On Wednesday, Li Auto (NASDAQ:LI) discussed second-quarter financial results during its earnings call. The full transcript is provided below.

Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.

The full earnings call is available at https://edge.media-server.com/mmc/p/efxu5xif/

Summary

Li Auto reported Q2 2026 revenues of RMB 25.7 billion, a 15.1% year-over-year decrease, but an 11.7% increase quarter-over-quarter, with vehicle sales contributing RMB 24.1 billion.

The company launched new models, including the rear-wheel drive Li i8 and is set to release the Li Mega and Li i9, enhancing its BEV lineup and aiming to solidify its position in the high-end NEV market.

Li Auto focuses on in-house technology development, particularly in batteries and chips, which it sees as critical competitive advantages, and has expanded its proprietary supercharging network.

The company faced cost pressures due to raw material price fluctuations but aims to stabilize margins through in-house technological advancements and efficient supply chain management.

Guidance for Q3 2026 includes expected deliveries of 95,000 to 100,000 vehicles and revenue between RMB 26.6 billion and RMB 28.0 billion, reflecting positive expectations for new model launches.

Full Transcript

OPERATOR

Hello, ladies and gentlemen. Thank you for standing by for Li Auto's second quarter 2026 earnings conference call. At this time, all participants are in listen-only mode. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Janet Zhang, Investor Relations Director of Li Auto. Please go ahead, Janet.

Janet Zhang, Investor Relations Director

Thank you, operator. Good evening and good morning, everyone. Welcome to Li Auto's second quarter 2026 earnings conference call. The company's financial and operating results were published in a press release earlier today and were posted on the company's IR website. On today's call we will have our Chairman and CEO Mr. Xiang Li and our CFO Mr. Johnny T. Li to begin with prepared remarks. Our President Mr. Dong Huima and CTO Mr. Yanqie will join for the Q&A discussion.

Before we continue, please be reminded that today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in certain company filings with the SEC and the Stock Exchange of Hong Kong Ltd. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that Li Auto's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. Please refer to Li Auto's disclosure document on the IR section of our website which contain a reconciliation of the unaudited non-GAAP measures to comparable GAAP measures.

Our CEO will start his remarks in Chinese. There will be English translation after he finishes all his remarks. With that, I will now turn the call over to our CEO Mr. Xiang Li. Please go ahead.

Visham, Interpreter

Hi everyone, this is Visham and thank you for joining our earnings conference call today. In the first half of this year, in the midst of intense market competition and a complete product refresh, Li Auto has remained the top-selling Chinese automotive brand in the RMB 200,000 and above NEV market. The continued rollout of our dual energy strategy has resulted in a healthy product mix with EREVs and DIP apps each accounting for 50% of total sales.

Since Q2, we have updated the entire VL series showcasing our latest technologies. Key updates include our in-house Mach 100M100 chip running Mach VLA model, 800-volt active suspension and drive-by-wire chassis, and our third-generation range extender with 5C supercharging battery. The hardware and software upgrades set new standards for the technology and user experience once again. Turning over to our fab lineup, the Elite i6 has been one of our top three selling models priced over RMB 200,000 for six consecutive months.

Li i6 and the L6 are the top sellers in their respective segments, further solidifying our leadership in the RMB 200,000 to 300,000 SUV market. Upgrades to our BEV lineup is also underway. In late July, we launched the rear-wheel drive long-range version of Li i8. Based on user feedback, we added features such as power frunk and zero gravity driver and passenger seats. These updates bolstered our product competitiveness and translated to a notable sales uplift.

The new generation Li Mega is scheduled for launch on September 2nd. We further polished its pioneering design and completely revamped the interior, the cabin experience, intelligent platform and build quality. Additionally, the all-new flagship BEV SUV Li i9 will also be launched in mid-September, further enriching Li Auto's BEV product lineup. We anticipate models to account for an even larger share of total sales over time. With new models launching and ramping up in the second half of this year, we're confident in maintaining a top-three position among all brands in China's passenger vehicle market priced above RMB 200,000.

