理想汽车

Li Auto's second-quarter revenue declined 15% year over year, mainly due to lower vehicle sales volume and pricing. However, vehicle margin recovered 340 basis points sequentially, and average selling price increased 8% from the previous quarter following the launch of the new-generation L9 and L8.

Why it matters: While revenue was at the high end of guidance, vehicle margin missed our expectations due to the model refresh cycle and rising costs, and the company remained loss-making. Given weak guidance and intensifying competition in the large sport utility vehicle segment, we expect profitability to stay under pressure. Management guides for further profitability recovery in the second half as product mix improves, with vehicle margin returning to the midteens in the fourth quarter. The company plans to launch the new i9 battery SUV next month and refresh two existing battery models in the second half. We believe meaningful volume recovery will only come next year, when refreshed models contribute for a full year. We therefore lower our midcycle net profit by about 20% on weaker volume, margins, and higher operating expenses.

The bottom line: We lower our fair value estimate to USD 17 per ADS (HKD 67 per share) from USD 21 (HKD 83), implying a 2027 price/sales of 1.1 times. While the shares remain undervalued, volume growth and profitability are likely to stay weak in the near term. Despite new launches in the second half, we expect competition to continue weighing on the company's growth outlook. Management indicated that its margin recovery expectations depend on peers' pricing strategies for competing models, including Xiaomi's SkyNomad plug-in series and BMW's new i3L.

Between the lines: For the third quarter, Li Auto guided vehicle delivery to grow 2%-7% year on year. The midpoint of guidance implies sales of around 33,500 units in August and September despite the recent major product launches, which we believe falls short of market expectations.

Our fair value estimate is USD 17 per ADS, based on our expectation that Li Auto will continue to gain market share from legacy automakers. Riding on the industry electrification trend and increasing consumer adoption of NEVs, we anticipate rising demand for the company’s NEV models and improving profitability on economies of scale over the next few years. Our fair value estimate implies a forward 2027 price/sales ratio of 1.1 times.

We expect the company’s revenue to expand at a CAGR of 7% over 2025-30, mainly driven by an expansion in vehicle delivery volume. We estimate that an increasing NEV penetration rate, coupled with a demand shift to Chinese local brands, will lead to a total volume growth of 6% CAGR over the next five years. Despite international and local automakers continuing to aggressively bring new NEV models to market, we believe Li Auto enjoys unique product positioning with PHEVs offering value-for-money vehicles to family car users.

Increasing the scale effect will improve the company’s profitability, in our view. In addition, the diffusion of NEV technology and battery energy density will result in higher profitability over the longer term, reaffirming our improving margin assumptions. As a result, we project the group’s operating margin to expand to 1.5% in 2030, from negative 0.9% in 2025.

We like Li Auto’s precise product positioning, offering value-for-money family cars to Chinese consumers. However, we do not think product capability alone is moaty and guarantees a competitive advantage for NEV manufacturers in the midcycle as competition gradually catches up with similar value proposition cars.

Li Auto accounted for 3% of China’s passenger NEV market in 2025. The stellar performance was attributable to the company’s successful positioning of its first model, Li One, in our view. The plug-in hybrid electric vehicle, or PHEV, is a six-seater, large-size SUV. The model is attractively priced to compete with SUVs of the same size. It is the same size as a Tesla Model X but at a Model 3 price, or BMW X5 size at an X1 price.

The company is also leading the development of PHEV powertrain technology in China. The range-extension system was developed in-house using electric motors, a range extender (generator), and an internal combustion engine. The range extender, propelled by an ICE engine, can either power the electric motors to drive the vehicle or charge the battery pack. Li One is equipped with a 40.5 kWh battery pack for an 180 km driving range on battery and a 45 L fuel tank and a 1.2-liter turbocharged engine for a total range of 800 km on full charge and a full fuel tank.

While range-extension technology offers an alternative NEV powertrain solution, we think the price advantage is only attractive to consumers before pure electric models reach cost parity with ICEs. According to Li Auto, the bill of materials cost of its PHEVs is approximately 10% higher than that of comparable ICE models. Given NEVs are exempt from the 10% purchase tax, we believe the company’s PHEVs have reached price parity with ICEs on an aftertax basis, but offer enhanced digital experiences.

We do not think Li Auto has a moat, as the firm does not prove to have pricing power. While Li One is priced as an entry-level luxury auto, its pricing is below that of premium brand models of comparable size. Rather, it is in the price range of the ICE versions of the Toyota Highlander or Volkswagen Teramont. The large-size electric SUV segment is currently not as crowded as the compact and midsize segments. Once competition heats up, we believe other automakers can offer a similar value proposition for NEV products.

In addition, the company’s product strategy benefits from lower battery costs of PHEV powertrains than pure electric EVs. According to Li Auto, the BOM cost of comparable BEVs is currently about 25%-30% higher than that of PHEVs, given that BEVs require a larger battery pack. With BEVs expected to become as affordable as ICEs in the next three to five years, the scarcity of Li Auto’s value proposition will disappear with competitors launching pure battery large SUVs at similar price levels.

Li Auto’s strong product capacity, targeting family car users and focusing on the mid- to large-size SUV segment, will ensure the success of future NEV models, including but not limited to extended range electric vehicles.

EREV technology eases consumers’ range anxiety on electric cars. Chinese consumers’ soaring demand for EV cars will benefit NEV carmakers such as Li Auto.

Younger car buyers value vehicle tech experience, which provides Li Auto with an advantage over legacy carmakers.

Li Auto’s range-extension vehicles will face increasing pressure as the industry moves to pure electric models, while the company lacks track record in pure electric vehicles.

Decreasing battery cost will shrink the cost advantage the company established with plug-in electric vehicles.

Rising competition in China’s NEV market indicates legacy OEMs will defend their market share with aggressive new model launches at competitive pricing.