Li Auto forecasts return to delivery growth as Q2 revenue drops to RMB25.7bn

Li Auto Inc. reported second-quarter revenue of RMB25.7 billion, or approximately US$3.8 billion, down 15.1% year over year as vehicle deliveries declined and a weaker product mix continued to pressure the Chinese electric-vehicle maker. Deliveries fell 11.5% to 98,330 vehicles, while vehicle sales declined 16.7% to RMB24.1 billion and the company swung to a RMB1.7 billion net loss from RMB1.1 billion of profit a year earlier. The quarter nevertheless contained signs of sequential stabilization, with vehicle margin improving to 9.4% from 6.1% in Q1 and gross margin recovering to 11.0% from 7.9%. Management expects Q3 deliveries of 95,000 to 100,000 vehicles, which would return the company to modest year-over-year volume growth, as refreshed Li L models and a new generation of battery-electric vehicles enter the market.

Li Auto’s results therefore reflect two different trajectories. Compared with 2025, profitability has deteriorated dramatically as China’s intensely competitive new-energy vehicle market pushes manufacturers toward lower pricing and more expensive product investment, but compared with the first quarter of 2026, several important indicators are moving in the right direction. Gross profit rose 56.9% sequentially to RMB2.84 billion, the operating loss narrowed by 23.3% to RMB2.30 billion and free cash outflow improved to RMB1.30 billion from RMB7.39 billion.

That sequential improvement helped the shares recover from an initially negative response. Li Auto traded around $12.42 during the August 26 session, up roughly 1.2%, after early weakness following the earnings release. The stock nevertheless remains more than 50% below its level a year ago, showing how significantly investors have lowered expectations as the company transitions from its successful range-extended SUV franchise into a broader battery-electric vehicle portfolio.

Vehicle margin rebounds from 6.1% as Li Auto begins repairing its product economics

Vehicle margin increased to 9.4% during Q2 from 6.1% in the previous quarter, providing the strongest evidence that Li Auto’s profitability may have begun recovering from the severe pressure seen at the start of 2026. The margin remains far below the 19.4% recorded a year earlier, however, leaving a substantial gap before the company returns to its historical economics.

Gross margin showed the same pattern, increasing to 11.0% from 7.9% sequentially but falling from 20.1% a year earlier. Gross profit reached RMB2.84 billion compared with only RMB1.81 billion in Q1, although it remained 53.3% below the RMB6.07 billion generated in Q2 2025.

Management attributed the sequential improvement primarily to product mix, including the launch of the new Li L9. The company expects further margin improvement during the second half as higher-end Livis trims contribute more sales and refreshed battery-electric models enter production.

That strategy is crucial because Li Auto can no longer rely on volume growth alone. Chinese EV competition has intensified across premium SUVs, while aggressive pricing and frequent product refreshes have compressed margins throughout the sector. Li Auto therefore needs new models to improve both unit economics and demand rather than simply replacing older vehicles with similarly profitable sales.

The company’s revenue decline partly reflects that transition. Vehicle sales fell 16.7% year over year to RMB24.1 billion because deliveries declined and average selling prices were affected by a different model mix, even though vehicle revenue improved 11.8% sequentially as both deliveries and average selling prices recovered from Q1.

The quarter consequently looks considerably healthier sequentially than annually. That distinction will matter over the next two quarters because investors need evidence that the 9.4% vehicle margin represents the beginning of a sustained recovery rather than a temporary improvement caused by model timing.

Q2 deliveries fall 11.5% as Li Auto works through a major vehicle refresh cycle

Li Auto delivered 98,330 vehicles during Q2 compared with 111,074 a year earlier. Deliveries did improve from 95,142 during Q1, but the company remains well below the volumes recorded during its strongest periods.

Management has argued that demand was affected by customers postponing purchases ahead of major product refreshes. Li Auto introduced the all-new Li L8 in June and followed with a refreshed Li L6 during July, while another phase of battery-electric product launches is scheduled for the second half.

The new L8 incorporates Li Auto’s third-generation range extender, a 72.7 kWh battery and the company’s proprietary MACH M100 computing technology in higher trims. The refreshed L6 also adopts the MACH M100 chip alongside upgraded assisted-driving hardware and a 51 kWh battery.

These launches illustrate how competition is moving beyond conventional vehicle specifications. Chinese premium EV makers increasingly compete through computing hardware, assisted-driving systems, cabin software, charging performance and AI capabilities as much as through range or vehicle size.

Li Auto is developing more of that technology internally. Its MACH M100 chip and related MACH software models are intended to support assisted driving, intelligent cabins and broader embodied-AI capabilities, potentially reducing dependence on external computing suppliers while differentiating its vehicles.

Those investments also raise the financial hurdle. Research and development spending remained high at RMB2.78 billion during Q2, essentially flat year over year and up 2% sequentially, even as revenue remained below prior-year levels.

Li Auto therefore needs the new product cycle to produce meaningful scale. Maintaining billions of renminbi in quarterly R&D spending becomes far easier to absorb if vehicle sales return to growth and margins normalize, while prolonged weakness would leave technology investment consuming an increasingly large share of gross profit.

