript): i6 Orders Boomed, Why Did the Stock Price Still "Die on the Vine"?"

August 28, 2025 Financial Report Review "Li Auto: Extended Range is Old, Pure Electric is Difficult, Can i6 Turn the Tide?"

August 28, 2025 Conference Call Minutes "Li Auto (2Q25 Minutes): Returning to a Single SKU Explosive Product Model"

August 9, 2025 i8 Launch Event Review "Li Auto: i8 Quickly Surrendered, Yet Couldn't Save Li Auto?"

May 29, 2025 Financial Report Review "Extended Range is Old, Pure Electric is Unpredictable, Li Auto's Reality is Too "Bony""

May 29, 2025 Conference Call Minutes "Li Auto (1Q25 Minutes): Confident that New L Series Models' Sales Will Quickly Return to 50,000 Units per Month"

August 28, 2024 Financial Report Review "Being "Rubbed on the Ground" by Huawei, Can Li Auto Still Have Good Days?"

August 29, 2024 Conference Call Minutes "Expected Q2 Vehicle Gross Margin to Rise Above 19%"

May 20, 2024 Financial Report Review "Li Auto: Profit Flash Crash! The Moment of Testing Faith Has Arrived"

May 20, 2024 Conference Call Minutes "Delayed Launch of Pure Electric SUV to Next Year (Li Auto 1Q24 Conference Call Minutes)"

March 4, 2024 Li Auto Launch Event "Li Auto Launch Event: Slightly Improved Product Power, Resolutely No Price Reduction, Pure Electric Trial"

February 26, 2024 Financial Report Review "Li Auto: Not a "Big Mouth," Just a Hard Worker"

February 27, 2024 Conference Call Minutes "No Models Below 200,000 Yuan in the Next 5 Years"

November 9, 2023 Financial Report Review "Newcomer vs Veteran, Can Li Auto Compete with Huawei?"

November 9, 2023 Conference Call Minutes "Focusing on Intelligent Driving as a Core Goal (Li Auto 3Q23 Conference Call Minutes)"

August 8, 2023 Financial Report Review "Peeling Back the Layers of Li Auto: Is the "Explosion" Really That "Ideal"?"

August 8, 2023 Conference Call Minutes "Li Auto Minutes: Capacity Bottleneck in Components, Gross Margin Guidance Maintained at 20%+"

May 10, 2023 Financial Report Review "Li Auto: Strong and Capable, Dominating the New Forces"

May 10, 2023 Conference Call Minutes "Li Auto Minutes: Market Share Leader, 20% Gross Margin Target Unchanged"

February 27, 2023 Financial Report Review "Li Auto as Fierce as a Tiger? Competition as Steady as a Dog"

February 27, 2023 Conference Call Minutes "Li Auto: "Capturing 20% of the 300,000-500,000 Yuan Luxury SUV Market in 2023""

December 9, 2022 Financial Report Review "Li Auto's Profit Flash Crash? Not Fatal, but Awkward"

December 9, 2022 Conference Call Minutes "2023, "Billion" Li Auto, One Pure Electric"

August 16, 2022 Financial Report Review "Li Auto's Thunderous Bomb, L9 Can't Support the "Collapsed Ideal""

August 16, 2022 Conference Call Minutes "Li Auto ONE Was "Eaten" by L9, L8 Will Launch and Sell Early (Meeting Minutes)"

June 22, 2022, Product Launch Highlights "L9, Li Auto's New "Ideal""

May 10, 2022, Meeting Minutes "Li Auto: Three New Products to Launch in 2023, A Big Year for Product Cycles"

May 10, 2022, Financial Report Review "Li Auto's Ideal, All Hopes Rest on the Second Half?"

February 26, 2022, Meeting Minutes "Completing the 0-1 Verification Period, See How Li Auto Achieves 1-10 Growth (Meeting Minutes)"

February 25, 2022, Earnings Call Live "Li Auto (LI.US) Q2 2021 Earnings Call"

February 25, 2022, Financial Report Review "Pulling in "Cash" Ability, Li Xiang's Ideal Comes to Reality"

November 30, 2021, Meeting Minutes "Releasing Pure Electric Models Back-to-Back with Xiaomi, How Does Li Auto Compete? (Meeting Minutes)"

November 29, 2021, Earnings Call Live "Li Auto (LI.US) Q2 2021 Earnings Call"

November 29, 2021, Financial Report Review "In Terms of Making Money, Neither XPeng nor Nio Can Compare, Is Li Auto Opportunistic or Long-term?"

August 31, 2021, Meeting Minutes "Li Auto: Surpassing Nio and XPeng in Q2, Aiming for 150,000 Units Next Year (Meeting Minutes)"

August 30, 2021, Earnings Call Live "Li Auto (LI.US) Q2 2021 Earnings Call"

August 30, 2021, Financial Report Review "Li Auto: Stable Performance, Strong Momentum?"

In-depth Research:

June 24, 2025, "Aito VS Li Auto: Two Heroes Competing, Who is the Winner?"

June 25, 2025, "Seres vs Li Auto: Who is the Chosen One of the "BBA" of Domestic Products?"

June 30, 2021, Three Fools Comparative Study - Part 3 "New Forces in Car Manufacturing (Part 3): Doubling in Fifty Days, Can the Three Fools Continue to Run Wild?"

June 23, 2021, Three Fools Comparative Study - Part 2 "New Forces in Car Manufacturing (Part 2): With Market Enthusiasm Diminishing, What Do the Three Fools Rely on to Solidify Their Position?"

June 9, 2021, Three Fools Comparative Study - Part 1 "New Forces in Car Manufacturing (Part 1): Choosing the Right People, Doing the Right Things, Analyzing the People and Things of the New Forces"

Risk Disclosure and Statement of This Article: Dolphin Research Disclaimer and General Disclosure