Li Auto, once hailed as the most profitable contender among emerging electric vehicle makers, saw that reputation significantly tarnished by its 2025 financial results. On March 12, the company released its annual report, revealing a net profit of just over 1.1 billion yuan, a sharp decrease of nearly 86% compared to the previous year. Revenue also contracted by 22% to 112.3 billion yuan. Particularly in the fourth quarter, a period when many automakers experienced sales growth, Li Auto reported substantial declines in both operating profit and net profit, indicating the company is facing an unprecedented slowdown in performance.
The downturn can be traced back to the third quarter of 2025, when a one-time loss exceeding 1.1 billion yuan related to the MEGA recall contributed to an operating loss of 1.17 billion yuan. The fourth-quarter results confirm that the company has returned to an operational loss in its main business.
Some media outlets have described the annual report as a "disaster," attributing the 85.8% plunge in net profit to a combination of factors: a collapse in sales of its main models, losses from a price war, a surge in market complaints, and persistent negative events. Each of these issues struck at the core of the company's performance, resulting in its worst financial showing since going public.
The most direct causes of Li Auto's performance decline are a slowdown in sales volume and a deterioration in its product mix. While competitors like AITO and Leapmotor have been aggressively advancing with their extended-range models, the pure electric vehicle segment has been rapidly capturing market share. The extended-range technology that was once Li Auto's key advantage now appears to be losing its effectiveness.
In terms of core delivery figures, Li Auto delivered 406,300 vehicles throughout 2025, an 18.8% year-over-year decrease. This figure not only fell short of the initial annual target of 700,000 vehicles but also achieved only about 60% of the revised goal of 640,000 units. The company, which once led its peers in both profitability and sales volume, has now been overtaken by competitors such as XPeng and NIO.
The year 2025 was supposed to be pivotal for Li Auto's strategic transition from relying solely on extended-range technology to a dual-strategy incorporating both extended-range and pure electric vehicles. However, its entry into the pure electric market got off to a poor start. Both the MEGA and subsequent pure electric models received a tepid market response. Some models that were initially highly anticipated faced delivery delays due to negative publicity and battery issues, causing them to miss the optimal window for sales growth. In the fiercely competitive pure electric segment, Li Auto has struggled to maintain the high pricing power it enjoyed during the extended-range era.
Currently, the pure electric models are not filling the gap but are instead dragging down the company's performance. While many automakers, including XPeng, are actively pursuing new technological pathways, a strategic misstep of this magnitude is relatively rare.
This has triggered a chain reaction. Despite regulatory efforts to curb intense price competition, Li Auto increased consumer incentives in response to competitive pressure from rivals like AITO and IM Motors. This has led to a continuous decline in the average selling price per vehicle, further squeezing the company's already pressured gross margin. The financial report shows that Li Auto's gross margin fell by approximately two percentage points in 2025, a stark contrast to the upward trend in NIO's gross margin during the same period.
The simultaneous decline in both sales volume and average price has directly impacted the company's operational quality. With the benefits from its extended-range strategy fading, its pure electric transition faltering, and internal organizational instability, Li Auto is navigating increasingly challenging conditions.
Confronted with these operational pressures, Li Auto is seeking a turnaround. Having previously relied on extended-range technology, the company is now attempting to break into the pure electric market while also betting heavily on AI for future growth. However, given its recent performance setbacks, it remains uncertain whether this strategic shift can succeed in the highly competitive automotive market. Some long-time industry observers suggest that before the company can see a new dawn, its immediate priority must be to ensure it survives the current downturn without sustaining excessive damage.
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