Operating loss narrows sequentially but free cash flow remains negative at RMB1.3 billion

Li Auto reported an operating loss of RMB2.30 billion compared with RMB827 million of operating profit a year earlier. The operating margin was negative 9.0%, a sharp deterioration from positive 2.7% in Q2 2025 but an improvement from negative 13.0% during the first quarter.

Net loss narrowed sequentially to RMB1.71 billion from RMB2.28 billion, while non-GAAP net loss improved to RMB1.50 billion from RMB2.11 billion. Non-GAAP diluted loss per ADS was RMB1.49, equivalent to about US$0.22, substantially weaker than the profit reported a year ago.

Operating expenses provided some support. Total operating expenses declined 2% year over year to RMB5.14 billion, while selling, general and administrative spending fell 16.2% to RMB2.28 billion because of lower employee compensation. Sequential SG&A increased as marketing and promotional activity rose around the new product launches.

Cash flow improved much more sharply. Operating activities generated approximately RMB15 million of positive cash flow compared with RMB6.09 billion of cash consumption during Q1, while free cash flow improved to negative RMB1.30 billion from negative RMB7.39 billion.

The company remains in an exceptionally strong liquidity position despite that burn. Its broader cash position, including cash, restricted cash, deposits and investments, stood at RMB87.5 billion, approximately US$12.9 billion, at June 30.

That liquidity gives Li Auto substantial room to fund new models, charging infrastructure and technology through the current downturn. It also lowers the immediate financial risk associated with another several quarters of negative free cash flow, although persistent losses would eventually reduce the strategic advantage of the balance sheet.

Li Auto is simultaneously returning capital through its US$1 billion repurchase program. By August 26, the company had repurchased approximately 91.7 million Class A shares, including ADS equivalents, for about US$631.5 million.

The combination of buybacks and negative free cash flow makes future margin recovery particularly important. Repurchasing shares can increase per-share value when the stock is undervalued, but sustained operating cash generation would make that capital-return strategy considerably easier to maintain.

Q3 guidance signals a possible return to delivery growth but little near-term revenue acceleration

Li Auto expects Q3 deliveries between 95,000 and 100,000 vehicles, representing year-over-year growth of 1.9% to 7.3%. The guidance would mark an important change after Q2’s 11.5% decline and suggests management expects refreshed products to stabilize demand.

Revenue is expected between RMB26.6 billion and RMB28.0 billion, ranging from a 2.8% year-over-year decline to 2.3% growth. The relatively flat revenue outlook shows that returning to volume growth alone will not immediately restore the financial profile Li Auto enjoyed before China’s latest EV price war intensified.

July deliveries reached 30,468 vehicles, leaving the company needing an average of roughly 32,000 to 35,000 monthly deliveries during August and September to reach its Q3 target. That appears achievable if the refreshed L6 and L8 gain traction, although execution around upcoming BEV launches adds uncertainty.

Management expects the Li i9 and refreshed battery-electric lineup to support the next stage of the recovery. It also plans to introduce a next-generation Li Mega and expand internationally, with production beginning in Kazakhstan and further market entries planned across Europe and Asia-Pacific.

The BEV transition remains the largest strategic risk. Li Auto built its brand around extended-range electric vehicles, where an onboard gasoline generator reduces charging anxiety, while pure battery vehicles expose the company to a different competitive field that includes deeply established domestic manufacturers.

A successful BEV refresh would broaden Li Auto’s addressable market and make its growing charging network more valuable. A weak launch would leave the company spending heavily on infrastructure, AI systems and product development without the volume required to rebuild margins.

Key takeaways from Li Auto’s Q2 loss, margin recovery and second-half EV product reset

• Q2 revenue fell 15.1% to RMB25.7 billion as lower deliveries and a weaker vehicle mix outweighed sequential improvement from the first quarter.
• Deliveries declined 11.5% to 98,330 vehicles, keeping Li Auto below prior-year volume even as shipments improved modestly from Q1.
• Vehicle margin recovered to 9.4% from 6.1% sequentially, providing the strongest evidence that Li Auto’s product economics may be stabilizing.
• Gross margin improved to 11.0% from 7.9% in Q1, but remains far below the 20.1% achieved a year earlier.
• Net loss reached RMB1.7 billion, compared with RMB1.1 billion of profit last year, as lower gross profit continued to outweigh operating-expense controls.
• Free cash flow improved sharply to negative RMB1.3 billion from negative RMB7.4 billion in Q1, reducing near-term cash-burn pressure.
• Li Auto retains RMB87.5 billion of liquidity, giving it substantial capacity to fund new vehicles, charging infrastructure and AI technology through the downturn.
• Q3 delivery guidance of 95,000 to 100,000 vehicles implies a return to modest year-over-year growth if refreshed models sustain customer demand.
• The Li i9 and broader BEV refresh are the main strategic catalysts because successful launches could rebuild volume and margins beyond Li Auto’s range-extended vehicle franchise.
• LI shares recovered to roughly $12.42, up about 1%, as investors balanced persistent losses against sequential margin improvement and a potentially stronger second half.