By developing core technologies in-house, we're continuously deepening our competitive moat, steadily translating these technological advancements into tangible user value and commercial efficiency. 5C supercharging has become a prerequisite in user purchase decisions, and a proprietary supercharging network stands as one of our key competitive advantages. On batteries, we're able to develop cell, BMS, and pack fully in-house, completing the final piece of the electric powertrain puzzle following electric motors and control units.

Through integrated design with the overall vehicle system combined with the technology and experience we have accumulated in 5C supercharging, we're confident that Li Auto's in-house battery will deliver industry-leading performance. Apologies for the breakup. To continue with the CEO's remarks. Through integrated design with the overall vehicle system, combined with the technology and experience we have accumulated in 5C supercharging, we're confident that Li Auto's in-house battery will deliver industry-leading performance in quality, safety and service life.

Our in-house batteries are already deployed on our all-new LE8, the new LE L6 and the Li i8. Within the next few months, all of our models will be equipped with our proprietary batteries. We firmly believe that batteries and chips are going to be the most critical technological barriers in the embodied AI industry. In May, we started shipping our full-stack ADA solution based on the M100 chips. Today, shipments of the Mach M100 chips have exceeded 50,000 units, maintaining excellent quality track record.

Beyond chips, we're also making R&D breakthroughs across models, controllers and software. These achievements have steadily translated into product experience. In late July, with OTA 9.1, overall Mach VLA performance improved by 20% and user mileage penetration nearly doubled compared to the previous generation fuuding platform. In September we will also roll out Mach VLA to cars with Nvidia Thor and Orin X chips. Building on the data we have accumulated, we will accelerate model training and iterations to fully leverage the compute advantage on our chips.

The July OTA 9.1 update allows VLA to match and surpass human drivers in reaction speed. The October OTA 9.2 update will enable VLA to fully adopt 3D Vision Transformer, providing long range and better precision. And the year-end OTA 9.3 update will see VLA model parameters scale exponentially, significantly enhancing task comprehension and reasoning capabilities in complex scenarios. Faster reactions, sharper vision and stronger reasoning are the three most crucial upgrades for the Mach M100 and Mach VLA this year.

Going forward, building embodied AI vehicles will remain at the core of our strategy through full-stack in-house development across hardware and software with continuous iteration. Our vision is that vehicles will become true intelligent agents that can not only look after human beings, but also complete tasks independently more efficiently than human beings. With that, I'll turn the call over to our CFO Johnny to walk you through our financial performance.

Johnny T. Li, CFO

Thank you, Li. Hello everyone. Given time constraints, my remarks today will be limited to our second quarter financial highlights. All figures will be quoted in RMB unless otherwise stated. For further details, including the corresponding US dollar amount, we encourage you to refer to our earnings press release. Total revenue in the second quarter was RMB 25.7 billion, down 15.1% year over year and up 11.7% quarter over quarter. This included RMB 24.1 billion from vehicle sales, down 15.7% year over year and up 11.8% quarter over quarter.

The year-over-year decrease was mainly driven by reduced vehicle deliveries and a lower average selling price due to different product mix. The sequential increase was mainly attributable to a higher average selling price due to different product mix and increased vehicle delivery. Cost of sales in the second quarter was RMB 22.8 billion, down 5.6% year over year and up 7.8% quarter over quarter. Gross profit in the second quarter was only RMB 2.8 billion, down 53.3% year over year and up 56.9% quarter over quarter.

Vehicle margin in the second quarter was 9.4% versus 19.4% in the same period last year and 6.1% in the prior quarter. The year-over-year and sequential changes were mainly due to different product mix. Gross margin in the second quarter was 11% versus 20.1% in the same period last year and 7.9% in the prior quarter. Operating expenses in the second quarter was RMB 5.1 billion, down 2% year over year and up 6.9% quarter over quarter. R&D expenses in the second quarter were RMB 2.8 billion, down 1.2% year over year and up 2% quarter over quarter.

