Li Auto Prioritizes Gross Margin as EV Competition Intensifies in China

Li Auto founder, chairman and CEO Li Xiang emphasized that maintaining healthy profitability remains the company's most important objective as competition in the electric vehicle industry intensifies. Speaking during a small shareholder meeting held on May 29, Li described gross margin as the financial ammunition available to the company for future growth and competition. His remarks come at a time when the automaker is facing weaker financial performance, falling vehicle deliveries, and pressure on its stock price, highlighting the increasingly challenging environment for EV manufacturers.

The company reported a difficult first quarter in 2026, posting a net loss of 2.3 billion yuan, equivalent to about $340 million. Gross margin fell sharply to 7.9 percent from 20.5 percent a year earlier, reflecting growing pressure on profitability. Li explained that vehicle profitability cannot be adjusted quickly because bill of materials costs are largely fixed during project development. Furthermore, models derived from existing platforms leave limited room for major pricing changes, making cost management and product planning critical for long-term sustainability.

According to Li, the company's two major priorities this year involve completing the transition of its L series extended-range electric vehicle lineup and stabilizing monthly sales of the i series. Upcoming updates to the Li L8, Li L7, and Li L6 are expected to support this transition, while the newly launched Li i9 is targeted to help the company achieve monthly sales of 30,000 units. Management believes these initiatives will help preserve scale and profitability despite aggressive market competition.

Li also shared his perspective on the future of autonomous driving, stating that competition in the automotive sector is unlikely to end soon. He argued that Level 3 autonomous driving will not be enough to reshape the industry, while Level 4 technology could eventually consolidate the global automotive landscape into a handful of dominant players, similar to the smartphone market. He further suggested that premium brands may gradually move away from destructive price wars as manufacturers recognize that sustained competition benefits no one.

During the shareholder discussion, Li openly acknowledged his management challenges. When asked about his weaknesses, he admitted that fine-grained operational management becomes increasingly difficult as companies scale. The statement provided rare insight into leadership challenges faced by rapidly expanding automakers, where operational complexity grows alongside production volumes, supply chains, and product portfolios.

Addressing product strategy, Li rejected the idea of combining design elements from different luxury brands merely to satisfy customer preferences. He stated that the company seeks to build a distinctive identity rather than adopting a patchwork approach. Referring to global brands, Li remarked that he does not want to combine a BMW exterior with a Mercedes-Benz interior, adding that the company aspires to become more like Apple in terms of integrated product philosophy.

Li also revealed new details about the company's semiconductor roadmap. Its internally developed Mach M100 smart driving chip is currently intended only for in-house deployment, with external supply not under consideration due to limited manufacturing capacity at TSMC. However, future chip generations are expected to support computing requirements across home computing centers, vehicles, and robotics, reflecting broader ambitions beyond automotive applications.

Investor concerns have been amplified by the company's declining share price. On June 11, Li Auto's Hong Kong-listed shares closed at HK$53.15, marking a nearly five-year low, while its US-listed ADRs reached their weakest level since November 2022. To support shareholder value, the company has conducted 12 share buybacks in 2026, repurchasing 16.3 million shares for HK$936 million. These measures underscore management's efforts to improve market confidence amid challenging industry conditions.

Vehicle delivery trends remain under pressure. The company delivered 33,350 vehicles in May, representing an 18.37 percent year-on-year decline. Second-quarter deliveries are projected between 95,000 and 100,000 units, which trails guidance issued by competitors including Nio Inc and Xpeng. The outlook highlights how competition in the electric vehicle market continues to intensify as manufacturers balance pricing, technology investments, and profitability.

Li Auto Key Financial and Market Indicators

The evolving EV market in China is increasingly shifting focus from aggressive growth toward sustainable profitability and technological leadership. Li Auto's emphasis on maintaining healthy margins while investing in autonomous driving and semiconductor capabilities reflects a broader industry trend. As competition intensifies and technology advances, automakers that balance innovation, operational efficiency, and financial discipline may be best positioned to emerge as long-term winners in the next phase of the automotive transformation.

Frequently Asked Questions

Why is gross margin important for Li Auto?
Gross margin determines how much financial flexibility an automaker has to invest in products, technology, and competition. Li Xiang described gross margin as the company's ammunition because it directly supports future growth and market resilience. With increasing price pressure in the EV sector, maintaining healthy profitability becomes essential for funding research, manufacturing improvements, and strategic initiatives while ensuring long-term sustainability in a rapidly evolving automotive market.

What are Li Auto's main priorities in 2026?
Li Auto is focused on completing the transition of its L series extended-range electric vehicles and stabilizing sales of the i series. Updated models such as the Li L8, Li L7, and Li L6 are expected to strengthen the product lineup. The company also aims to maintain monthly sales of 30,000 units for the i series while preserving profitability, expanding smart driving capabilities, and improving its competitive position in the global EV industry.

How does Li Auto view autonomous driving competition?
Li Xiang believes that Level 3 autonomous driving will not fundamentally end competition among automakers. According to him, Level 4 autonomy may eventually reshape the industry by reducing the number of major global players. He expects future consolidation similar to the smartphone sector, where only a limited number of companies dominate. Until then, competition is likely to remain intense as manufacturers continue investing heavily in technology and innovation.