Maintain HOLD. Li Auto recorded the largest quarterly net loss since its 2020 IPO. We expect net loss to extend into 2Q26E. While we still believe it is an outstanding company, we are of the view that Li Auto’s advantage over peers has been narrowing before physical AI become pivotal in the future. We cut our FY26-27E net profit forecasts, which make its valuation unattractive (now trading at 213x FY26E P/E and 18x FY27E P/E).
1Q26 revenue, GPM in line; strict SG&A control. Li Auto’s 1Q26 revenue declined 11% YoY to RMB23.0bn, landing precisely in line with our prior forecast. GPM narrowed by 10ppts QoQ to 7.9% in 1Q26, or 0.4ppts higher than our projection. SG&A expenses were about RMB650mn lower than our forecast, resulting in a narrower-than-expected net loss of RMB2.3bn. Despite its cost control beat, the result still marks the automaker’s largest quarterly net loss since its IPO in 2020.
Portfolio maturity and mix shifts limit Li Auto’s near-term upside. We maintain our FY26E sales volume forecast of 0.49mn units, albeit with a worse model mix—we have raised sales volume assumption for the lowmargin i6 and trimmed our outlook for the premium L9. Management has guided a monthly sales volume of 6,000-8,000 units for the redesigned L9 after ramping up amid heightened competition. More importantly, we see limited growth headroom for FY27-28E deliveries given the maturity and comprehensiveness of Li Auto’s existing model portfolio.
GPM pressure could be more prolonged than previously anticipated. Management has guided a vehicle GPM of about 10% for 2Q26, as the i6’s GPM is still low at a single digit. We cut our FY26 GPM forecast from 17.6% to 15.0%—a trajectory that still optimistically requires 4Q26 recovery to 18- 19%. More structurally, despite its premiumization efforts, Li Auto is now in a more difficult position to differentiate its products from competitors. Therefore, we project its GPM to be 17.4% in FY27E and 17.1% in FY28E, even as component prices fully normalize.
Earnings/Valuation. With key assumptions outlined above, we cut our FY26E net profit forecast by 85% to RMB511mn and FY27E net profit by 21% to RMB6.1bn. We maintain our HOLD ratings for ADS/H-share and trim target prices from US$18.00/HK$70.00 to US$16.00/HK$62.00, which is based on 18x (prior 17x) our FY27E P/E. Key risks to our ratings and target prices include higher or lower sales volume and GPM than we expect, and a sector re-rating or de-rating.