SG&A expenses in the second quarter were RMB 2.3 billion, down 16.2% year over year, mainly on lower employee compensation, and up 11.2% quarter over quarter, mainly on higher marketing and promotion spending. Loss from operations in the second quarter was RMB 2.3 billion versus RMB 827 million income from operations in the same period last year and a loss from operations in the prior quarter. Operating margin in the second quarter was negative 9% versus 2.7% in the same period last year and negative 13% in the prior quarter.

Net loss in the second quarter was RMB 1.7 billion versus RMB 1.1 billion net income in the same period last year and RMB 2.3 billion net loss in the prior quarter. Diluted net loss per ADS attributed to ordinary shareholders was RMB 1.69 in the second quarter versus diluted net earnings of RMB 1.03 in the same period last year and diluted net loss of RMB 2.26 in the prior quarter. Now turning to our cash flow and balance sheet, net cash provided by operating activities in the second quarter was RMB 15 million versus RMB 3.0 billion used in the same period last year and RMB 6.1 billion used in the prior quarter.

Free cash flow was negative RMB 1.3 billion in the second quarter versus negative RMB 3.8 billion in the same period last year and negative RMB 7.4 billion in the prior quarter. Our quarter-end cash position remained robust at RMB 87.5 billion. This solid cash position gave us the flexibility to invest in product and technology innovation while also returning value to our shareholders through share repurchase. To date, we have repurchased a total of 91.7 million Class A ordinary shares, including 23.7 million ADS, for total consideration of about US$631.5 million.

Now for our business outlook for third quarter of 2026. The company expects deliveries to be between 95,000 and 100,000 vehicles and quarterly total revenue will be between RMB 26.6 billion and RMB 28.0 billion. This business outlook reflects the company's current and preliminary view on its business situation and market conditions, which is subject to change. That concludes our prepared remarks. I will now turn the call over to the operator to start our Q&A session.

Thank you.

OPERATOR

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. For the benefit of all participants on today's call, please limit yourself to two questions and if you have additional questions you can re-enter the queue. If you are a Mandarin speaker, please ask your questions in Chinese first, then follow with English translation.

Your first question comes from Tim Heu with Morgan Stanley. I have two questions.

UNKNOWN, Analyst

The first question is about L series. With the model year updates for the L series now completed, could the management provide an update on its market performance so far since launch? That's my first question.

Visham, Interpreter

This year we have completed the full refresh of the L series. The L9, L8, and L6 have all transitioned to the latest platform, which includes the Mach M100 chip, range extension, and other core technologies. And on L series models we also carry our latest fully drive-by-wire chassis. With these, we have completed coverage of the 200,000 to 500,000 RMB range extended SUV market. Since we started delivery, we have seen a few trends. First of all, our high-end models have exceeded users' and our expectations since launch.

The L9, the ... version of the L9 accounts for over 85% of all sales, with many users willing to pay for this fully drive-by-wire chassis as well as high-end ADAS systems and other core technologies. This also solidified our leadership in the RMB 400,000–500,000 home and family SUV market. Since the launch, the L8 Ultra version has been the key sales driver, and the conversion ratios in our storefront have been performing very well. Secondly, the new-generation L6 has successfully retained the user base from the previous generation, with the previous generation laying a very good foundation by delivering almost 400,000 units.

The new generation has addressed key user feedback such as EV range, charging speed, and key intelligent platforms, and also completed the offering with two zero-gravity seats in the front row and a 29-inch panoramic screen, which also enhanced user experience. Since launch we have seen very good reception on L6, and we're hopeful that there will be a 10,000-unit-per-month demand level steadily going forward. So this is a core pillar for our sales in the 200,000 to 300,000 market.

In the meantime, we have honestly seen some temporary disruptions caused by the model refresh cycle, including clearing old inventory, ramping up new models, and sales policy transitions. These have all created short-term operational headwinds. We're currently working very hard to optimize our processes and address these challenges. Going forward, we will focus on two things. The first is to further enhance product value through OTAs. The all-new L series has a very robust and industry-leading hardware basis, so moving forward we'll continue to unlock these hardware capabilities and AI features through OTA updates.

