Li Auto's Growth Engine Sputters as Price Cuts Undermine Q1 Momentum

摘要： AsianFin -- Li Auto reported first-quarter results that init...

AsianFin -- Li Auto reported first-quarter results that initially appeared solid, with revenue hitting 25.93 billion yuan ($3.58 billion) and net income rising to 650 million yuan ($90 million). But a closer look at the numbers reveals troubling signs of deceleration as China's once red-hot new energy vehicle (NEV) market cools and competition intensifies.

Revenue rose just 1.1% from a year earlier, and plummeted 41.4% from the prior quarter—underscoring a dramatic slowdown for a company once hailed as a breakout EV star. Shares of the U.S.-listed automaker fell more than 5% in premarket trading following the earnings release, later trimming losses to 2.4%.

Li Auto's quarter marks the second straight period of single-digit revenue growth, a stark reversal from its triple-digit expansion throughout most of 2023. The pullback reflects a broader industry shift as the NEV landscape matures from a high-growth "blue ocean" to a cutthroat "red ocean," pressuring margins and squeezing out easy gains.

Vehicle sales made up the bulk of revenue at 24.7 billion yuan, but average selling prices (ASP) dropped by 12% to 266,000 yuan—down from 302,000 yuan a year ago. While deliveries rose 15.5% year-over-year, the ASP decline effectively erased 3.4 billion yuan in potential revenue, or roughly 13% of the total.

Analysts point to a strategic pivot toward mid-range models as a key factor behind the pricing pressure. Flagship products like the premium L9 are now being diluted by sales of more affordable L7 and L6 models. The shift appears reactive rather than proactive, as Li Auto faces heightened competition in the sub-300,000 yuan segment from rivals like Xiaomi's SU7 and Huawei-backed AITO's M7.

Despite revenue pressure, Li Auto managed to preserve profitability. Automotive gross margin ticked up to 19.8%, while overall gross margin held firm at 20.5%—in line with both year-ago and sequential figures.

The company also demonstrated cost discipline, slashing operating expenses to 5 billion yuan in Q1, down 900 million yuan from the same period last year. R&D costs fell to 2.5 billion yuan, with SG&A expenses also dropping by half a billion yuan each—helped by lower headcount costs and scaled-back marketing campaigns.

Looking ahead, Li Auto expects second-quarter deliveries to fall between 123,000 and 128,000 units—below the consensus estimate of 129,000. Revenue is forecast between 32.5 billion and 33.8 billion yuan, implying just 2.5% to 6.7% growth despite a double-digit jump in vehicle deliveries.

That mismatch signals further deterioration in ASPs and reinforces concerns that Li Auto's move downmarket is eroding revenue quality.

More concerning is the full-year picture. Media reports suggest the company has trimmed its 2025 sales target from 700,000 to 640,000 units. With only 126,800 vehicles delivered through April, Li Auto would need to sell over 510,000 units in the back half of the year—an average of 64,000 vehicles per month, double the pace seen so far.

To meet that goal, Li Auto is banking on upcoming models such as the all-electric i8 SUV and i6 sedan, set to launch in July and September respectively. But the road ahead is steep. These models will be entering a crowded and hyper-competitive segment dominated by the Tesla Model Y, BYD Han, and Xiaomi SU7.

Ramp-up timelines and the need to quickly scale production add another layer of uncertainty to Li Auto's aggressive delivery goals.

With 110.7 billion yuan in cash on hand and ten consecutive profitable quarters, Li Auto remains one of the most financially sound players among China's EV startups. But investor sentiment has grown wary as the company appears to be "underperforming" relative to peers.

"Li Auto now finds itself at a strategic inflection point," said Tie Li, CFO of Li Auto, during the earnings call. "Gross margin should stay around 19% in Q2, but navigating volume growth amid falling prices will be a sustained challenge."

That challenge boils down to a familiar EV conundrum: whether to pursue scale at the expense of profitability, or stick with a premium strategy and risk plateauing demand.

The company's earlier success was built on pinpoint user targeting, a blockbuster single-product approach, and aggressive marketing. But in today's saturated NEV market, those tools are no longer enough.

As subsidies vanish, price wars intensify, and technology gaps narrow, Li Auto must prove it can execute across a broader product mix while maintaining operational efficiency and brand equity.

"The real battle for Li Auto starts now," one analyst noted. "The era of easy money in China's EV market is over. From here on, it's about resilience, execution, and sustainable, quality growth."

With the clock ticking on its product transition and fierce rivals encroaching on every price point, Li Auto's next moves will determine whether it can defend its lead—or become the next casualty in China's electric car war.