Li Auto, once a consistently profitable electric vehicle (EV) maker, has entered a period of earnings turbulence. On November 26, the company reported a third-quarter revenue decline and a net loss, marking a shift from profitability. CEO Li Xiang acknowledged challenges including product cycles, public relations crises, supply chain ramp-up, and policy impacts, which affected deliveries and operations. To navigate these hurdles, Li Auto will revert to a "startup company" management approach.

**Resilient Gross Margins** Q3 revenue fell 36.2% year-over-year to RMB 27.4 billion, with vehicle sales dropping 37.4% to RMB 25.9 billion due to lower deliveries. Despite the downturn, Li Auto’s adjusted gross margin—excluding costs related to the MEGA recall—stood at 20.4%, with vehicle margins at 19.8%, close to historical levels. Analysts view this as a sign of underlying financial health. The company’s cash reserves remain robust at RMB 98.9 billion, providing a cushion for future growth.

Unlike peers NIO and XPeng, which prioritized pure EVs, Li Auto gained traction with extended-range electric vehicles (EREVs), exemplified by the popular Li ONE and L-series models. However, rising competition in the EREV and plug-in hybrid markets has pressured its dominance.

**Expanding into Pure EVs** In 2024, Li Auto entered the pure EV segment with its MEGA model and introduced two new SUVs, the i8 and i6, which are still ramping up production. Combined orders for these models exceed 100,000 units, prompting supply chain adjustments to meet demand.

**Dual-Supplier Strategy for Batteries** To stabilize deliveries, Li Auto has adopted a dual-supplier approach for the i6’s batteries, ensuring consistent quality. President Ma Donghui projects monthly i6 production will reach 20,000 by early 2025. The company also plans a major refresh of its L-series in 2025, featuring standardized 5C ultra-fast charging across all models.

**R&D and Global Expansion** Q3 R&D spending rose 15% to RMB 3 billion, with full-year outlays expected at RMB 12 billion, including over RMB 6 billion for AI. Li Auto’s proprietary AI system, VLA, achieved a 91% adoption rate in October. Internationally, the company has laid groundwork in the Middle East, Central Asia, and North Africa, with plans to expand into Latin America, Europe, and Southeast Asia in 2025.

**Returning to Startup Roots** CEO Li Xiang admitted that adopting a "professional manager" governance model over the past three years backfired. Moving forward, Li Auto will embrace a startup mindset, focusing on "embodied AI" for autonomous vehicles. The company has also open-sourced its in-house OS, "Xinghuan OS," attracting 55 potential partners, including 16 signed agreements.

As automakers like Tesla and XPeng explore embodied AI and humanoid robots, Li Auto aims to differentiate through integrated AI systems and open-source innovation.