Maintain HOLD. While we still believe Li Auto is an outstanding company and could make a comeback with its solid cash position, we think its transformation to an AI device company still takes some time. The outlook of the redesigned L9 is still uncertain, in our view, given the heightened competition in the large SUV market. We expect Li Auto to make a net loss in 1H26E. Even with a successful L9, valuation could still be unattractive based on FY26E earnings.
4Q25 earnings slightly beat on GPM. Li Auto’s 4Q25 revenue was about 1% higher than our prior forecast. GPM in 4Q25 rose by 1.5ppts to 17.8% QoQ, 1.1ppts higher than our forecast, which we attribute to stronger-thanexpected GPM from the i6 and year-end rebates from suppliers. R&D and SG&A expenses combined were in line with our projection, which led to an operating loss of RMB443mn, or RMB200mn better than our prior forecast. Li Auto barely achieved a net profit of RMB7mn in 4Q25.
Wait for more details of the redesigned L9. We are of the view that the redesigned L9 and new i9 are key models to watch this year. The L9, the first new model to launch this year, could also pave the way for the newgeneration L8 and L7. We suggest investors wait for more details, as it is still a bit early to conclude if the L9 could differentiate itself from extremely competitive large-size SUV market in China, especially as charging technology development could dent EREV’s overall market share.
FY26E earnings under pressure, making valuation unattractive. The company has revised down its FY26 sales volume target from 0.5mn+ units to about 0.49mn units (+20% YoY). Management also expects vehicle GPM to be around 5% in 1Q26E amid inventory clearance and purchase tax benefit. Despite our assumptions of FY26E sales volume of 0.49mn units with 85,000 units for the L9 (implying an average monthly sales volume of 10,000+ units for the redesigned L9) and a full-year GPM of 17.6%, we estimate a net profit of RMB3.4bn in FY26E, unchanged from our prior forecast. We revise up FY27E net profit by 1% to RMB7.7bn, assuming a sales volume of 0.59mn units and a GPM of 18.2%.
Valuation/Key risks. We maintain our HOLD rating and target price of US$18.00 for ADS and HK$70.00 for H-share, which is based on 17x (prior 18x) our FY27E P/E and corresponds to 39x (prior 40x) our FY26E P/E. We believe such valuation has priced in Li Auto’s competitive edge over its peers. Key risks to our rating and target price include higher or lower sales volume and GPM than we expect, and a sector re-rating or de-rating.