Li Auto's Strategic Turnaround: Can Product and Organizational Overhaul Reverse the Sales Decline?

In the fiercely competitive Chinese EV market, Li Auto Inc. has faced a stark reckoning in 2025. With third-quarter 2025 deliveries plummeting 39% year-over-year to 93,211 units, the company's once-dominant position in the premium SUV segment has eroded under pressure from rivals like Xiaomi, Nio, and BYD. Yet, Li Auto's leadership-under CEO Li Xiang-has embarked on an aggressive dual-pronged strategy: a sixth major organizational restructuring and a rapid acceleration of product innovation. The question for investors is whether these moves can reverse the sales decline and reposition the company for long-term relevance.

Centralizing Power: A High-Risk, High-Reward Restructuring

Li Auto's latest organizational overhaul, announced in late 2024, consolidates key departments-including Brand, Strategy, Product, and HR-under the direct control of CEO Li Xiang. This move, described as a "centralized command structure" by industry analysts, reflects a departure from the Huawei-inspired management systems previously championed by departed executives like former HR head Yuan Chunfeng. While such centralization could streamline decision-making and reduce internal friction, it also risks stifling innovation by concentrating authority in a single leader.

The restructuring has already led to the departure of several high-profile executives, including former CFO Office head Li Wenzhi. These changes signal a prioritization of operational efficiency over bureaucratic complexity, but they also raise concerns about talent retention in a sector where skilled engineers and marketers are in high demand. For now, the strategy appears to align with Li Auto's broader goal of reducing costs and accelerating execution-a critical need in a market where rivals like Xiaomi are outpacing them in both pricing and technological innovation.

Product Overhaul: From Four-Year Cycles to Two-Can Speed Save Li Auto?

Parallel to its organizational shifts, Li Auto has drastically shortened its product development cycle from four to two years. This pivot was necessitated by weak demand for its existing models and the rapid evolution of EV technology. In September 2025, the company launched the Li i6, a battery-electric SUV featuring a shark-inspired design and advanced AI capabilities such as the VLA Driver large model and Li Xiang Tong Xue Agent. While these innovations are impressive, the i6 has struggled to gain traction against competitors like the Xiaomi YU7 and Nio ES8, which offer comparable features at lower price points.

The company's pivot to a two-year cycle is a double-edged sword. On one hand, it enables Li Auto to respond more swiftly to market trends and competitor moves. On the other, it increases R&D costs and operational complexity, particularly as the company expands into new markets. For example, Li Auto's recent foray into Uzbekistan and plans for R&D centers in Germany and the U.S. suggest a long-term global ambition, but these efforts may divert resources from core domestic operations.

Competitive Landscape: A Market Defined by Price and Technology

Li Auto's struggles are emblematic of a broader industry shift. In 2025, the Chinese EV market has moved beyond price competition to a battle over technological differentiation. Xiaomi, for instance, has leveraged its SU7 model to capture 2.3% of the global BEV market, with delivery backlogs stretching up to 60 weeks. Nio, meanwhile, has capitalized on its strengths in intelligent driving systems and premium brand positioning. BYD, despite a slight dip in Q4 2025, remains the market leader with a 34% share of China's BEV segment.

Li Auto's niche in the PHEV segment-where its L6 model holds 2.5% market share-has provided some stability, but this segment is shrinking as BEVs gain dominance. The company's recent focus on AI-driven features and extended-range models priced between RMB 300,000 and RMB 400,000 is a bid to retain its premium customer base. However, with rivals like Nio and Xiaomi offering similar technology at lower prices, Li Auto's ability to justify its premium pricing remains in question.

Financial Realities and Investor Concerns

Financial data underscores the urgency of Li Auto's turnaround. In Q3 2025, the company generated RMB25.9 billion in vehicle sales, a 37.4% decline from Q3 2024. Its vehicle margin of 15.5%, while healthy, is unlikely to offset the revenue shortfall, without a significant sales rebound. Compounding these challenges, industry-wide headwinds-including the phasing out of purchase tax exemptions and trade-in incentives are expected to weaken demand and profitability in Q4 2025 and early 2026.

Investors are also wary of Li Auto's revised delivery guidance for Q4 2025, which fell short of its own projections. The company now anticipates 100,000–110,000 deliveries for the quarter, down from an initial target of 160,000–170,000. This gap highlights the gap between strategic ambition and execution-a recurring theme in Li Auto's recent history.

Conclusion: A Race Against Time

Li Auto's strategic overhaul-centered on centralized leadership, accelerated product cycles, and global expansion-demonstrates a clear recognition of its challenges. However, the company's ability to reverse its sales decline hinges on two critical factors: execution speed and technological differentiation. While its restructuring may improve internal efficiency, it cannot alone offset the market's shift toward BEVs and AI-driven features.

For now, the jury is out. Li Auto's aggressive product roadmap and overseas ambitions suggest a long-term vision, but the immediate outlook remains clouded by weak demand and fierce competition. Investors must weigh the potential for a turnaround against the risks of overreliance on a single leader and the high costs of rapid innovation. In a market where Xiaomi and Nio are setting the pace, Li Auto's success will depend on whether its strategic bets can translate into tangible results before 2026.