Li Auto’s fourth-quarter results for 2025 suggest stabilization after a difficult year, but not a full recovery.

The Chinese electric vehicle maker returned to a slim quarterly profit in the December period. It posted net income of RMB 20.2 million (USD 2.9 million) after a third-quarter loss, while vehicle margin improved to 16.8% from 15.5%. Free cash flow also turned positive at RMB 2.5 billion (USD 363.3 million), compared with negative RMB 8.9 billion (USD 1.3 billion) in the previous quarter.

The year-on-year picture remained weak. Revenue fell 35% to RMB 28.8 billion (USD 4.2 billion), vehicle sales declined 36.1% to RMB 27.3 billion (USD 4 billion), and the company remained in the red with an operating loss of RMB 442.6 million (USD 64.3 million).

That makes the quarter more useful as evidence of operational control than of restored earnings power. Li Auto did show it could recover from a weak third quarter without sacrificing gross margin entirely, with gross margin rising to 17.8% from 16.3% in Q3. The comparison with last year remains more important. Gross margin was 20.3% in the fourth quarter of 2024, and Q4 2025 operating performance remained well below that prior-year base.

The company’s own disclosures suggest caution when interpreting the quarter-on-quarter improvement. Li Auto said the sequential rise in vehicle margin was mainly due to the estimated Li Mega recall cost recorded in the third quarter, partly offset by a lower average selling price caused by product mix changes after the start of Li i6 deliveries. In other words, part of the rebound reflected a cleaner comparison base rather than a clear improvement in underlying demand or pricing.

Expenses provided some support. Q4 operating expenses fell 1.3% from the prior quarter, helped by a 4.4% decline in selling, general, and administrative expenses to RMB 2.6 billion (USD 377.8 million). R&D spending remained high at RMB 3 billion (USD 436 million) as Li Auto continued investing in artificial intelligence and product development. That mix aligns with management’s current message: the company is trying to preserve technology spending while tightening its sales and operating model.

The transcript adds a clearer frame for 2026. Management is positioning the year around three levers: tighter store-level execution in its direct sales network, a new L-series cycle led by the all-new Li L9, and a steadier ramp in battery EV models including the i6, i8, and the upcoming i9. Founder and CEO Li Xiang said the company is still targeting 20% year-on-year sales growth in 2026, even as he described the period as the most competitive year yet in China’s high-end automotive market.

That ambition still runs ahead of the near-term numbers. Li Auto guided first-quarter 2026 deliveries of 85,000–90,000 vehicles and revenue of RMB 20.4–21.6 billion (USD 3.0 billion–3.1 billion), both below the level recorded a year earlier. Management is clearly asking investors to look beyond the current trough toward a new product cycle. The guidance, however, does not yet show a clear path toward recovery.

The balance sheet gives Li Auto room to make that argument. The company ended 2025 with RMB 101.2 billion (USD 14.7 billion) in cash, and Q4 operating cash flow was positive at RMB 3.5 billion (USD 508.6 million). That cushion matters because Li Auto is not attempting to cut its way back to growth. Management said 2026 R&D spending should remain around RMB 12 billion (USD 1.7 billion), with roughly half tied to AI-related initiatives including chips, computing power, and autonomous driving.

Still, the full-year numbers show how much ground the company must recover. Total revenue fell 22.3% in 2025 to RMB 112.3 billion (USD 16.3 billion). Operating margin turned negative 0.5% from positive 4.9% in 2024. Net cash from operations swung to an outflow of RMB 8.6 billion (USD 1.2 billion) from an inflow of RMB 15.9 billion (USD 2.3 billion) a year earlier, and free cash flow dropped to negative RMB 12.8 billion (USD 1.9 billion) from positive RMB 8.2 billion (USD 1.2 billion).

The result leaves Li Auto with a credible stabilization story, but not yet a clear turnaround. The fourth quarter showed that margins and cash flow can recover when comparisons become cleaner and execution improves. What it did not yet show is that the company has rebuilt the earnings base it had a year earlier, or that the expected 2026 product cycle is already visible in reported growth.

Note: RMB figures are converted to USD at rates of RMB 6.88 = USD 1 based on estimates as of March 13, 2026, unless otherwise stated. USD conversions are presented for ease of reference and may not fully match prevailing exchange rates.