Li Auto entered the second half of 2026 with a problem that goes beyond selling fewer vehicles. The Chinese automaker’s second-quarter vehicle margin fell to 9.4%, less than half the 19.4% recorded a year earlier, while deliveries declined 11.5% to 98,330 vehicles. Revenue also contracted, and the company remained in the red for a second consecutive quarter.
Yet the numbers contain an important qualification. Profitability improved materially from the difficult first quarter, new models are arriving, and Li Auto still has substantial cash resources. That leaves the company at an uncomfortable midpoint: its financial performance has stabilized from the early-2026 trough, but recovering the margins that once distinguished it from many Chinese EV competitors will require more than simply putting additional vehicles on the road.
The Margin Drop Is the Number Investors Cannot Ignore
Li Auto generated a vehicle margin of 9.4% during the second quarter, compared with 19.4% during the same period of 2025. In percentage terms, that means the amount of vehicle-sales revenue left after the direct cost of producing those vehicles has effectively been cut by more than half. Overall gross margin followed the same pattern, dropping to 11.0% from 20.1%. Gross profit consequently fell 53.3% year over year to RMB2.84 billion, even though revenue declined by a much smaller 15.1%.
The deterioration shows why margins can reveal more about an automaker than delivery growth alone. Selling almost 100,000 vehicles in three months still represents considerable scale, but thin per-vehicle economics leave less money available to absorb research, marketing, retail and administrative costs. There was one encouraging comparison: vehicle margin improved from only 6.1% in the first quarter, while gross margin recovered from 7.9%. Li Auto therefore appears to have moved away from its early-year low point without restoring anything close to its profitability a year ago.
Fewer Deliveries Were Only Part of the Revenue Problem
Li Auto delivered 98,330 vehicles between April and June, down from 111,074 in the second quarter of 2025. The 11.5% annual contraction reversed the modest year-over-year growth recorded during the first quarter. Sequentially, however, deliveries increased 3.4% from 95,142 vehicles. That mixed performance helps explain why the quarter looks considerably better beside early 2026 than it does beside the company’s position one year earlier.
Vehicle-sales revenue fell even faster than deliveries, declining 16.7% to RMB24.1 billion from RMB28.9 billion. Li Auto said the year-over-year decline reflected both lower deliveries and a lower average selling price resulting from changes in product mix. That distinction matters. A manufacturer can sometimes compensate for weaker unit volumes by selling more expensive versions, but a shift toward lower-priced vehicles compounds the financial effect of falling deliveries. Total revenue consequently slipped 15.1% to RMB25.67 billion, although it increased 11.7% compared with the first quarter.
A Profitable Quarter Last Year Has Become a RMB1.7 Billion Loss
The weaker vehicle economics flowed directly into Li Auto’s bottom line. The company reported a second-quarter net loss of RMB1.71 billion, or roughly US$251 million using the exchange rate supplied with its results. One year earlier, Li Auto had earned RMB1.10 billion. Operating performance moved even more dramatically, from RMB827 million in operating income to an operating loss of RMB2.30 billion. Its operating margin went from positive 2.7% to negative 9.0%.
There is nevertheless evidence that the financial damage is becoming less severe. Li Auto lost RMB2.28 billion during the first quarter, meaning the Q2 net loss narrowed about 25% sequentially. Its operating margin improved from negative 13.0%, while gross profit jumped 56.9% from Q1. That combination suggests the company is beginning to get more economic value from its refreshed lineup. The challenge is that an improvement from a particularly weak quarter is different from a return to sustainable profitability, especially when the year-over-year comparison remains so stark.
Cost Control Cannot Fully Offset Weaker Vehicle Economics
Li Auto has not simply allowed expenses to expand unchecked. Operating expenses totaled RMB5.14 billion during the quarter, down 2.0% from a year earlier. Research and development spending remained relatively stable at approximately RMB2.78 billion, while selling, general and administrative expenses fell 16.2% year over year to RMB2.28 billion. Lower employee compensation was one factor behind the decline in SG&A costs.
