On November 26, 2025, with the release of Li Auto's Q3 2025 financial report, the nearly three-year profit myth of this emerging electric vehicle company was broken.
Financial reports show that the company's revenue for the quarter was 27.4 billion yuan, a year-on-year decrease of 36.2%; net loss was 624 million yuan, ending 11 consecutive quarters of profitability since the fourth quarter of 2022, and this is also its first quarterly loss after achieving profitability at scale.
On June 18, 2025, the "Vibrant China Research Tour" delegation visited Li Auto's Beijing base, touring the welding and final assembly workshops. The photo shows a Li Auto MEGA vehicle arriving at its production line. (Photo by Wang Ziru, China News Service)
Behind the data lies the annual growing pains of Li Auto under the triple pressures of waning range-extended battery benefits, the arduous transition to pure electric vehicles, and fierce market competition. Li Xiang's subsequent declaration to "return to a startup management model" further indicates that this company, which once led the market with its precise product definition, is entering an unprecedented period of strategic adjustment.
The Profit Myth Has Ended
Li Auto's losses in 2025 are not accidental, but the result of a combination of internal and external factors.
Financial reports show that the delivery volume of 93,211 vehicles in the third quarter decreased by 39% year-on-year, which directly led to a 37.4% year-on-year decrease in vehicle sales revenue to RMB 25.9 billion, becoming the core driver of the revenue decline.
This delivery slump stems from the awkward transition of product cycles. The best-selling L-series extended-range models face fierce competition from rivals such as the Wenjie. The 2025 Wenjie M9 and M8, with their combined range of over 1300km and Huawei ADS 3.3 intelligent driving system, continue to squeeze the L-series market share. Meanwhile, the highly anticipated pure electric product matrix is still in the production ramp-up phase. Although the pure electric SUVs i8 and i6, launched in the third quarter, have accumulated orders exceeding 100,000 units, the actual delivery rate only reached 18% of the total delivery volume, failing to fill the sales gap of the extended-range models in time.
The recall of the MEGA model became another trigger for the losses. This first pure electric MPV, launched in March 2024, had a safety hazard due to insufficient anti-corrosion performance of the coolant, and a recall was initiated in October 2025, involving 11,411 2024 model vehicles.
On March 16, 2025, in Haikou, Hainan, consumers visited Li Auto's first pure electric vehicle, MEGA. (Visual China photo)
According to accounting standards, Li Auto accrued approximately RMB 1.1 billion in warranty costs in the third quarter, directly dragging down its gross profit margin from 21.5% in the same period last year to 16.3%. "We are currently focusing on battery production to meet recall demands, which has led to a decrease in the delivery volume of the 2025 MEGA model, as we are prioritizing the use of most batteries to replace the 2024 recalled vehicles," Li Auto CFO Li Tie explained in the earnings call.
This decision to protect user rights directly impacted short-term performance. However, even excluding this one-time cost, the adjusted gross margin was still 20.4%, a significant drop from its historical high.
The dramatic changes in the industry environment have further amplified the operational pressures.
In 2025, the price war in the new energy vehicle market intensified. Tesla launched a low-priced standard version model to boost sales, while BYD faced pressure from losing market share in plug-in hybrid vehicles. Many automakers followed suit by lowering prices to compete for market share, forcing Li Auto to adjust its prices, resulting in a continuous erosion of profit per vehicle.
Meanwhile, the industry dividends of range-extended electric vehicles are waning. Data from the China Passenger Car Association shows that from June to October 2025, the proportion of range-extended vehicles in the wholesale structure of new energy vehicles declined for five consecutive months, reaching only 7.5% in October. In contrast, the proportion of pure electric vehicles from emerging electric vehicle manufacturers has risen from 49% last year to 74%. This structural change in the market landscape is causing Li Auto's traditional strengths to gradually shrink.
Transitioning into Deep Waters
Despite short-term performance pressure, Li Auto has not slowed down its strategic investment. Financial reports show that its R&D expenses reached 3 billion yuan in the third quarter of 2025, and its total R&D investment for the year is expected to reach 12 billion yuan, with over 6 billion yuan invested in artificial intelligence. This level of investment is second only to XPeng Motors, which is heavily investing in physical AI, among emerging electric vehicle manufacturers. This counter-cyclical investment is concentrated in two main areas: breakthroughs in pure electric technology and intelligent technology deployment.
The pure electric transformation is a core strategic pillar for Li Auto. After the MEGA's foray into the pure electric MPV market met with setbacks, the i8 and i6 pure electric SUVs launched in the third quarter quickly gained market response, with cumulative orders of 100,000 units demonstrating the extension of its product definition capabilities in the pure electric field.
To address production capacity bottlenecks, Li Auto has adopted a dual-supplier model for the i6 battery, and it is expected that monthly production capacity will steadily increase to 20,000 vehicles by early 2026. At the same time, its self-developed 5C battery will also be mass-produced next year, continuously strengthening the core competitiveness of its pure electric products.
On October 11, 2025, in Guangzhou, Li Auto launched its second pure electric SUV, the Li i6. (Visual China photo)
Deepening its focus on intelligent technology has become another way to break through. Its self-developed VLA driver big data model adopts world model and reinforcement learning technology, and its monthly usage rate reached 91% in October, with user penetration ranking among the top in the industry. In response, there has been an increase in Li Auto vehicles that are slow to move while their blue lights are on at intersections recently.
