Li Auto Nears Earnings Test as Short Interest Hits Record 8.1%

Li Auto Inc. (LI) faces a critical week as it prepares to release its Q3 2025 earnings on November 26. The Chinese electric-vehicle maker is expected to report a revenue decline of 38% year-on-year, which would represent its worst drop since its U.S. listing in 2020 according to Bloomberg reports. Short sellers have responded by pushing Li Auto's short interest to an all-time high of 8.1% of its free float, according to S&P Global data. The stock is down about 23% this year and has lost more than half its value since an August 2023 peak as reported by Bloomberg.

The firm delivered 93,211 vehicles in Q3, a 39% drop compared to the same period last year, according to its filings.

This decline has been driven by intense competition in the Chinese EV market, particularly for Li Auto's extended-range electric vehicles (EREVs). Analysts are closely watching whether the company can reverse this trend by shifting its product strategy to better appeal to consumers as analysts note.

The company's struggles are reflected in its broader market performance. Li Auto's stock is the second-worst performer on the Hang Seng China Enterprises Index, which has gained nearly 26% this year. The stock is also trading below key trend lines, raising concerns among investors about its ability to regain momentum according to market analysis.

Why the Standoff Happened

Li Auto has been hit by a combination of market challenges and internal issues. One major factor is the aggressive competition from rivals like Xpeng and Xiaomi, both of which are expanding their EREV offerings. Xpeng, in particular, has launched four EREV models, intensifying pressure on Li's core business. Xiaomi is also expected to introduce a high-anticipated EREV SUV, further complicating the competitive landscape according to Bloomberg.

Internally, Li Auto has faced quality control issues, including a large-scale recall of over 100,000 Mega MPVs due to coolant corrosion concerns as reported by the Wall Street Journal. This recall not only damaged the firm's reputation but also led to an estimated earnings hit of 1.14 billion RMB, according to China Renaissance Securities analysts according to market analysis. UOB Kay Hian analysts have warned that these developments could undermine the company's reputation at a time when Chinese regulators are intensifying scrutiny of product safety and quality as reported by the Wall Street Journal.

What Analysts Are Watching

Analysts are closely monitoring Li Auto's ability to adapt to the changing market dynamics. Eugene Hsiao of Macquarie Capital has emphasized the need for the company to expand its product lineup and potentially redesign its battery electric vehicle (BEV) series to attract a broader customer base. The current product strategy, he argues, is not sufficient to compete with the increasing number of EREV models from rivals as Bloomberg reports.

The firm's earnings report will be scrutinized for any indication of strategic shifts. For instance, Li Auto recently announced plans for faster product launches and an intensified overseas expansion. While this approach aims to revive growth, analysts have expressed concerns that it could further weaken quality control according to WSJ coverage. UOB Kay Hian maintains a sell rating on the stock and has set a target price of HK$60.00 according to market analysis.

The options market is currently pricing in a 6% move in Li Auto's shares following the earnings report, which is less than the average 11% fluctuation seen after the last eight quarterly results. This suggests that investors may not be expecting a dramatic reaction, even if the results fall below expectations according to Bloomberg.

Risks to the Outlook

Looking ahead, Li Auto faces several risks that could weigh on its performance. One major challenge is the competitive landscape, which is expected to remain intense in 2026. Xpeng and Xiaomi are both anticipated to continue their aggressive product launches, making it harder for Li Auto to differentiate itself. Additionally, the recent recall has raised concerns about the company's ability to maintain customer trust as Bloomberg reports.

The broader EV market in China is also evolving, with a growing shift toward autonomous and connected EVs according to Global Newswire. While Li Auto has not yet made significant strides in this area, the market is being reshaped by tech-driven innovations that could further marginalize traditional players.

Another risk is the company's recent struggles with sales and deliveries. October's deliveries of 31,767 units marked a fifth consecutive month of declines, according to CnEVPost data. This trend has led to downward revisions in both EPS and revenue estimates over the past three months according to Seeking Alpha. If this pattern continues, it could force the company to reassess its pricing and distribution strategies.

What This Means for Investors

For investors, the stakes are high as Li Auto enters this earnings period under immense pressure. The stock has underperformed significantly compared to its peers, including NIO and XPeng, both of which have shown stronger growth momentum. NIO recently reported a narrower-than-expected net loss and improved gross margins, signaling a potential path to profitability according to Morningstar.

If Li Auto's results fall in line with current estimates, the stock could face further downward pressure. The company will need to demonstrate a clear strategy to address its core business challenges and win back investor confidence. This includes not only product innovation but also stronger execution in quality control and customer engagement.

The market's reaction to the earnings report will also depend on broader economic and geopolitical factors. For example, progress on a U.S.-brokered peace deal between Ukraine and Russia has led to a decline in energy prices, which could indirectly affect investor sentiment in the EV sector according to Morningstar. However, the EV market in China is largely insulated from these global dynamics and is driven more by domestic demand and competition.

In the coming quarters, investors will be watching whether Li Auto can stabilize its sales and profit margins. With a large short position in place, a weaker-than-expected report could trigger further declines, while a surprise beat might provide a temporary reprieve. However, long-term success will depend on the company's ability to adapt its product strategy and regain its position in a rapidly evolving market.