Authored by Qiaofu

People, Vehicles, and the Competitive Landscape

Jointly Observing the Ascent of China's Automotive Sector

From Profit to Loss: Is Li Auto at a Crossroads?

Does Li Auto's predicament signal the precariousness of profitability among emerging automotive players?

For the broader Chinese electric vehicle (EV) industry, attaining overall profitability is pivotal for sustained growth.

01

From Profit to Loss and Back: Has Li Auto Reached a Turning Point?

Recently, Li Auto unveiled its third-quarter (Q3) performance, with three key aspects demanding attention.

Firstly: A Decline in Deliveries. Li Auto delivered a total of 93,211 vehicles in Q3, marking a year-on-year decrease of 39.0%.

Secondly: A Drop in Revenue. The decline in deliveries subsequently led to a reduction in revenue.

The total revenue for Q3 stood at RMB 27.4 billion, a decrease of 36.2% compared to RMB 42.9 billion in Q3 2024, and a 9.5% decrease from RMB 30.2 billion in Q2 2025.

Thirdly: A Shift from Profit to Loss.

According to online reports, the primary factor contributing to Li Auto's transition from profit to loss was the recall of its flagship model, MEGA, which incurred costs of up to RMB 1.1 billion.

From a financial standpoint, whether Li Auto's Q3 shift from profit to loss signifies a turning point remains open to interpretation.

The critical question is whether Li Auto can reverse its fortunes and return to profitability in Q4.

This is crucial because Li Auto epitomizes the new forces in automotive manufacturing, and its trajectory can be viewed as a microcosm of the EV industry's evolution.

02

The Precariousness of Profitability Among Emerging Players

Li Auto's transition from profit to loss raises pertinent questions about the fragility of profitability among new EV entrants and even the entire EV sector, warranting careful consideration.

As previously mentioned, Li Auto's loss may be attributed to a one-time provision exceeding RMB 1.1 billion for recall costs. However, establishing a direct cause-and-effect relationship necessitates further analysis.

Nevertheless, even excluding this recall incident, the decline in Li Auto's profits is undeniable. Both in absolute and relative terms, Li Auto's profits exhibited a downward trend in Q3.

In the first three quarters, Li Auto's profits...

Observing Li Auto's shift from profit to loss, one cannot help but wonder about the thoughts of William Li. NIO is currently striving relentlessly to achieve profitability. If Li Auto ultimately demonstrates the fragility of the EV profit model, how significant is it to pursue a one-time, unsustainable profit?

In reality, setting aside Li Auto and NIO and focusing on the overall profitability of the EV industry, one discovers that the overall profitability of China's EV sector is relatively weak at this stage, with many companies even incurring losses.

If categorized by model, the situation is even more dire. Apart from most new automotive entrants, many traditional fuel vehicle manufacturers also have loss-making new energy sectors. However, the loss-making situation of EVs is often obscured because financial reports do not segment (the term 'segment' is used here to convey the financial context of breaking down or categorizing data) new energy models.

Addressing the overall profitability issue of the new energy industry is not to discourage the EV sector but to ensure its long-term viability. After all, sustained losses are unsustainable in the long run.

Regulators need to assess whether Li Auto's profitability path is representative of the entire industry.

03

Where Lies the Value Boundary of EVs?

Nowadays, Chinese EVs are recognized as the most affordable in the global EV market, a consensus likely held by many.

This situation has largely arisen due to various car manufacturers initiating 'price wars' to capture market share.

Price wars not only impact fellow EV manufacturers but also traditional fuel vehicle 'competitors'.

No car manufacturer can evade the repercussions of the price war tsunami.

Determining the proportion of cost reductions resulting from industrial chain development is challenging.

Of course, there are discernible patterns in the evolution of industries. The current stage of Chinese EVs may be characterized by chaotic and wild growth. However, EVs must eventually return to a value-based approach.

Only by adhering to a value-based strategy can they achieve sustained growth and progress.