Li Auto (LI) Improved Vehicle Margin to 9.4% but It Remains Half Last Year’s. Can the Model Refresh Restore Profitability?

Li Auto Inc. (NASDAQ: LI ) reported a second consecutive quarterly loss as intense competition in China's electric vehicle market continued to pressure volumes and profitability. Second-quarter revenue declined 15.1% year over year to RMB25.7 billion, while deliveries fell 11.5% to 98,330 vehicles.

Li Auto Inc. (NASDAQ:LI) recorded a net loss of RMB1.7 billion, reversing a RMB1.1 billion profit a year earlier. However, vehicle margin recovered to 9.4% from 6.1% in the first quarter. The central question is whether that sequential improvement represents the beginning of a sustainable recovery or merely a partial rebound from an unusually weak quarter.

The strongest argument for Li Auto Inc. (NASDAQ:LI) is that several important financial measures improved sequentially. Vehicle sales increased 11.8% from the first quarter, supported by higher deliveries and a more favorable product mix. Gross margin rose to 11.0% from 7.9%, while the operating loss narrowed to RMB2.3 billion from RMB3.0 billion.

The refreshed lineup could extend that recovery. Li Auto Inc. (NASDAQ:LI) began delivering the all-new Li L8 in June and the new Li L6 in July. The L6 targets the RMB200,000-to-RMB300,000 SUV market, while the more expensive L8 could support average selling prices and margins if demand holds.

In the August 26 earnings release, CEO Xiang Li said the new L6 had generated "robust order flow." CFO Tie Li also forecast further margin expansion during the second half as the product mix improves.

Third-quarter guidance from Li Auto Inc. (NASDAQ:LI) calls for 95,000 to 100,000 deliveries, representing year-over-year growth of 1.9% to 7.3%. Li Auto Inc. (NASDAQ:LI) expects revenue of RMB26.6 billion to RMB28.0 billion, implying a year-over-year change ranging from a 2.8% decline to 2.3% growth.

The balance sheet also provides time for the product strategy to develop. Li Auto Inc. (NASDAQ:LI) held RMB87.5 billion in cash and related liquid investments at the end of June. Company-defined non-GAAP free cash flow, calculated as operating cash flow minus capital expenditures, improved to negative RMB1.3 billion from negative RMB7.4 billion in the first quarter.

The sequential improvement does not erase the year-over-year deterioration. Vehicle margin at Li Auto Inc. (NASDAQ:LI) was 19.4% in the second quarter of 2025, leaving the latest result 10 percentage points lower. Gross profit fell 53.3% year over year, while Li Auto Inc. (NASDAQ:LI) moved from operating income of RMB827 million to an operating loss of RMB2.3 billion.