Li Auto (理想汽车) Losing Momentum: Range‑Extender Dividend Peaks, AI Can't Solve Immediate Needs

Range‑extender edge fades as sales and margins slip

Li Auto (理想汽车) — once the poster child of profitable new‑energy startups — has visibly lost momentum. It has been reported that fourth‑quarter 2025 vehicle sales revenue fell to RMB 27.3 billion, down 36.1% year‑on‑year, and full‑year 2025 vehicle revenue dropped 23% to RMB 106.7 billion. Average transaction price in Q4 slid to about RMB 250,000 per vehicle (a decline of roughly RMB 27,000 quarter‑on‑quarter), and gross margin on car sales sank to 16.8% from an adjusted 19.8% in Q3. Net profit for 2025 was about RMB 1.1 billion, but that relied on hefty financial income — interest and investment returns of roughly RMB 1.9 billion — meaning operating profit would have been negative without those gains.

Competition, discounting and the limits of the range‑extender moat

Why the sudden unravel? The core issue is competition. Li Auto’s early success was built on range‑extender (增程式) models and productized comforts that resonated with Chinese consumers. But that technical approach has a low barrier to entry. Rival brands such as AITO (问界), Leapmotor (零跑), Xiaomi (小米) and others have squeezed market share by bundling competitive features, sharper pricing or stronger ADAS. It has been reported that L‑series discounts last December reached more than RMB 70,000 after stacked subsidies and incentives — a sign that Li loosened pricing too late and ceded a crucial window to competitors. The company is betting on a revamped L9 due in Q2 with lower pricing into the RMB 300k+ band and on the i6 compact electric to carry volume, but can those moves stop further margin erosion?

AI bets: strategic necessity but not a near‑term cure

Li Auto is doubling down on R&D and AI. It has been reported that 2025 R&D spend reached RMB 11.3 billion, with roughly half earmarked for AI‑related work; 2026 guidance is about RMB 12 billion with similar AI weighting, covering in‑house chips, compute and intelligent driving systems. Founder Li Xiang reportedly used an all‑hands to stress AI ambitions — even speaking of humanoid robots — but some employees said they “didn’t understand,” underscoring that internal alignment and concrete product roadmaps remain incomplete. Can heavy AI investment plug a hole in today’s sales and dealer dynamics? Unlikely in the near term. AI and chip development are long‑cycle plays, and increasingly constrained global chip export rules add a geopolitical layer: Beijing’s push for semiconductor self‑reliance makes the stakes higher, but it also means results will take time.

Tactical adjustments and an uncertain recovery path

Li has also adjusted retail strategy — it has been reported that a “partner” model will share more decision‑making and profit with store managers while keeping a core direct‑sales system — and plans to standardize batteries to two suppliers (a Li Auto branded pack and CATL/宁德时代) supposedly from 2026. Management has cut the 2026 growth target to about 20%, well below peers’ ambitions (Leapmotor ~75%, NIO/蔚来 40%+, Xiaomi 30%+). The larger takeaway: the “new forces” in China’s EV market are transitioning from product‑driven breakout hits to tech‑driven competition in charging, autonomy and chips. That is where the real contest will be. Can Li translate deep pockets and R&D firepower into market share before margins are further squeezed? The next two quarters will tell.