In 1Q25, Li Auto’s revenue added 1.1% YoY while non-GAAP net income moderately declined YoY to RMB1.0bn. 2Q25 deliveries guidance of 125-128k was largely in line, implying monthly sales will return towards 50k units by June. At the earnings call, the management indicated that monthly sales of MEGA to ramp up to 2.5-3k units in July, smashing market anticipation. To reflect strong order intake of MEGA HOME and brighter prospects for i-series BEVs and stricter budget for R&D bills, we nudged up non-GAAP net income forecasts for 25-26E to RMB11.6bn/16bn, respectively. Its current valuations trade at a discount to NEV counterparts (BYD/Seres), reflecting the market’s low expectations about i-series outlook and disregard to Li Auto’s leadership in premium segment and AI tech race. After the stagnated growth phase over the past year, we expect the on-going new product cycle to drive the company’s sales/earnings to regain growth momentum, accompanied by re-rating for the stock. Reiterate BUY and raise our TP to US$41.00/HK$160.00.
Key Factors for Rating
Moderate increase in vehicle sales as the blended ASP pullback largely offset the volume gains. In 1Q25, vehicle sales moderately added 2% YoY to RMB24.7bn, well below the volume increase of 15.5% YoY as the increasing cheaper L6 sales mix and cash promotions of old L series dragged 1Q25 vehicle ASP to RMB266k.The revenue from other sales declined by 9.7% YoY to RMB1.2bn, mainly due to decreased embedded products and services offered together with vehicle sales.
1Q25 vehicle margin beat; 2Q25 vehicle margin to stay at above 19% but may pull back slightly QoQ. Despite 1Q25 deliveries dropped over 40% QoQ, vehicle margin expanded to 19.8% from 19.7% in 4Q24, above the company’s original guidance of 19% by virtue of lower base in 4Q caused by one-off recognition of MEGA’s purchase commitment loss and softer end-user incentives. For 2Q25, the mgmt. guided the vehicle margin to stabilise at c.19%.The wider purchase discounts for legacy L-series EREVs, initial production ramp up of refreshed L-series models and lower sales proportion of luxury MEGA during product changeover with MEGA HOME might together lead to mild QoQ decline in vehicle margin.
Non-GAAP earnings per unit temporarily pulled back to RMB11k. In 1Q25, the company recorded slim operating profit of RMB272m, from operating losses of RMB585m in 1Q24. Non-GAAP net income declined from RMB1.3bn in 1Q24 to RMB1.0m, due to the higher base last year propelled by huge investment income. The non-GAAP earnings per unit temporarily slid to RMB11k. At the callback, management revised down the full-year R&D budget from RMB13-14bn to RMB11-12bn, reflecting its commitment to optimise R&D efficiency despite continuing high R&D bills to AI techs.
2Q25 sales guidance in line whereas delivery outlook for MEGA gives a surprising hit. For 2Q25, the company guided 2Q25 deliveries of 123k-128k units and total revenue of RMB32.5bn-33.8bn, largely in line. During the conference call, management emphasised that the order intake continued its strong momentum after the launch of refreshed smart driving L-series models in early May, with weekly retail sales exceeding 10k vehicles. This gives management great confidence that the monthly sales for L-series EREVs will rapidly recover to 50k units. Separately for MEGA MPV, MEGA Home Family Edition has garnered wider audience acceptance since its debut at SH auto show and currently accounted for c.90% in total MEGA’s order backlog. As such, the company has quickened to expand MEGA’s production capacity and expects MEGA’s monthly sales to exceed 2,500–3,000 units by July, smashing both market and our anticipation. The strike-back of MEGA HOME Family Edition after original MEGA’s misfire once again validates the company’s value-driven product philosophy, distinct product design abilities and credible execution efficiency to offer popular NEV models in premium market with luxury tech differentiation and precise positioning for high-end family scenarios.
Strategic pivot towards broader non-SUV markets leads to stronger growth prospects. Regarding new models, the company confirmed the launch of first pure electric SUV Li i8 in July, followed by the second pure electric SUV Li i6 in September. Beyond that, CEO Li Xiang stated that after the full product launch of the extended-range L-series SUVs, pure electric i-series SUVs, and MEGA, the company will introduce more competitively-priced MPV and sedan models adapting to the market needs. Regarding the sales volume outlook, the mgmt. indicated that the full-range product offerings of L-series EREVs/i-series BEVs/MEGA models are able to support an annual revenue scale up to RMB300bn, which indeed implies an upper limit of 1.2mn units in annual sales with the ASP assumption of RMB250k. Overall, the clearer guidance on new model roadmap signals the company’s strategic pivot towards broader non-SUV addressable market in the mid-to-long run, which could meaningfully relieve investors’ concerns over its growth potential due to the limited saturation headroom and heightened competition for family SUV scenarios.
The preliminary plan to go-global move. During the conf. call, the mgmt. illustrated their views over when and how to push the overseas expansion, stating that they will only consider tapping into a destination market where they can simultaneously provide vehicle hardware, after services, and software services. By region, the company plans to focus on pan-Asia and European markets in coming years and has accelerated the recruitment of reputable dealers. In the long term, the company aims that 30% of its annual sales volume to come from overseas markets.
Valuation
To reflect lower L-series sales volume and stronger demand for MEGA HOME, we leave our sales volume forecast for 2025E largely intact at 580k units. We deem the wider audience acceptance of MEGA HOME Family Edition after MEGA’s misfire last year validates the company’s customary distinct product definition strengths and credible execution abilities to offer competitive premium pure electric models for family use scenarios. Combined with well-prepared supercharging infra nationwide, the adoption of innovative VLA large-model based smart driving features, as well as enhanced sales efficiency, we see brighter sales outlook for coming i-series pure electric SUVs and therefore lift our 2026- 27E sales volume forecasts to 765k/900k units, respectively. Moreover, we lower our R&D ratio assumption to reflect the company’s stricter control on OPEX spendings. All in, we nudged up our non-GAAP net income forecasts for 2025- 26E by 4%-8% to RMB11.6bn/16.0bn.
Currently, its ADRs are trading at 18.6x 2025E P/S and 13.6x 2026E P/E, well below P/E multiple of above 20x for other NEV counterparts (i.e. BYD, Seres), which seems unfair and mainly reflects the relatively lower expectations over the sales outlook for upcoming i-series pure electric models. We believe the disconnection between low expectation on upcoming i series and stronger pure electric new model cycle in turn gives huge upside potential to consensus forecasts.
With the delivery of MEGA HOME Family Edition and refreshed L-series EREVs starting from May, we deem Li Auto is ushering into a strong new model cycle after the stagnated growth phase over the past year with no all-new launches available for market. In the coming 18 months, we expect to see at least 4 allnew i-series SUVs to go on market (contains i8 and i6), as well as redesigned Lseries EREVs. Overall, we expect the on-going new product cycle to drive the company’s sales to regain growth momentum, accompanied by re-rating for the stock. We reiterate BUY and raise our TP from US$36/HK$140 to US$41/HK$160, based on 20x 2026E P/E. Li Auto is now one of our top picks among OEM space.