The automotive industry's annual reports reveal a mixed picture of fortunes.
Globally, Honda Motor, the world's largest Japanese automaker, shocked the industry by forecasting its first annual loss since going public, estimated between 420 billion and 690 billion yen (approximately 11.6 to 24.7 billion yuan).
Domestically, Li Auto, a prominent Chinese electric vehicle startup, has also experienced a sudden downturn. After earning a substantial 8 billion yuan the previous year, its net profit for 2025 collapsed by 86%. Particularly stark was the fourth quarter, where net profit fell by over 99%.
What has happened to Li Auto, the first among China's new automakers to achieve annual profitability?
**01** **Earnings Drop by Nearly 6.9 Billion Yuan!** **The "Profit King" of New Automakers Sees Performance Deteriorate**
On March 13, Li Auto released its annual results. Revenue for 2025 was 112.3 billion yuan, a 22.3% decrease from 144.5 billion yuan in 2024. Net profit stood at 1.124 billion yuan, representing an 86% year-over-year decline.
While a weak performance from Li Auto last year was anticipated, the severity of the drop was unexpected.
A net profit of 1.1 billion yuan would be impressive for many automakers. However, for Li Auto, the context is different. After achieving its first annual profit of 11.7 billion yuan in 2023, it became the "Profit King" among its peers. Although profits moderated in 2024, they remained robust at 8 billion yuan.
The current figure of just over 1.1 billion yuan means the company earned nearly 6.9 billion yuan less than the previous year.
The primary driver behind Li Auto's profit collapse was a decline in sales. Historically focused on extended-range electric vehicles, the company shifted its strategy towards pure electric models last year. However, the launch of the Li i8 was met with consumer criticism, and a crash test video sparked widespread skepticism, adding to negative publicity and resulting in lackluster sales. Concurrently, its core L-series models faced intense competitive pressure from rivals like AITO, Xiaomi, and NIO, further squeezing sales volumes.
Under this dual pressure, Li Auto's deliveries fell significantly. The company delivered 406,343 vehicles in 2025, a decrease of 94,165 units, or 18.8%, compared to 500,508 vehicles in the same period last year. This achieved only 63.48% of its revised annual sales target of 640,000 units.
Consequently, Li Auto dropped from its position as the sales leader among new automakers in 2024 to fifth place. Competitors including Leapmotor, AITO, XPeng, Xiaomi, and even NIO all saw sales growth last year.
The sales slump directly impacted revenue. In 2025, Li Auto's revenue was 112.313 billion yuan, down 22.3% year-over-year, representing a decrease of 32.147 billion yuan. Vehicle sales revenue specifically fell to 106.7 billion yuan from 138.5 billion yuan in 2024, a 23.0% drop.
Profitability was severely impacted. Li Auto reported its first annual operating loss in recent years, with an operating loss of 521 million yuan compared to a profit of 7 billion yuan the previous year. The gross margin for 2025 was 18.7%, down from 20.5% in 2024.
Although the company remained marginally profitable on a net basis, operating cash flow turned negative, shifting from 15.9 billion yuan in 2024 to -8.6 billion yuan in 2025. This represents a reduction of 24.5 billion yuan in cash generation within a year, indicating a sudden weakening of its "cash-generating ability." Free cash flow also turned negative, falling to -12.8 billion yuan from 8.2 billion yuan the previous year.
Several factors contributed to this situation. Beyond the sales decline, the transition to pure electric vehicles has yet to yield full economies of scale or generate substantial cash flow, while intensified competition has compressed per-vehicle profits.
A more significant factor was the MEGA fire incident in October last year. A Li MEGA vehicle caught fire while driving in Shanghai, with flames spreading rapidly; fortunately, the occupants escaped unharmed. Within a week of the incident, Li Auto proactively recalled 11,411 units of the 2024 Li MEGA model.
The provision for this recall cost significantly impacted third-quarter net profit, leading to a net loss of 624 million yuan in Q3 and ending the company's streak of 11 consecutive profitable quarters.
This ultimately eroded cash reserves. By the end of 2025, Li Auto's cash and cash equivalents had shrunk to 56.7 billion yuan from 65.9 billion yuan, a reduction of 9.2 billion yuan.
Nevertheless, Li Auto maintains a strong balance sheet. When including term deposits and short-term investments, its total cash reserves stood at 101.2 billion yuan as of the end of 2025, significantly exceeding those of its peers.
**02** **Stock Price Nearly Halved in Less Than a Year,** **Market Value Loses Over 122 Billion HKD**
Amid sales pressure, Li Auto's stock price has been declining since last July. The current price of HK$67.9 represents a 47% drop from its peak of HK$128.1, nearly halving its value and wiping out over HK$122.8 billion in market capitalization.
It is noteworthy that Li Auto is the only major player in China's new energy vehicle market that has never conducted a share buyback. This perceived inaction in supporting the stock price has dissatisfied many investors.
However, following the sharp decline in both performance and stock price, Li Auto is now considering measures to stabilize its share value.
Reports indicate that Li Xiang, CEO of Li Auto, is currently evaluating a potential buyback of the company's Hong Kong-listed shares. The specific scale and total amount of such a repurchase are still under discussion.
**03** **Li Xiang Takes Direct Control Again** **Eight Senior Executives Depart in Six Months**
Concurrent with the sales downturn, significant internal changes have occurred at Li Auto.
In November 2025, Li Xiang announced that the company was returning to a "startup mode," essentially meaning the CEO would take direct, hands-on control of operations.
This period also saw a major management shake-up. Since August 2025, at least eight core executives have departed, including former Head of the Second Product Line Zhang Xiao, former Head of Base Models Chen Wei, former Head of Intelligent Driving Lang Xianpeng, and former Head of SOC Qin Dong. These departures spanned key technical departments such as intelligent driving, product development, chips, and supply chain.
Many were veterans of the company. For instance, Lang Xianpeng was one of the earliest architects of Li Auto's autonomous driving system, responsible for building its complete technical framework. With his departure, all four founding members of the intelligent driving team have now left the company.
Lang's exit recalls a previous incident. During a 2024 company event, he revealed that Li Xiang had told him, "If I don't see changes in the second half of the year, and if (intelligent driving) doesn't reach a leading position, then you don't need to continue as the head." He added, somewhat jokingly, that Li Xiang essentially told him "you're fired" every week.
Lang described this management style as "tightening screws"—applying pressure when needed and replacing parts when not. While this high-pressure environment may have driven efficiency, the current sales slump has intensified this pressure on executives, exacerbating internal friction.
Faced with declining performance, a plunging stock price, and an executive exodus, Li Auto is attempting to pivot by telling a new story.
With domestic sales faltering, the company is exploring overseas markets, having entered Egypt, Kazakhstan, and Azerbaijan in December last year. Beyond vehicle sales, Li Auto also launched the Livis AI glasses last year, aiming to build a narrative around artificial intelligence.
This focus on AI is set to intensify. During the recent earnings call, CEO Li Xiang stated that 2026 will be a crucial year for Li Auto's evolution into an "embodied intelligence" company.
He announced that Li Auto will significantly increase its R&D investment in AI for 2026. The financial report shows that the company's total R&D expenditure reached 11.3 billion yuan in 2025, with AI-related investments accounting for 50% of that amount.
This direction is not entirely surprising. As early as January 2026, Li Xiang publicly stated, "2026 is the final window for Li Auto to become a leading AI company," revealing the urgency behind this transformation.
However, with every company touting an AI story, the success of Li Auto's strategy and whether "embodied intelligence" can become its lifeline remain to be seen.
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