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Li Auto Inc. (LI) – Equity Research Summary

Citi Global Markets downgrades Li Auto to HOLD, citing anticipated challenges in catalysts, sales volume, and gross profit margin (GPM). Management expects GPM to drop to 16-17% in 4Q25 and even lower in 1Q26. 3Q25 earnings show revenue slightly above forecast but GPM narrowed due to RMB1.1bn recall costs, leading to a net loss of RMB625mn in the past 12 quarters. Profit recovery is expected post-1Q26, with valuation cuts due to persistent margin pressures; target price reduced to US$18 (from US$28), now reflecting 40x P/E for FY26E. Key risks include sales/GPM deviations and sector volatility.

Key Highlights:

• Downgrade Reason: No immediate catalysts; sales and GPM headwinds expected in 4Q25 and 1Q26.
• Earnings: 3Q25 revenue modestly higher than prior estimates, but GPM dragged down by recall costs; net loss persisted.
• Future Outlook: Margin challenges likely to continue, potentially affecting valuation significantly.
• Valuation: Target price cut; current P/E ratios remain elevated.
• Risks: Unmet sales/GPM expectations, or sector downturn could worsen the outlook.