CICC: Maintains LI AUTO-W (02015) rating above industry level, lowers target price to HK$100

CICC released a research report stating that it maintains a outperform rating on LI AUTO-W(02015). The Hong Kong and US stock prices correspond to 15/14x 26E P/E respectively. Taking into account the MEGA recall losses and intensified market competition, the Non-GAAP profit forecast for 2025/26 has been lowered by 66%/30% to 26/98 billion yuan. The market has certain expectations for the decline in profits in 2025 and the market competition pressure in 2026. The company is more concerned about the strong product cycle and the reversal brought by long-term AI investment, therefore the target prices for the Hong Kong and US stocks have been adjusted down by 7%/7% to 100 Hong Kong dollars/26 US dollars respectively, corresponding to 21/20x 26E P/E, with a potential upside of 40%/42%. Key points from CICC: 3Q results below market expectations The company reported 3Q results: revenue of 27.37 billion yuan, Non-GAAP net loss of 360 million yuan. The 3Q performance was affected by the MEGA recall losses, falling below market expectations. One-time inclusion of recall costs, actual gross profit margin remains stable The company delivered a total of 93,211 vehicles in 3Q25, with pure electric models contributing to sales. The company achieved revenue of 27.37 billion yuan in 3Q. Including the one-time MEGA recall costs, the comprehensive gross profit margin excluding/including the impact was 20.4%/16.3%, with the corresponding automotive gross profit margins of 19.8%/15.5%. On the expense side, R&D expenses were 2.97 billion yuan, and sales and management expenses were 2.77 billion yuan in 3Q. Looking ahead to 4Q25, considering the impact of i6 ramping up production, L-series promotions, among others, the company is expected to face challenges in automotive gross profit margin in the next two quarters. Strategic reflection opens a new cycle, expecting operations to emerge from the trough Recently, the company conducted a fall strategic closed-door meeting to reflect on organizational, research and development, and product issues, and planned to increase the differentiation of subsequent vehicle models, accelerate overseas expansion, and increase investment in AI. The company has returned to a strategy of focusing on large single products with the recent ideal i6 model, and has made several reforms in channel management. It is expected that new product releases will drive future efficiency in operations. Returning to an entrepreneurial mindset, persisting in long-term investment During this performance meeting, CEO Li Xiang elaborated on his long-term thinking for the next ten years. In terms of organization, the company has returned to a start-up company management model, focusing on deep dialogue, user value, continuously improving efficiency, identifying key issues, and reducing information asymmetry. In terms of products, it is moving away from purely electric vehicle to an intelligent terminal that provides proactive services with physical intelligence terminals (including cars and non-car forms); technologically, it continues to enhance core technologies such as perception, models, and computing power, building a physical intelligent AI system capability to understand and perceive the physical world. Risk warning: Pure electric vehicle models fail to meet expectations; intelligent driving fails to meet expectations; intensified market competition.