During the earnings call, Li Xiang clarified the company's medium- to long-term strategic positioning: "Our core direction is embodied intelligent robots in the form of automobiles, which is the best opportunity that the new era has given to automobile companies." He revealed plans to launch the self-developed M100 chip for mass production and application in vehicles next year, using technological innovation to support long-term development.
As the competition in intelligent driving enters a more complex phase, Li Auto's bet on AI technology to build a differentiated advantage aligns with Tesla's strategic shift towards real-world AI and XPeng's push for Robotaxi mass production, laying the foundation for long-term product competitiveness.
Who can escape the cycle?
The fluctuations in Li Auto's performance in 2025 are not an isolated case in the industry, but rather a microcosm of the shift in new energy vehicle companies from high-speed growth to high-quality competition.
According to data from the China Passenger Car Association, the average net profit margin of the new energy vehicle industry in 2025 will be only 4.1%, lower than the industrial average. Given the industry's predicament of "more cars, less money," Ideal's losses seem to be an inevitable result of intensified industry competition.
Although Tesla's revenue hit a record high of $28.1 billion in the third quarter, its net profit shrank by 37% year-on-year. The main reason is the continued huge investment in future businesses such as FSD and humanoid robots, which is exactly the same logic as Li Auto's "counter-cyclical cash burning" for pure electric and AI technologies.
Morgan Stanley analysts stated in a research report, "Investors are puzzled by the stock price rise triggered by weak third-quarter data and meager sales guidance; we tend to attribute it to a tactical rebound after the MEGA bubble was fully discounted." This view reflects the market's digestion of expectations for short-term pain and also suggests that the industry still has expectations for its long-term transformation value.
Whether it's a traditional giant or an emerging company, at critical junctures of technological shifts and market reshaping, companies inevitably face short-term performance pressures. Ultimately, a company's ability to withstand risks depends on its cash reserves, technological accumulation, and strategic resolve.
Returning to the entrepreneurial model
Behind the pressure on its performance, Li Auto's management model is undergoing transformation.
Li Xiang's remarks during the Q3 earnings call attracted attention: "Over the past three years, we have tried to learn the management system of professional managers, but we have become a worse version of ourselves. Nvidia and Tesla are still managed like startups today. If the world's strongest companies are managed like startups, what reason do we have to abandon the way we are best at?" These words reveal both the management adaptation challenges the company faces after scaling up and its determination to make strategic adjustments.
On April 23, 2025, Li Xiang, founder, chairman, and CEO of Li Auto, introduced Li Auto at a media briefing during the Shanghai Auto Show. (Visual China photo)
In fact, as its product line expands from range-extended electric vehicles to pure electric vehicles, and from SUVs to MPVs, Li Auto's management complexity has increased exponentially. Since 2025, the company has undergone several organizational restructurings, but in the face of new competitors such as Xiaomi Auto, it still reveals problems with slowing product and organizational pace.
During a three-day closed-door meeting in mid-October, the management team reached a consensus, acknowledging that they had seriously underestimated the intensity of market competition. This became an important background for their decision to return to the management model of a startup.
Against the backdrop of accelerating industry transformation, this adjustment aims to break free from the bureaucratic constraints that may arise in large-scale enterprises and revitalize the organization. However, switching management models is no easy task. How to maintain decision-making efficiency while preserving the stability of large-scale operations will be a significant challenge for Li Auto in the fourth quarter and beyond.
For the fourth quarter of 2025, Li Auto has given a relatively conservative performance guidance: it expects to deliver 100,000 to 110,000 vehicles, a year-on-year decrease of 30.7% to 37.0%; and revenue of RMB 26.5 billion to RMB 29.2 billion, a year-on-year decline of 34.2% to 40.1%. This means that the company's performance downturn will continue, and whether it can break through in 2026 depends on the implementation of three major variables.
The production capacity release of pure electric vehicles is the primary focus. As supply chain bottlenecks gradually ease, whether the i8 and i6 can continue to fulfill orders will directly determine the pace of Li Auto's sales recovery.
Secondly, improving cost control capabilities is crucial. In the context of ongoing price wars, how to restore gross profit margin through economies of scale and supply chain optimization will affect the company's profit recovery cycle. In this regard, we can learn from XPeng's experience in achieving a gross profit margin of over 20% through technological scaling.
Finally, the effectiveness of the management model adjustment needs time to be tested. Whether entrepreneurial management can be quickly transformed into market responsiveness and product iteration efficiency will become the core factor determining its position in industry competition.
From the perspective of industry development trends, the new energy vehicle market is shifting from high-speed growth to high-quality competition, and it is not uncommon for companies to experience temporary losses during the technology iteration period. As Li Xiang said in the earnings call: "The third quarter of 2025 is the first quarter of Li Auto's journey toward the second decade. We have experienced multiple challenges such as product cycles, supply chains, and public opinion, but these will all become stepping stones for transformation."
In 2026, with the release of pure electric vehicle production capacity, the mass production of self-developed 5C batteries, and the launch of the L-series facelifted models, Li Auto is expected to return to a growth trajectory, provided that it can find a balance between the implementation of pure electric technology, organizational efficiency restructuring, and control of market rhythm.
