Li Auto's Q2 Earnings and Q3 Outlook: Navigating Revenue Declines and Investor Sentiment

Li Auto’s Q2 2025 earnings report revealed a complex narrative of resilience and vulnerability. While the company reported a 16.7% sequential revenue increase to RMB 30.2 billion (US$4.2 billion) compared to Q1 2025, this figure masked a 4.5% year-over-year decline, underscoring broader market challenges [1]. Similarly, non-GAAP net income rose 44.7% from Q1 to RMB 1.5 billion (US$204.9 million) but fell 2.3% year-over-year [1]. These mixed results reflect a company grappling with intensifying competition in China’s electric vehicle (EV) market and the waning effects of government subsidies [3].

The Q3 2025 outlook further amplifies concerns. Li Auto projected revenue between RMB 24.8 billion and 26.2 billion (US$3.5 billion–$3.7 billion), significantly below the average analyst estimate of RMB 41.15 billion (US$5.8 billion) [1]. Vehicle deliveries are forecasted at 90,000–95,000 units, far short of the 135,327 units analysts anticipated [1]. This divergence highlights a disconnect between the company’s conservative guidance and market expectations, potentially signaling operational or strategic missteps.

Investor confidence has been further eroded by analyst downgrades. Following the Q2 results, several firms revised Li Auto’s stock rating to “Sell” or “Hold,” citing slowing demand for its L-series models and margin pressures in the battery electric vehicle (BEV) segment [3]. The stock price dropped over 8% in regular trading on August 27, 2025, and fell an additional 4.51% in pre-market trading on August 28, reflecting bearish sentiment [2]. However, some analysts argue the stock is undervalued, with a fair value estimate of $33.57 suggesting long-term potential [3].

The valuation debate hinges on Li Auto’s financial discipline and product strategy. Despite the revenue decline, the company maintained a robust vehicle margin of 19.4% in Q2 2025, outperforming peers like NIO, which reported 25.6% year-over-year delivery growth compared to Li Auto’s 2.3% [1]. Li Auto’s recent launch of the Li i8, a battery-electric family SUV, could reinvigorate demand, but its success depends on execution and market acceptance [2].

Long-term investors must weigh these factors against structural headwinds. The end of Chinese EV subsidies and the influx of new competitors have compressed profit margins, forcing Li Auto to rely on cost-cutting and innovation to sustain growth [3]. While the company’s forward price-to-sales ratio appears attractive, its valuation premium over NIO raises questions about whether the market is overestimating its hybrid strategy’s viability [3].

In conclusion, Li Auto’s Q2 performance and Q3 guidance present a cautionary tale for investors. The company’s ability to navigate revenue declines and margin pressures will depend on its capacity to differentiate its offerings in a saturated market. For now, the stock’s undervaluation offers a potential upside, but the risks of execution failures and competitive erosion cannot be ignored.

Source:
[1] Li Auto Inc. Announces Unaudited Second Quarter 2025 Financial Results [https://ir.lixiang.com/news-releases/news-release-details/li-auto-inc-announces-unaudited-second-quarter-2025-financial]
[2] Li Auto Stock Declines Over 4% in Pre-Market Trading..., [https://www.benzinga.com/markets/tech/25/08/47378466/li-auto-stock-declines-over-4-in-pre-market-trading-ahead-of-q2-earnings]
[3] NIO or LI: Which Chinese EV Stock Looks Better Placed..., [https://www.theglobeandmail.com/investing/markets/stocks/LI/pressreleases/34394300/nio-or-li-which-chinese-ev-stock-looks-better-placed-pre-q2-earnings/]