CICC has reiterated its "Outperform Industry" rating on Li Auto-W (02015) but lowered its target price to HK$100 (US$26 for ADRs), reflecting a 7% reduction for both H-shares and ADRs. The adjustment accounts for MEGA model recall costs and heightened market competition, prompting a 66% and 30% cut to 2025/26 Non-GAAP profit forecasts to RMB2.6 billion and RMB9.8 billion, respectively. The revised targets imply 21x/20x 2026E P/E multiples, with 40%-42% upside potential. Key takeaways:

**3Q Earnings Miss Estimates** Li Auto reported Q3 revenue of RMB27.37 billion with a Non-GAAP net loss of RMB360 million, underperforming market expectations due to one-time MEGA recall expenses.

**Stable Underlying Margins** Q3 deliveries reached 93,211 units, including initial contributions from pure-electric models. Excluding recall costs, gross margins stood at 20.4% (16.3% reported), with automotive margins at 19.8% (15.5% reported). R&D and SG&A expenses remained controlled at RMB2.97 billion and RMB2.77 billion, respectively. However, Q4 automotive margins may face pressure from i6 ramp-up and L-series promotions.

**Strategic Reset for Recovery** Following an internal strategy review, Li Auto plans to enhance product differentiation, accelerate overseas expansion, and boost AI investments. The i6 model marks a return to blockbuster product strategy, supported by channel reforms.

**Long-Term Vision** CEO Li Xiang outlined a decade-long roadmap emphasizing: - *Organization*: Adopting startup-style agility with user-centric efficiency gains. - *Products*: Evolving from smart EVs to embodied AI terminals (vehicle/non-vehicle forms). - *Technology*: Advancing perception, AI models, and computing for physical-world interaction.

**Risks**: Pure-EV underperformance; autonomous driving delays; intensifying competition.