Li Auto Inc. Q3 FY2025 earnings call

Organization: - Chairman and CEO Xiang Li discussed the choice between entrepreneurial and professional management models. After trying professional management, the company is reverting to the entrepreneurial model starting from Q4 2025. ### Products: - Considered choices between electric vehicles, smart devices, or embodied robots. Argued that focusing on embodied AI robots is the key, which involves giving cars perception, modeling capability, computing power, and reshaping hardware. ### Technology: - Focus on full stack AI system for embodied AI, including perception, models, and embodied hardware. Mentioned internally developed M100 chips and progress in areas like 3D Vision Transformer, model frequency increase, and drive-by-wire system improvements. Financial highlights: Tie Li walked through Q3 financials, balance sheet, and cash flow, noting strong cash position but negative free cash flow in Q3.

Total revenues in the third quarter were RMB 27.4 billion, a decrease of 36.2% year-over-year and 9.5% quarter-over-quarter. Vehicle sales contributed RMB 25.9 billion, a decrease of 37.4% year-over-year and 10.4% quarter-over-quarter. Cost of sales in Q3 was RMB 22.9 billion, down 32% year-over-year and 5.3% quarter-over-quarter. Gross profit was RMB 4.5 billion, down 51.6% year-over-year and 26.3% quarter-over-quarter. Vehicle margin was 15.5% in Q3 compared to 20.9% in the same period last year and 19.4% in the prior quarter. Excluding recall costs, vehicle margin would have been 19.8%. Gross margin was 16.3% in Q3 versus 21.5% last year and 20.1% prior quarter. Excluding recall costs, gross margin would have been 20.4%. Operating expenses were RMB 5.6 billion, down 2.5% year-over-year and up 7.8% quarter-over-quarter. R&D expenses were RMB 3 billion, up 15% year-over-year and 5.8% quarter-over-quarter. SG&A expenses were RMB 2.8 billion, down 17.6% year-over-year and up 1.9% quarter-over-quarter. Net loss was RMB 624.4 million in Q3 compared to net income of RMB 2.8 billion last year and RMB 1.1 billion prior quarter.

For the fourth quarter of 2025, the company expects deliveries to be between 100,000 and 110,000 vehicles and quarterly total revenues to be between RMB 26.5 billion and RMB 29.2 billion. This outlook is subject to change.

Challenges include supply chain issues, product life cycle management, PR challenges, and changing policies that have impacted operations and deliveries. Also, risks related to meeting delivery schedules due to supply chain constraints for Li i6.

Q: About 2026 technology or product progress and BEV transition.

A: In 2026, will launch AI system based on M100 chips. For BEV, focus on electric drive, battery systems, and electronic control with in-house development and supply chain strategies.

Q: Near-term operation on Li i Series orders/deliveries and cash flow.

A: Li i-Series entered core markets, Li i6 to start dual supplier strategy for batteries, monthly production capacity to increase to ~20,000 units early next year. Cash flow in Q3 negative due to delivery decrease and payment cycle impact.

Q: Trade-in subsidy change and 2026 sales strategy.

A: Transition period has peace of mind purchase program, 2026 models meet new standards, will adopt 800-volt platform and 5C batteries, aim for 4,800 supercharging stations by 2026.

Q: MEGA recall and AI development.

A: Recall accrued in Q3 as subsequent event, VLA Driver rolled out in September, OTA 8.1 to enhance perception, future upgrades including architecture and language interaction.

Q: In-house developed SoC, OS, and open source.

A: In-house design reduces development time and cost, open sourced Halo OS, M100 chip undergoing testing, next-gen platform and chip development underway