Secondly, we will continue to build out our 5C supercharger network, increasing both density and coverage. As of the end of July, we already have 4,141 charging stations in operation and over 22,800 charging stalls. We now have a 9-by-9 grid covering 18 national-level highways and covering more than 300 cities. So our in-house charging network as well as 5C charging capability have become a prerequisite for many of our users in their car purchase decisions.

With the L series refresh complete, it will now complement our I series BEV to jointly drive overall business growth. Currently, EREV and BEV each account for half of our total sales, and we expect BEV's share to rise further as we launch more BEV models later this year.

UNKNOWN, Analyst

Thank you. Following today's release of the preview video for the new Li Mega, could you share the key highlights of this refresh and your sales expectations?

Visham, Interpreter

Thank you. As many of you have noted, we have today officially released the first batch of teaser information on our new-generation Mega. This new generation is really based on real user feedback from the previous-generation Mega, to address the important feedback and product shortcomings of the previous generation, and they mainly fall into three categories. The first is improvements in the chassis and handling experience. Many view MPVs as very large and cumbersome in cities, so the new-generation Mega will be equipped with rear-wheel steering, a drive-by-wire system, as well as an active anti-roll bar, which will greatly reduce the turning radius, reduce body roll in cornering, and also make the car more flexible and agile in cities. Second is an upgrade to the intelligent platform. We improved the entire autonomous driving system with our in-house Mach M100 chips. We've also completed the lateral and rear sensors to improve city NOA, handling complex intersections, and auto parking. On the cabin side, we'll also be upgrading to the latest Qualcomm chips to bring better interactive and entertainment experience.

And third is improvements in the cabin and details to further drive the positioning. As a family MPV, we've made significant upgrades to the second and third row, including the interior atmosphere and interactions, to better serve the needs of large families. Mega is very clearly positioned as the flagship SUV over 500,000 RMB. So this new generation has really addressed user feedback and completely revamped and improved the product. Obviously, the sales performance will depend on many things, including sales conversion, product ramp-up, as well as changes in the market.

But we will make sure to focus on delivery store experience as well as user operations, and we'll keep updating everyone on the sales performance as we launch the product. Thank you.

OPERATOR

Your next question comes from Paul Gong with UBS.

Paul Gong, Analyst at UBS

So my first question is regarding the impact of commodity cost inflation. How much can you quantify in terms of the impact in Q2 and moving towards Q3? And what would be your strategy to counter such cost inflation challenge and the margin pressure? Thank you.

Visham, Interpreter

This year we've seen cyclical fluctuations in upstream raw materials and core components, which has created temporary cost pressures for both the industry and our company, which has then further impacted our gross margin. To look at this in more detail: on the AI side, because of the developments in the AI sector, this has driven demand for chips and PCBs, pushing prices up. On the memory side, memory chip prices have also risen, but with our early volume commitments and long-term procurement agreements, the price impact on us is less than the industry average.

And on the battery front, lithium carbonate prices also experienced cyclical fluctuations this year. To navigate these cyclical cost fluctuations, we're taking a two-pronged approach. On the one hand, we're continuously driving cost reductions through more efficient operations. And on the other hand, we're leveraging our full-stack in-house technology and proprietary supply chain to build long-term structural cost advantages. Specifically, first on the electric drivetrain front, we'll continue to be committed to owning and driving the R&D and supply chain of the three key electric systems to solidify our dual moats in technology and cost.

On the electric drive side, we have achieved in-house development and manufacturing of motors, controllers, and system silicon-carbide chip modules, which ensures our control over the critical components. By leveraging our integrated architecture, we're continuously optimizing energy consumption and iterating on our technological solutions, which has steadily amortized the hardware cost per vehicle. In terms of battery systems, we developed and deeply integrated our battery packs with the overall vehicle architecture, which allows us to achieve the best possible balance between energy consumption, thermal management, safety, and packaging efficiency, which further delivers an exceptional user experience while maintaining strict cost control. We have established in-house R&D capabilities in core areas, which include cell, pack, thermal management, and BMS algorithms. We're accelerating the deployment of our proprietary battery systems across a broader range of models, establishing a strong competitive edge in quality, performance, and cost. Secondly, in house-developed chips are building a strong competitive advantage across technology and cost.

