Maintain BUY. We are of the view that management is likely to prioritize sales volume over margins for the upcoming i6 following its weak sales in recent months. We expect aggressive pricing to help Li Auto regain sales traction. Moreover, management has also decided to shorten the model cycle from FY26E. Both could be positive catalysts for its share price, in our view.
　　2Q25 net profit miss on lower ASP. Li Auto’s revenue in 2Q25 fell 4.5% YoY to RMB30.2bn, or 2% lower than our prior forecast. GPM of 20.1% in 2Q25 was largely in line with our projection. SG&A and R&D expenses were about RMB130mn higher than our estimates. That led to a net profit of RMB1.1bn in 2Q25, or 21% lower than our prior forecast.
　　Likely to prioritize i6’s sales volume over margins with aggressive pricing. As noted in our previous report, we still expect the i6’s pricing to be more aggressive than other models, which could be crucial to enhance Li Auto’s brand perception and sales volume in BEVs. We view such possible aggressive pricing as a positive catalyst for its shares. Meanwhile, we project the i6’s GPM to be lower than the L6’s. Similar to 3Q24, we expect Li Auto’s sales volume to regain traction from 4Q25, aided by the i6. Such greater economies of scale could offset the margin drag from the i6 in 4Q25, based on our calculations.
　　Shorter model cycle from FY26E. Management emphasized shortening model cycles for existing products with more frequent upgrades in design, chassis, powertrain, software etc. from FY26E during the earnings call. We expect such changes to help Li Auto gain market share again.
　　Earnings/Valuation. We project its FY25-27E sales volume to be 0.44mn/0.63mn/0.82mn units, respectively, with FY25-27E GPM of 19.7%/18.7%/18.7%, respectively. Accordingly, we estimate its net profits to be RMB4.0bn/9.2bn/14.1bn during FY25-27E, respectively. We maintain our BUY rating but trim our ADS/H-share target price from US$33/HK$131 to US$28/HK$109, based on 15x our revised FY27E P/E (prior 17x FY26E). We roll over our valuation multiple from FY26 to FY27, as we believe the impact from shorter model cycles may be fully reflected on FY27E earnings. Key risks to our rating and target price include lower sales and/or GPM than our expectation, as well as a sector de-rating.