Sequentially, however, selling and administrative expenses rose 11.2% as the company spent more on marketing and promotional activities. That is understandable during a major product-refresh cycle, but it illustrates the balancing act facing management. Li Auto needs to make new vehicles visible in an intensely competitive market while simultaneously improving efficiency. Cutting development spending too deeply could undermine future technology and products; excessive promotions could pressure profitability further. With only RMB2.84 billion of quarterly gross profit against more than RMB5 billion of operating expenses, restoring the economics of the underlying vehicle business remains more important than relying exclusively on overhead reductions.
Li Auto Is Betting on a Rapidly Refreshed Product Lineup
Management has responded with one of the company’s most extensive product refreshes. The all-new Li L8 began deliveries in June, with its Ultra and higher-end Livis variants priced at RMB369,800 and RMB429,800 respectively. The new Li L6 followed in July at RMB249,800. Li Auto has also been refreshing its battery-electric lineup, while management expects newer models and a greater contribution from higher-priced Livis variants to improve product mix during the second half.
The strategy is intended to address precisely the problem visible in the financial statements. Higher-value configurations can help lift average selling prices and margins without requiring proportionally larger delivery volumes. Li Auto said the new L9 helped gross margin improve sequentially during Q2, while the company reported strong initial orders for the refreshed L6. July deliveries reached 30,468 vehicles, showing that monthly volumes were holding around the levels seen late in the second quarter. Investors will now be watching whether refreshed products merely stabilize demand or generate enough higher-margin sales to rebuild profitability.
Batteries, Chips and Charging Are Becoming Part of the Margin Strategy
Li Auto is also investing deeper into technologies that were once largely supplied by outside companies. Management said shipments of vehicles using its proprietary MACH M100 computing chip had exceeded 50,000 units by the August earnings call. The chip is being deployed across refreshed models to support the company’s assisted-driving system, while Li Auto is introducing its own batteries across more of its range. Management has described batteries and computing chips as strategic technologies it wants greater control over.
That technological push sits alongside a large charging network. Li Auto operated 4,097 supercharging stations containing 22,593 charging stalls in China at the end of June. By the end of July, those figures had risen to 4,141 stations and 22,841 stalls. Building proprietary technology and charging infrastructure requires capital, but management’s longer-term objective is greater control over vehicle performance, supply chains and costs. The difficult part is timing: those investments have to continue while current vehicle margins are substantially below their year-earlier level.
The Balance Sheet Gives Li Auto Time to Work Through the Slump
Despite two consecutive quarterly losses, Li Auto is not approaching the turnaround without financial resources. The company reported a cash position of RMB87.5 billion, or about US$12.9 billion, at June 30. Operating cash flow also returned slightly to positive territory during the second quarter, producing RMB15 million compared with an outflow of RMB6.09 billion during the first quarter.
Free cash flow remained negative at RMB1.30 billion, but that represented a significant improvement from the RMB7.39 billion consumed during Q1. Li Auto has simultaneously continued repurchasing shares. By the date of its earnings release, the company said it had spent approximately US$631.5 million under a US$1 billion repurchase authorization announced in March. That financial cushion provides management with room to fund product development and charging infrastructure while waiting for margins to recover. It does not remove the economic problem, however: sustained cash generation ultimately requires the vehicle business to produce considerably healthier returns than it did in the second quarter.
Third-Quarter Guidance Shows the Recovery Will Not Be Instant
Li Auto expects to deliver between 95,000 and 100,000 vehicles during the third quarter. That would represent year-over-year growth of 1.9% to 7.3%, potentially ending the contraction seen in Q2. Yet the range is essentially centred around the 98,330 vehicles delivered during the second quarter, suggesting management is not forecasting an immediate volume surge. Revenue is expected to land between RMB26.6 billion and RMB28.0 billion, ranging from a 2.8% year-over-year decline to growth of 2.3%.
Management is more optimistic about profitability. Chief Financial Officer Tie Li said the company expects further margin expansion during the second half as the sales mix improves and refreshed battery-electric models arrive. That makes the next several months a test of whether Li Auto’s product cycle can reverse its financial trajectory. Deliveries matter, but the 2026 experience has demonstrated that volume without sufficient margin cannot recreate the economics the company enjoyed a year earlier. The real recovery will be visible when both measures begin improving together.
