Li Auto Inc. Q2 FY2026 earnings call

• Market Position & Product Mix: Li Auto remains the top-selling Chinese automotive brand in the RMB 200,000+ EV market. The dual-energy strategy has achieved a balanced mix, with Extended-Range Electric Vehicles (EREVs) and Battery Electric Vehicles (BEVs) each accounting for approximately 50% of total sales.
• L-Series Refresh Success: The new L-series (L9, L8, L6) have transitioned to the latest platform featuring the Mach M100 chip, 5C range extender, and drive-by-wire chassis. The high-end L9 Livis version accounts for over 85% of sales, indicating strong consumer willingness to pay for premium features like full-line control chassis. The new L6 aims for stable monthly sales of 10,000 units.
• BEV Lineup Expansion: The Li i6 continues to be a top seller in its segment. The new Li i8 launched in late July with user-requested features like power frunks and zero-gravity seats. The next-generation Li Mega is scheduled for September 2nd, focusing on improved handling (rear-wheel steering) and intelligent hardware. The flagship BEV SUV, Li i9, will launch in mid-September.
• Technology & Supply Chain: The company has achieved full vertical integration in batteries (cell, BMS, pack), motors, and controllers. In-house Mach M100 chips are deployed across models, with shipments exceeding 50,000 units. The autonomous driving system (Mach VLA) is undergoing rapid OTA updates (9.1, 9.2, 9.3) to enhance 3D vision and reasoning capabilities.
• Charging Infrastructure: The self-built 5C supercharging network has reached 4,141 stations with over 22,800 stalls as of end-July, covering nearly 300 cities and forming a key competitive advantage.

Total revenue for Q2 2026 was RMB 25.7 billion, a decrease of 15.1% year-over-year (YoY) but an increase of 11.7% quarter-over-quarter (QoQ). Vehicle sales contributed RMB 24.1 billion to this total, down 15.7% YoY and up 11.8% QoQ. The YoY decline was primarily driven by reduced delivery volumes and a lower average selling price due to product mix changes, while the QoQ growth was attributed to higher average selling prices and increased deliveries. Gross profit stood at RMB 2.8 billion, down 53.3% YoY but up 56.9% QoQ. The vehicle gross margin was 9.4%, significantly lower than the 19.4% recorded in the same period last year and 6.1% in the prior quarter. Operating expenses were RMB 5.1 billion, with R&D expenses at RMB 2.8 billion and SGA expenses at RMB 2.3 billion.

• Q3 2026 Delivery Guidance: The company expects to deliver between 95,000 and 100,000 vehicles.
• Q3 2026 Revenue Guidance: Total revenue is expected to be between RMB 26.6 billion and RMB 28 billion.
• Full-Year Outlook: Management anticipates that achieving positive operating and free cash flow for the full year will largely depend on third- and fourth-quarter delivery volumes. Full-year capital expenditure (capex) is expected to be around RMB 6 billion.

• Gross Margin Pressure: Gross margins faced significant YoY pressure due to rising raw material costs (specifically memory chips, PCBs, and lithium carbonate) and amortization/depreciation costs from new tooling and production equipment.
• Operational Headwinds: Model refresh cycles caused temporary disruptions, including inventory clearance of old models and ramp-up challenges for new products.
• Cost Absorption Strategy: Management stated they will not pass increased component costs onto consumers, relying instead on internal cost reductions and supply chain efficiencies to maintain competitiveness.
• Long-Term Margin Target: While current margins are compressed, management targets a long-term healthy gross margin between 15% and 20%.

Q: Tim Hesio asked about the market performance of the refreshed L-series and the strategic direction for the upcoming Mega update.

A: President Donghui Ma reported that the high-end L9 Livis version accounts for over 85% of sales, proving strong demand for advanced chassis tech. The new L6 addresses previous feedback on range and charging, aiming for 10k monthly sales. Regarding Mega, the next-gen model introduces rear-wheel steering and active anti-roll bars to improve agility, upgrades to the in-house M100 chip for better ADAS, and enhances cabin comfort for large families, addressing prior user feedback on size and handling.

Q: Paul Gong inquired about the impact of rising raw material costs on profit rates and the company's plan to manage single-car-level costs.

A: President Donghui Ma explained that AI-driven demand for chips/PCBs and cyclical lithium carbonate prices created cost pressures. Li Auto mitigates this through early volume commitments and long-term agreements, which offer better pricing than industry averages. Long-term structural advantages are being built via full-stack in-house development of electric drives, batteries, and chips, alongside refined operations to smooth out short-term fluctuations.

Q: Xiang Li provided a long-term gross margin target despite current cost headwinds.

A: CEO Xiang Li stated that while battery and semiconductor costs rose, Li Auto will absorb these increases rather than passing them to consumers. By leveraging integrated design, in-house R&D for batteries and chips, and improving sales system efficiency, the company aims to achieve a healthy long-term gross margin between 15% and 20%.

Q: Wenzhou Kuo asked about the positioning of the upcoming i9 and the quantitative milestones for autonomous driving algorithm upgrades in H2.

A: President Donghui Ma described the i9 as a six-seat flagship SUV for large families, complementing the Mega MPV, featuring 800V 5C charging and the Mach M100 chip. CTO Yan Xie detailed ADAS milestones: OTA 9.2 (Oct) will introduce 3D vision transformers with 3x parameters; Q4 goals include >250m perception range (>30% reduction in braking/hesitation), 5cm accuracy for tight maneuvers (+50% success rate), and intent inference to reduce unnecessary stops by >20%.

Q: Jing Chang asked about the cash flow trend for H2 and whether free cash flow would turn positive.

A: CFO Johnny Tie Li noted that operating cash flow nearly turned positive in Q2. For H2, stable operating cash flow is expected as new models ramp up. Full-year positive operating and free cash flow depends heavily on Q3 and Q4 delivery volumes. Full-year capex is guided at ~RMB 6 billion, and overall cash flow performance is expected to be stronger than last year.