Li Auto recently disclosed its second-quarter financial outcomes for 2025, revealing a notable downturn in both revenue and its forward-looking projections. The electric vehicle manufacturer's stock experienced a dip following the announcement, which underscored the intensifying difficulties within the automotive sector. While the company saw a modest uptick in vehicle deliveries and an improvement in profit margins, these positive aspects were overshadowed by a significant year-over-year decrease in earnings and sales. The upcoming quarter's forecasts signal a continued contraction, highlighting the volatile landscape the industry is currently navigating. Despite the financial headwinds, Li Auto's leadership remains focused on strategic product development and technological enhancements to reinforce its market standing.
Quarterly Performance and Financial Snapshot
Li Auto's second quarter of 2025 was marked by a decrease in financial performance, as revenue slipped by 4.5% compared to the previous year, settling at 30.2 billion Chinese yuan, equivalent to approximately $4.2 billion. This figure did not meet the anticipated analyst consensus of 31.8 billion Chinese yuan. Similarly, adjusted net earnings per American Depositary Share (ADS) also fell below projections, reaching 1.37 Chinese yuan ($0.19) against an expected 1.73 Chinese yuan. The decline in vehicle sales, a 4.7% reduction to $4.0 billion, was primarily influenced by a shift in product mix, increased sales incentives, and customer interest subsidies, even though the total number of vehicles delivered saw a marginal increase. Despite these revenue challenges, the company managed to improve its vehicle margin to 19.4% and its gross margin to 20.1%, indicating some success in cost management and operational efficiency. Furthermore, adjusted income from operations climbed by 37.7% year-over-year, reaching $167.3 million, and despite a 2.3% decrease in adjusted net income, the company maintained a robust cash and equivalents position of $14.9 billion as of June 30, 2025. The company's operational cash flow increased significantly, although it reported a free cash flow outflow, reflecting ongoing investments and operational demands.
The company's second-quarter results painted a challenging picture for Li Auto, with revenue and earnings per ADS missing analyst expectations. Total revenue reached $4.2 billion, a 4.5% decline from the previous year, while adjusted net earnings per ADS were $0.19, falling short of the consensus estimate. The decrease in vehicle sales to $4.0 billion was attributed to factors such as a changing product mix and increased sales promotions, which offset the slight 2.3% increase in vehicle deliveries to 111,074 units. Despite the revenue downturn, Li Auto showcased operational strengths through an increase in vehicle margin to 19.4% and a gross margin rise to 20.1%. Adjusted income from operations surged by 37.7% to $167.3 million, demonstrating effective cost control amidst a tough market. However, adjusted net income experienced a slight dip of 2.3%. The company's financial liquidity remained strong, with $14.9 billion in cash and equivalents. Operating cash flow witnessed a substantial 607.1% increase year-over-year, though a free cash flow outflow of $536.3 million was recorded. Li Auto also expanded its physical footprint, boasting 530 retail stores and 511 service centers across 151 and 222 cities, respectively, alongside an extensive network of 2,851 supercharging stations, totaling 15,655 charging stalls.
Strategic Vision and Future Projections
Looking ahead, Li Auto's leadership is implementing a forward-looking strategy aimed at reinforcing its market presence and expanding its product portfolio, even in the face of an anticipated challenging third quarter. The company's CEO, Xiang Li, highlighted the success of the Li MEGA, which has emerged as the leading MPV in its price segment since May, underscoring the brand's ability to innovate and capture specific market niches. Emphasis is also being placed on advancing Battery Electric Vehicle (BEV) technologies and artificial intelligence capabilities, with significant developments such as the launch of the Li i8 SUV and the introduction of the VLA Driver large model and Li Xiang Tong Xue Agent. These initiatives are central to Li Auto's commitment to delivering premium, family-oriented automotive experiences. The impending launch of the Li i6 in September is expected to further solidify Li Auto's competitive edge in the premium BEV market. Despite the optimistic outlook on product innovation, the financial guidance for the third quarter of 2025 reflects a cautious stance, with projected revenue between 24.8 billion and 26.2 billion Chinese yuan ($3.5 billion to $3.7 billion). This represents a substantial year-over-year decline ranging from 38.8% to 42.1%, falling significantly short of analyst expectations. Similarly, vehicle deliveries are predicted to decrease by 37.8% to 41.1%, targeting 90,000 to 95,000 units. The CFO, Tie Li, reiterated the company's focus on cost optimization and operational efficiency to navigate the dynamic market conditions and ensure financial stability during this period of adjustment.
Despite the current market challenges, Li Auto is actively pursuing a strategic vision focused on product innovation and technological leadership. CEO Xiang Li underscored the strong performance of the Li MEGA, which has established itself as the top-selling MPV above 500,000 Chinese yuan since May. The company is also making significant strides in its BEV and intelligent technology initiatives, marked by the recent introduction of the Li i8 SUV and the development of the in-house VLA Driver large model and Li Xiang Tong Xue Agent. These advancements are crucial to Li Auto's broader strategy of providing premium, family-centric mobility solutions. The upcoming launch of the Li i6 in September is anticipated to further strengthen the company's position in the competitive premium BEV segment. However, the company's financial projections for the third quarter of 2025 signal a period of significant contraction. Revenue is forecasted to be between 24.8 billion and 26.2 billion Chinese yuan ($3.5 billion to $3.7 billion), which indicates a substantial year-over-year decrease of 38.8% to 42.1%, considerably below analyst consensus. Vehicle deliveries are also expected to fall, with estimates ranging from 90,000 to 95,000 units, representing a 37.8% to 41.1% decline from the previous year. CFO Tie Li emphasized the company's dedication to cost efficiency and operational resilience to weather the evolving market landscape, ensuring the company's long-term viability amidst these anticipated headwinds.