The proprietary Mach M100 chip is built on an innovative data-flow structure with integrated hardware and software customization and delivers a structural advantage in compute performance and also cost. Overall, in the short term, we're trying to smooth out the temporary cost fluctuations and pressures on our business through volume commitments and refined operations. And in the medium to long term, we're relying on scale deployment of our in-house technologies to stabilize the gross margin and support the company's high-quality sustainable growth.

Thank you.

Paul Gong, Analyst at UBS

If we're considering the raw material costs as well as the commoditized competition, what would be our latest gross margin target? Thank you.

Visham, Interpreter

As we can observe, this year we have seen a very big increase in the cost of batteries and memory chips, which is a common challenge for everyone in the industry. And because Li Auto's products are more intelligent, which makes them consume more memory and semiconductors, we're more impacted. Apart from the impact on BOM, we are also experiencing amortization and depreciation on our tooling and production equipment. We follow more strict rules as well as the treatment to end-of-production items as we launch new products this year.

Over time we are seeing improvements in gross margin, but we must also face the increase in chip and PCB as well as other semiconductor costs. We have made a decision not to pass these price increases over to our customers, but instead we will continue to leverage our integrated design and supply chain, such as deepening our in-house R&D and deployment of our batteries, to make our system more self-sufficient. Secondly, we will build better cost control and cost management capabilities.

And thirdly, on the sales front, through our sales partner program we have benefited from lower sales costs, a better operational mindset, and increased efficiency. So all of these lower costs will be transformed to actual benefits that our users can receive in the long term. My view is that the healthy margin for the company will be somewhere between 15% to 20% gross margin, with the main driver here being the raw material cost. Thank you.

Paul Gong, Analyst at UBS

Thank you very much.

OPERATOR

Your next question comes from Wen Zhukua with Zitex.

Wen Zhukua, Analyst at Zitex

So my first question is about i9. What information could you please share about the upcoming Li Auto i9?

UNKNOWN, Analyst

Thank you. So my second question is about the autonomous driving. Could you please update us on the progress of the co-optimization between the M100 chip and autonomous driving models, and what are the key milestones and quantitative metrics for autonomous driving algorithm upgrades in the second half of the year?

Yan

This is Yan and let me answer your question. Our in-house Mach M100 chip began mass production with the all-new Li L9 in Q2 and is now deployed across the all-new Li L9, L8 and L6. Currently the chip production capacity is sufficient to meet market demand. Our ADAS system powered by our in-house Mach M100 chip has been delivered to customers with the all-new Li L9 since May. Leveraging the strong capabilities of the Mach platform, we expect it to continue making significant improvement to our models.

OTA 9.1 began rolling out at the end of July, further reducing end-to-end latency. We also introduced two new speed preference modes for our Mach VRA model, efficiency and comfort, improving responsiveness across a broad range of driving scenarios. The upcoming OTA 9.1 will represent a major architectural upgrade and on the model side we are evolving toward a full 3D vision transformer architecture with three times the parameter count and 4.6 times the compute.

This upgrade will deliver systematic improvement across key dimensions of ADAS, including safety, comfort, efficiency and navigation in Q4. Our goal is to further enhance perception and decision-making capabilities of machine. Specifically, firstly, longer-range perception. The effective perception range will exceed 250 meters, enabling early speed adjustment and path planning. We expect this to reduce undesirable behavior such as hard braking, hesitation and unnecessary lane changes by more than 30%.

