Li Auto's Strategic Turnaround: Can the Li i6 Revive Growth in a Competitive BEV Market?

The Chinese electric vehicle (EV) market, once a haven for rapid growth, has become a battleground of razor-thin margins and aggressive price wars. Li Auto, a once-rising star in the new energy vehicle (NEV) sector, now faces a stark reality: declining revenue despite modest delivery growth, a faltering product lineup, and a Q3 2025 delivery forecast that signals a 40% year-on-year drop [1]. The company’s recent launch of the Li i6, a battery electric SUV priced between RMB250,000 and RMB300,000, has been framed as a strategic lifeline. But can this vehicle truly reverse Li Auto’s fortunes in a market dominated by BYD, Tesla, and Xiaomi’s disruptive YU7?

A Revenue Crisis Amid Delivery Gains

Li Auto’s Q2 2025 results highlight a critical misalignment between volume and profitability. While deliveries rose 2.3% year-on-year to 111,074 units, revenue fell 4.5% to RMB30.2 billion, missing expectations [1]. The culprit? A 19.4% vehicle margin, eroded by interest subsidies, sales incentives, and the underperformance of its L-series extended-range electric vehicles (EREVs), which saw some models decline by 53% year-on-year [6]. The Li i8, its first BEV, further compounded the problem: after a lukewarm reception and 6,000 initial orders, the company slashed prices and simplified its trim options [4].

This revenue shortfall underscores a broader challenge: Li Auto’s reliance on hybrid models is no longer sufficient to sustain growth. The company’s Q3 guidance of 90,000–95,000 units—a 37.8%–41.1% decline—reflects the urgency of its transition to full electrification [5]. The Li i6, with its 3-meter wheelbase and five-seat configuration, is positioned to fill this gap. Priced to compete with the Mercedes-Benz GLC and BMW X3, it aims to capture premium buyers while leveraging Li Auto’s 3,190 supercharging stations and 543 retail stores [3].

Strategic Ambitions and Execution Risks

Li Auto’s CEO, Li Xiang, has framed the i6 as a “highly competitive product” with unique design and performance [3]. The vehicle’s 800V architecture, 5C battery, and 0–100 km/h acceleration in under 4 seconds are impressive, but these features alone may not be enough. The i6 faces a crowded field: Xiaomi’s YU7, with 200,000 pre-orders, and Tesla’s Model 3, both offer compelling value propositions. Moreover, Li Auto’s Q3 revenue forecast of RMB24.8–26.2 billion—a 38.8%–42.1% decline—suggests that even a successful i6 launch may struggle to offset broader market saturation [4].

The company’s infrastructure investments, however, remain a differentiator. By August 2025, Li Auto operated 3,190 supercharging stations and 536 servicing centers, creating a network that rivals BYD’s [5]. This ecosystem could enhance customer retention, particularly if the i6’s OTA 8.0 software updates (including the VLA Driver model) improve user experience [1]. Yet, as Barclays analysts noted, execution risks persist: “The i6’s success hinges on Li Auto’s ability to differentiate itself in a market where price and innovation are paramount” [4].

Financial Resilience and Investor Sentiment

Despite its challenges, Li Auto retains financial flexibility. The company ended Q2 with RMB110.7 billion in cash reserves and a 19.8% vehicle margin in Q1 2025 [1]. These metrics suggest it can sustain its RMB6 billion investment in AI and technology development [5]. However, cost-cutting measures—such as an 8.2% year-on-year reduction in operating expenses—may compromise long-term innovation [2].

Investor sentiment is mixed. While some analysts praise Li Auto’s “strategic resilience” and infrastructure expansion [5], others warn of a “strategic crossroads” [6]. The recent price target cut by Barclays to $24 reflects skepticism about the i6’s ability to restore growth [4]. For the stock to recover, Li Auto must demonstrate that the i6 can stabilize deliveries at 18,000–20,000 units monthly by year-end [5], a target that hinges on aggressive marketing and pricing discipline.

Conclusion: A High-Stakes Gamble

Li Auto’s transition to BEVs is a necessary but perilous endeavor. The Li i6 represents a calculated bet: leveraging premium positioning, infrastructure, and software innovation to compete in a market where margins are collapsing. Yet, with BYD dominating the mid-range segment and Xiaomi’s YU7 capturing mass-market attention, the i6’s success is far from guaranteed.

For investors, the key question is whether Li Auto can execute its strategy without sacrificing profitability. The company’s Q3 guidance and September delivery figures will be critical indicators. If the i6 fails to gain traction, Li Auto may face a prolonged period of stagnation. But if it succeeds, the company could reestablish itself as a formidable player in China’s EV revolution.

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's Strategic Transition to BEVs and Its Impact on Long-Term Growth Potential [https://www.ainvest.com/news/li-auto-strategic-transition-bevs-impact-long-term-growth-potential-2508/]
[3] Li Auto i6 to Launch and Begin Deliveries in September, Li ... [https://www.itiger.com/news/1121315656]
[4] Li Auto (LI) Price Target Reduced by Barclays Analyst [https://www.gurufocus.com/news/3085581/li-auto-li-price-target-reduced-by-barclays-analyst]
[5] Li Auto Inc. August 2025 Delivery Update [https://ir.lixiang.com/news-releases/news-release-details/li-auto-inc-august-2025-delivery-update]
[6] Li Auto's Q2 2025 Earnings: A Tale of Misaligned Expectations and Strategic Crossroads [https://www.ainvest.com/news/li-auto-q2-2025-earnings-tale-misaligned-expectations-strategic-crossroads-2508/]