The Ideal Bad Moments Are Far from Over

Surface recovery, deeper pain

Li Auto (理想汽车) posted a thin Q4 net profit but the headline numbers mask a harder truth: the company’s core auto business remains under pressure. While Q4 showed a reported net profit of RMB 20 million and an adjusted net profit of RMB 274 million, operating results tell a different story — operating loss for the quarter was RMB 443 million, and, after stripping out roughly RMB 430 million of investment income that stabilises results each quarter, the vehicle business was still loss-making. In short: the papered-over recovery is fragile.

Sales, margins and model mix

The slide is broad. Q4 deliveries fell 31.2% year‑on‑year to 109,194 units and vehicle sales revenue dropped 36.1% to RMB 27.3 billion; vehicle gross margin fell to 16.8% — the first sub‑17% quarterly margin in four years when excluding the MEGA recall. Per‑vehicle revenue slipped to about RMB 250,000 from RMB 277,900 the quarter before. Much of the margin compression has come from the success of the lower‑priced i6 (理想 i6), which became Li Auto’s best‑selling pure‑EV after its September launch but also dragged overall ASPs and margins down. The MEGA recall earlier in the year and production teething for i6 further complicated the picture.

Management shake‑up and a sober outlook

The company has responded with sweeping internal changes: it has been reported that Li Auto abandoned a professional‑manager model and that at least ten senior executives, including most Huawei‑affiliated managers, have left, with founder Li Xiang (李想) taking on more responsibility. Guidance is cautious: Q1 2026 delivery guidance of 85,000–90,000 units and revenue guidance implying continued YoY declines, and the new flagship L9 won’t arrive until Q2 — meaning the margin recovery may be delayed. U.S.‑listed shares dipped after the results, extending a six‑month slide of more than 40%.

Big market, tougher competition

Li Auto’s struggles matter in a booming context. China’s NEV market surged past 16 million units in 2025, far outpacing earlier forecasts; yet Li Auto’s full‑year deliveries fell to 406,300, down 18.8%, and it ceded top‑new‑energy positions to rivals such as Leapmotor (零跑) and entrants backed by firms like Xiaomi (小米) and Xpeng (小鹏). Can Li Auto pivot from a high‑margin extended‑range identity to a pure‑EV future while stabilising margins and cash flow? Management is doubling down on “embodied intelligence” and robotics as a long‑term bet, but the near term looks like a test of execution rather than ambition.