"Best at Making Money" Li Auto Delivers a Poor Report Card

Li Auto recently released its financial report for Q4 and the full year of 2025. Once considered the “most profitable student” among the new power players, it delivered a disappointing performance.

On the evening of March 12, Li Auto announced its unaudited financial results for Q4 and the full year of 2025. The report shows that Li Auto delivered a total of 406,300 new vehicles in 2025, an 18.8% decrease year-over-year.

Q4 Profit Plummets 99.4%

The slowdown in sales directly impacted revenue, profit, gross margin, and other financial metrics.

In terms of revenue, Li Auto’s total revenue for 2025 was 112.3 billion yuan, down 22.3% year-over-year. In Q4 alone, the company achieved 28.8 billion yuan in revenue, a 35% decline year-over-year. Quarterly revenue decline was significantly higher than the annual level, with market pressure intensifying in the second half.

Li Auto’s profitability was even more sluggish. Net profit for 2025 was only 1.1 billion yuan, an 85.8% drop compared to 8 billion yuan in 2024. Net profit in Q4 was 200 million yuan, a 99.4% plunge year-over-year. Even excluding non-recurring gains and losses, under Non-GAAP accounting, net profit for that quarter was only 274 million yuan.

Operational losses also marked a first in recent years, with the company recording an operating loss of 521 million yuan in 2025, compared to a profit of 7 billion yuan in 2024. The operating loss in Q4 further widened to 443 million yuan, with an operating margin of -1.5%, indicating a significant decline in operational profitability.

Notably, the 1.1 billion yuan net profit in 2025 was not from core business but mainly from 1.92 billion yuan in interest income and investment gains.

The decline in average vehicle price and gross margin further squeezed profit margins. Due to ongoing market competition, price wars, and the shift toward low-priced models as main sales drivers, the average selling price per vehicle dropped from around 278,000 yuan in Q3 2025 to about 250,000 yuan in Q4.

In Q3, gross margin was already affected by the recall of the MEGA model, which resulted in a one-time cost of about 1.1 billion yuan, leading to a net loss of 624 million yuan for that quarter, ending an 11-quarter streak of profitability. Excluding this impact, the actual vehicle gross margin in Q3 was 19.8%. Despite this, gross margin in Q4 fell further to 16.8%, down 3 percentage points from Q3, breaking the company’s long-standing gross margin level of around 20%.

Cash flow also showed significant changes, with operating cash flow turning negative from 15.9 billion yuan in 2024 to -8.6 billion yuan in 2025. Free cash flow shifted from 8.2 billion yuan to -12.8 billion yuan, reflecting weakened cash-generating ability from operations. However, as of the end of 2025, Li Auto’s total cash, cash equivalents, fixed deposits, and short-term investments reached 101.2 billion yuan, maintaining ample cash reserves.

Transformation Begins with Setbacks

Li Auto defined 2025 as a critical year for shifting from a single-range extender strategy to a “range extender + pure electric” dual-energy strategy, but this transition faced setbacks from the start.

During the earnings call, it was revealed that Li Auto’s pure electric vehicle (EV) efforts encountered multiple obstacles. The first pure electric model, MEGA, launched in March 2024, failed to replicate the success of the range extender models due to overly ambitious sales targets, lagging charging network development, and initial online controversy.

The second pure electric model, i8, launched in July 2025, also faced public scrutiny after a collision test video went viral. In September, to boost sales, the company introduced the lower-priced i6, which, despite having a large number of orders, could not be delivered quickly due to a surge in battery demand and supply chain shortages in the second half of the year, missing the optimal sales ramp-up window.

In addition to product line challenges, Li Auto’s core range extender business also faced unprecedented pressure. As competitors like Wenjie and Leapmotor copied the “large space + high configuration” family SUV route, the high-end SUV market where L8 and L9 compete became a homogeneous red ocean.

Meanwhile, the domestic auto market in 2025 was mainly driven by “trade-in” policies. Due to fixed subsidies, lower-priced products benefited most. Li Auto’s positioning in the mid-to-high-end market meant it did not benefit from these market dividends and instead faced pressure from the overall sluggish high-end segment.

Personnel Reshuffle

Faced with declining sales and profits, Li Auto launched a major organizational overhaul in the second half of 2025.

In November 2025, CEO Li Xiang announced the end of the management model based on professional managers developed over the past three years, returning to a startup-style approach. This was followed by a large-scale personnel reshuffle. Since August 2025, several core executives involved in intelligent driving, product development, chips, and supply chain, including Huawei-related executives Zou Liangjun and Li Wenzhi, have left the company.

Entering 2026, Li Auto undertook a major restructuring of its R&D system. Li Xiang stated during the earnings call that the restructuring was complete, and R&D teams would no longer be divided by hardware and software functions but organized around the goal of creating “digital humans.”

On the sales side, Li Auto is also trying to address management issues within its direct sales network. In March 2026, the company launched a store partner program, decentralizing operational decision-making and introducing profit sharing, along with adjustments to sales incentives.

Regarding rumors of Li Auto closing 100 stores, President Ma Donghui denied this during the call, stating it was a normal optimization of inefficient stores. The total number of stores in 2026 will still increase, but the core strategy will shift from quantity to quality, focusing on high-tier cities.

In the financial report, increased R&D investment remained one of the few consistently rising indicators. In 2025, R&D spending reached 11.3 billion yuan, a record high, with over 50% allocated to AI technology development.

Li Xiang believes that AI will soon usher in a new phase of competition among enterprises, making it difficult for leading companies’ advantages to be quickly matched. Accordingly, Li Auto announced its transformation into an embodied intelligence company in 2025. Its self-developed 5nm intelligent driving chip, “Mach 100,” has completed tape-out and is being tested on prototype vehicles, with mass production planned for the second quarter of 2026.

On the product front, Li Auto plans to regain market momentum with new models. The all-new L9 will be launched in the second quarter of 2026, equipped with self-developed high-performance chips and a fully controlled chassis, aiming for a generational leap through intelligent features. Regarding pure electric vehicles, management revealed during the call that the battery bottleneck affecting delivery of the i6 has been resolved, with current monthly capacity reaching 20,000 units. In 2026, a high-end pure electric model, the i9, will also be introduced.

Additionally, overseas markets are seen as another long-term growth strategy. By the end of 2025, Li Auto officially entered markets such as Egypt, Kazakhstan, and Azerbaijan. In 2026, the company expects overseas markets to contribute to growth.

Despite frequent strategic adjustments, Li Auto still faces significant operational pressures in the short term.

In the first quarter of 2026, market conditions remain challenging. The company’s guidance indicates quarterly sales of 85,000 to 90,000 units, down 8.5% to 3.1% year-over-year; revenue is expected to be 20.4 to 21.6 billion yuan, down 21.3% to 16.7%. Based on the delivery data of 27,700 units in January and 26,400 units in February, Li Auto needs to deliver at least 31,000 vehicles in March to meet the lower end of its guidance.

For the full year of 2026, Li Xiang aims for over 20% year-over-year growth, returning to around 490,000 units—the peak level of 2024. Citigroup, in a research report after the earnings release, expressed reservations about this target, maintaining a “Neutral” rating on Li Auto and lowering its profit forecasts for 2026 and 2027.