Li Auto Inc. (NASDAQ: LI) announced second-quarter 2025 financial results that fell short of analyst expectations for both revenue and earnings per share. The report highlighted challenges within a highly competitive Chinese electric vehicle market, leading to a decline in the company's stock price.

U.S. equities saw focused movements on Wednesday as investors processed Li Auto Inc. (NASDAQ: LI) second-quarter 2025 financial results. The electric vehicle manufacturer reported significant misses on both revenue and earnings per share, leading to a decline in its stock price over the past week, indicative of a bearish sentiment and anticipated high volatility.

The Event in Detail

For the second quarter of 2025, Li Auto reported total revenue of RMB30.2 billion (US$4.2 billion), a 4.5% decline year-over-year. This figure notably missed analyst estimates, which had anticipated approximately US$4.45 billion, resulting in a 5.2% shortfall in dollar terms. Earnings per share (EPS) came in at US$1.37, significantly below the expected US$1.81, marking a 24.31% surprise to the downside.

Net income for the quarter stood at RMB1.1 billion (US$153.1 million), remaining nearly flat compared to the same period last year. Despite the financial misses, vehicle deliveries showed a modest 2.3% year-over-year increase, reaching 111,074 units. Following the announcement, Li Auto's shares traded down 3% during mid-day trading on Wednesday, reaching $23.67, and experienced a substantial 84% drop in trading volume compared to its average session. Over the past week, the stock has declined by 2.7%.

Analysis of Market Reaction

The significant revenue shortfall was primarily attributed to a lower average selling price, which was influenced by interest subsidies and sales incentives. Furthermore, a strategic pivot towards Li Auto's L series models reportedly underperformed relative to expectations, contributing to the financial miss. The newly launched Li i8 electric SUV also faced a weak initial reception, with deliveries projected to be modest in the coming months.

While Li Auto's stock experienced an initial 5.66% rise in pre-market trading, potentially reflecting investor optimism regarding the company's strategic initiatives and future outlook, the subsequent market reaction highlighted growing concerns over the financial miss and the increasing competitive pressures within the electric vehicle sector.

Broader Context & Implications

The Chinese electric vehicle market continues to be characterized by intense price wars and fierce competition, with key rivals such as BYD, Tesla, and Xiaomi aggressively vying for market share. This challenging environment has significantly impacted Li Auto's market positioning; its share in the premium PHEV SUV segment plummeted from 72% in the second quarter of 2023 to 34% in the second quarter of 2025, underscoring the difficulties in maintaining dominance.

Despite these challenges, Li Auto demonstrated some cost discipline, with its gross margin improving to 20.1% (up from 19.5% in Q2 2024) and vehicle margin to 19.4% (up from 18.7% last year). Operating expenses also fell by 8.2% year-over-year to RMB5.2 billion (US$731.5 million), driven by reductions in both research and development (R&D) and selling, general, and administrative (SG&A) costs. However, these gains in efficiency were insufficient to fully offset the revenue contraction. The company also reported negative free cash flow of RMB3.8 billion and net cash used in operating activities totaling RMB3 billion.

Expert Commentary

Analyst sentiment surrounding Li Auto is currently mixed. Zacks Research downgraded the stock from a "hold" rating to a "strong sell," while Barclays lowered its price target from $31.00 to $24.00. Bank of America adjusted its rating from "buy" to "neutral," setting a $26.00 price target. Similarly, JPMorgan Chase & Co. reiterated a "neutral" rating but reduced its price target from $33.00 to $28.00.

Conversely, Daiwa America upgraded Li Auto to a "strong-buy" rating with a $30.50 price target, indicating varied perspectives on the company's future trajectory and suggesting that some analysts still see upside potential despite the recent earnings miss.

Looking Ahead

Li Auto has provided Q3 2025 delivery guidance of 90,095 to 95,000 vehicles, which implies a significant year-over-year decline of 37.8%–41.1%. Revenue guidance for the third quarter is set between RMB24.8 billion and RMB26.2 billion. The company is focusing on a strategic pivot towards full electrification by 2027, with plans to introduce new battery electric vehicle (BEV) models such as the Li i8 and i6.

Further strategic initiatives include expanding its global footprint into new markets in 2025, investing heavily in AI and electric vehicle technology, and significantly enlarging its charging network, with a goal of establishing 4,000 stations. The medium-term outlook for Li Auto will heavily depend on its ability to successfully execute these strategic pivots and navigate the highly competitive and rapidly evolving global electric vehicle market.