Li Auto, Inc. (LI, BUY) :Maintain BUY but Decrease PT to $28

Capital_Insights
2025-09-02

$Alibaba(BABA)$ - Solid 2Q Results with MEGA Strength and i8 Ramp; i6 Launch to Drive 4Q Recovery; Maintain BUY but Decrease PT to $28—Tiger Research.

 We are maintaining our BUY rating but decreasing price target to $28 (was $33). Li Auto’s second quarter 2025 results came in largely in line with expectations, as the company had already lowered its 2Q delivery guidance earlier in the quarter. Deliveries reached 111,074 units, representing a modest 2% increase year over year and a 20% rebound from the prior quarter. Total revenues came in at RMB 30.2 billion, down 4.5% year over year but up 16.7% sequentially. Vehicle sales contributed RMB 28.9 billion, down 4.7% from a year ago, reflecting a lower average selling price due to product mix changes and higher incentives, but still up 17% quarter on quarter as volumes recovered.

Profitability remained resilient. Gross profit was RMB 6.1 billion, slightly down 1.8% from last year but 14% higher than the prior quarter. Gross margin stood at 20.1%, essentially stable compared with 20.5% in 1Q25 and up slightly from 19.5% in 2Q24. Vehicle margin was 19.4%, broadly consistent with prior quarters. Operating margin improved to 2.7%, compared with just 1.0% in 1Q25, reflecting cost discipline and operating leverage. Net income was RMB 1.1 billion, nearly unchanged year over year but up 70% sequentially.

Management’s outlook for 3Q25, however, was soft. The company guided deliveries to 90,000 to 95,000 units, implying a 38–41% year-over-year decline. Revenue is expected to fall to RMB 24.8–26.2 billion, down nearly 40% from last year. Despite lower volumes and some margin drag from the ramp of the new Li i8, management indicated that vehicle gross margin should remain relatively stable at around 19%, supported by strong sales of Li MEGA (LI’s highest margin model), which is expected to reach 3,000 monthly deliveries.

On the product side, Li MEGA continues to perform strongly and has become the top-selling MPV above RMB 500,000 since May, helping to stabilize mix and profitability. The newly launched Li i8, a six-seat BEV SUV introduced in late July with deliveries starting on August 20, is ramping gradually. Management targets cumulative deliveries of 8,000 to 10,000 units by the end of September. While its gross margin will be slightly below the L8, early customer response has been highly positive. The upcoming Li i6, a five-seat BEV SUV scheduled for launch and deliveries at the end of September, is expected to broaden the lineup and support a recovery in sales volumes in the fourth quarter.

Management acknowledged that competition in China’s BEV market remains intense, with peers launching aggressive new models, contributing to the weaker 3Q guidance. However, Li Auto continues to invest heavily in technology and infrastructure. Its supercharging network now exceeds 3,100 stations with over 17,000 stalls, on track to reach 4,000 stations by year end. The company has also rolled out its proprietary VLA Driver large model and MindGPT agent, enhancing advanced driving assistance and in-car services.

Overall, 2Q25 results were solid with margins holding up well, demonstrating Li Auto’s ability to manage profitability in a challenging environment. Looking ahead, MEGA’s strong momentum and the ramp-up of i8 provide meaningful support, while the upcoming i6 launch in 4Q is set to further broaden the lineup and drive volume recovery. Although competition remains intense, Li Auto’s expanding product portfolio and technology leadership position the company well to capture renewed growth as deliveries accelerate in the fourth quarter and beyond.

Estimate revisions. Decreasing 3Q revenue estimate by 27%, and non-GAAP net income estimate by 49%. Decreasing 2025 revenue estimate by 19%, and non-GAAP net income estimate increased by 38%.

Valuation: Our $28 price target (was $33) is based on 0.8x '26E sales, meaningfully lower than TSLA's current level of 10.8x despite similar revenue growth rate, which is primarily because:

1) LI, as a younger company compared with Tesla, faces more uncertainties; 2) LI is launching BEV models, but there is no guarantee these models will be as successful as its EREV models; and 3) a valuation discount assigned to US-listed Chinese companies due to the tension between the US and China.

Risks: 1) Competition risk: The NEV market is highly competitive with larger-cap players such as Tesla and traditional OEMs, LI might not be able to compete effectively; 2) EREV risk: LI's BEV models will not be available until 2023, if the transition to pure BEV is faster than expected, EREV might lose its appeal to consumers; 3) Foreign company risk: US has passed the Holding Foreign Companies Accountable Act, which requires more disclosures by Chinese companies listed in the US and might impact their listing status; 4) Data security risk: as a Chinese company, LI might face more data security scrutiny when entering overseas markets; 5) VIE risk: China might also tighten the use of a VIE (Variable Interest Entity), a corporate structure most Chinese tech companies use to attract foreign capital and list overseas; 6) Supply chain risk; and 7) AD risk: Car accidents caused by autonomous driving could significantly impact the legislation.

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  • Enid Bertha
    ·2025-09-15
    its going to overtake nvidia and amazon combined. a tech company with retail presence. $500 is even less

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  • Mortimer Arthur
    ·2025-09-15
    An AI stock with a PE at 17. Not too late to jump on the train.

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  • zookie
    ·2025-09-02
    Interesting insights
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