Secondly, higher perception accuracy. 3D spatial perception accuracy for key objects will improve to within 5 cm, increasing success rate in challenging scenarios such as narrow-road driving, passing through gates and other tight-clearance maneuvers by 50%. Thirdly, a stronger scene understanding. Rather than simply recognizing individual objects, the system will be able to infer intent based on the broader traffic context. In scenarios such as yielding on narrow roads, navigating around construction zones and making unprotected turns, it will make more decisive yield-or-proceed decisions, reducing unnecessary standstills and hesitations by more than 20%. Additionally, Mach VRA 2.0 for Nvidia Orin and Thor platforms will launch in early September. The share of driving mileage completed with ADAS engaged is a key metric for us at this stage. On the Mach platform, ADAS mileage penetration in urban scenarios has nearly doubled from previous levels as deliveries of Mach-powered vehicles continue to ramp up. Our all-scenarios MPI has increased by 25% in recent months. Thank you.

OPERATOR

Your next question comes from Jing Cheng with CICC.

Jing Cheng, Analyst at CICC

My only question is about the cash flow. We see the operating cash flow nearly turned positive in the second quarter but free cash flow remained negative and also we see some cash position decline. So could you share your outlook on the second half, whether our free cash flow will turn positive and our overview of the cash position?

Johnny T. Li, CFO

Thank you. Tony, this is Johnny. I'll take this question. From the third quarter, with the delivery of our new models, we expect to maintain a stable operating cash flow on a quarterly basis. At present we have ample cash on hand, which provides strong support for our product innovation, technology breakthroughs and global expansion. This year we remain committed to R&D investment and CapEx, including our supercharging network. We expect our full-year CapEx to be around RMB 6 billion for the full year.

Achieving positive operating cash flow and free cash flow will largely depend on our fourth-quarter deliveries. One thing is certain, that our overall cash flow performance this year will be stronger than last year.

Jing Cheng, Analyst at CICC

Thank you. So my following question is about the intelligent driving. What key contributions do you think our self-developed chips and also software and hardware integration can deliver to advancing our intelligent driving capabilities? Thank you.

Yan

This is Yan. Let me answer this question. The rapid progress we have made in intelligent driving, both in terms of performance and speed of delivery, is driven by the close integration of our in-house chip and full-stack system capabilities. Firstly, we have streamlined our organizational structure so that the chip and model teams can work much more closely together, jointly designing model architectures that can fully leverage the computing capabilities of Mach M100.

From a hardware interface perspective, Mach M100 gives our model, algorithm and operating system significant design flexibility, allowing the chip, algorithm and system software to be optimized together for the best overall performance. Secondly, optimization of data and training. With our in-house chip as the foundation, we are able to explore and optimize the training process at a much deeper level. In particular, our reinforcement learning approach built around the Mach platform has significantly enhanced the model capabilities within our world model framework.

In addition, the data management and shadow data system built on the Mach platform enable faster model iteration and improvement. Thirdly, system-level optimization through our in-house Halo OS. Halo OS enables deep integration between upper-layer applications and the underlying chip, improving both resource utilization and overall system performance at the system level. This also helps improve engineering quality and accelerates development cycles.

Together, the chip, model and OS form a tightly integrated full-stack architecture, creating a complete technology loop for our intelligent driving system. The value of our in-house chip is now extending beyond intelligent driving into embodied intelligence. With a vehicle equipped with dual Mach M100 chips, we are able to run a fully multimodal foundation model entirely on-device, supporting input across voice, language and video. The model is capable of general-purpose problem understanding, environmental understanding and task planning.

This means the vehicle is no longer limited to executing predefined functions. It can increasingly understand user intention and the physical world, then plan and execute tasks toward a given object. We believe this will significantly expand the capability boundary of the vehicle as an embodied intelligent agent and represents an important new direction enabled by our integrated hardware–software architecture. Thank you.

OPERATOR

Your next question comes from Ming Soon Lee with B of A.

Ming Soon Lee, Analyst at BofA

So my first question: could you update your overseas markets development strategy and also the progress? And the second question is, to develop your embodied humanoid robot product, will you continue to invest high R&D amid the current competition background? Thank you.

OPERATOR

As we are reaching the end of our conference call now, I'd like to turn the call back over to the company for closing remarks. Ms. Janet Zhang, please go ahead.

Janet Zhang, Investor Relations Director

Thank you once again for joining us today. If you have further questions, please feel free to contact Li Auto's investor relations team. This concludes this conference call. You may now disconnect. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.