On June 23rd, the all-new Li L8 officially commenced deliveries, accelerating the refresh cycle for Li Auto-W's (ASX: LI) L series. This new energy vehicle manufacturer, once the first among its peers to achieve profitability, is now deeply mired in operational difficulties. Its 2025 figures showed declines across deliveries, revenue, and net profit, and the first quarter of 2026 saw a shift from profit to loss. The company's sales foundation is now supported by models priced around the 200,000 yuan mark, while sales of its higher-end models have contracted sharply, leading to a significant compression in vehicle gross margin.
Amid this performance pressure, Li Auto has launched two equity incentive plans with a combined value exceeding HK$23 billion. The plan for three core executives includes five-tier vesting conditions linked to the company's market capitalization, ranging from HK$200 billion to HK$1 trillion. However, Li Auto's current total market cap is just over HK$100 billion. Meeting the first-tier condition would require nearly doubling the current valuation, while the long-term HK$1 trillion target represents more than nine times the current market value. Whether this incentive mechanism can reverse the dual pressures on Li Auto's operations and valuation remains highly uncertain.
First-Quarter Loss and Shrinking Margins
By 2025, the penetration rate of new energy passenger vehicles had exceeded 50%, and the industry entered a stage of competition for market share in 2026, intensifying performance pressures for Li Auto. For the full year 2025, Li Auto delivered 406,300 new vehicles, an 18.8% year-on-year decline. Revenue reached 112.313 billion yuan, down 22.3% year-on-year, while net profit plummeted 85.8% to just 1.139 billion yuan.
In the first quarter of 2026, Li Auto's deliveries reached 95,100 units, a 2.45% year-on-year increase. However, this growth in deliveries did not translate into expanded revenue. Company income fell 11.4% year-on-year to 22.983 billion yuan. The company reported a net loss of 2.276 billion yuan, a stark reversal from the 647 million yuan profit recorded in the same period of 2025.
Breaking down the business structure, vehicle sales revenue for Q1 2026 was 21.533 billion yuan, a 12.7% year-on-year decrease. Li Auto attributed this decline primarily to a lower average selling price resulting from a different product mix. Consequently, the company's vehicle gross margin plunged to 6.1%, representing decreases of 13.7 and 10.7 percentage points year-on-year and quarter-on-quarter, respectively.
During the Q1 2026 earnings call, Li Auto's CFO Li Tie stated that the quarter's gross margin was impacted by factors including model refreshes, the increased sales share of the Li i6 and Li L6, and the purchase tax subsidy for the Li i6.
The competitive advantage from the extended-range electric vehicle segment is gradually diminishing for Li Auto, while its pure electric models became a key source of growth in the first quarter. According to data, the Li i6 sold approximately 57,100 units in Q1 2026, accounting for 60% of total sales. As of May, the Li i6 had seen deliveries exceed 20,000 units for three consecutive months, becoming the brand's top-selling model. However, the Li i6 is priced at 249,800 yuan, making it the brand's most affordable model. The second-best seller, the Li L6, sold around 18,100 units in Q1, representing about 19% of sales, with a price range also between 249,800 yuan and 279,800 yuan. The overall downward shift in the product portfolio, with 200,000-yuan-level models becoming the sales mainstay, has directly pulled down the average selling price per vehicle.
In Q1 2026, aside from the Li L6, sales of other mainstay L-series models fell by approximately 70%. This sales weakness for the L series continued into April and May, with the sales base still reliant on lower-priced models. Li Auto's current predicament is partly due to the growing pains of transitioning between old and new products. To accelerate the shift to the new generation of products, the company proactively halted production of the older L-series models in March, cutting off a short-term source of deliveries and contributing to weak sales of higher-end, higher-margin models.
In May, the all-new Li L9 began deliveries, marking the start of the full L-series refresh, with a starting price of 459,800 yuan. On June 23rd, the all-new Li L8 also officially launched for delivery, priced at 369,800 yuan and 429,800 yuan. However, the challenge facing Li Auto is whether consumers, after the Li i6 has pushed value-for-money to its limit, are still willing to pay a premium for the higher-positioned L series. Furthermore, how long will the sales boost from the new models last?
It is worth noting that Li Auto has provided cautious guidance for the second quarter of 2026, expecting deliveries between 95,000 and 100,000 vehicles, representing a year-on-year decrease of 14.5% to 10%. Total revenue is projected to be between 24.1 billion yuan and 25.4 billion yuan, a year-on-year decline of 20.2% to 16%.
Stock Price Hits New Low, Trillion-Dollar Target Looms Large
As performance and sales face pressure, Li Auto has rolled out equity incentives worth over HK$23 billion, linked to a HK$1 trillion market capitalization target.
On June 15th, Li Auto granted a total of 35 million share options to CFO Li Tie, President Ma Donghui, and CTO Xie Yan under its 2020 plan. These options represent 17.5 million American Depositary Shares (ADS), equivalent to 35 million Class A ordinary shares, constituting 1.62% of the company's total share capital. Specifically, Ma Donghui received 15 million options, while Li Tie and Xie Yan each received 10 million.
The exercise price for the options is $14.38 per ADS, requiring a total payment of approximately $252 million if fully exercised. The exercise period is 10 years from the grant date, expiring on June 15, 2036. Li Auto has established a vesting mechanism linked to market capitalization, requiring the 30-trading-day average Hong Kong market cap to meet specified thresholds for batch vesting. The market cap assessment has five tiers: HK$200 billion, HK$400 billion, HK$600 billion, HK$800 billion, and HK$1 trillion, with 20% vesting at each stage.
Based on the share price of HK$56.85 on the grant date (June 15th), the total value of these shares was approximately HK$19.9 billion. However, the secondary market sentiment has been pessimistic. On June 23rd, Li Auto's share price hit a historical intraday low of HK$47.9. The company's current market capitalization is around HK$104.9 billion. Looking back, Li Auto's market cap peaked in August 2023, when the share price reached HK$185.5, pushing the total market value above HK$350 billion. The current market cap represents a decline of about 70% from that historical peak.
In March of this year, Li Auto launched a share repurchase program of up to $1 billion, attempting to restore market confidence with real capital. However, since the announcement of the buyback plan, the share price has still retreated by about 24%. Judging from the current stock price trend, reaching the first-tier unlock threshold of HK$200 billion would require the company's market cap to grow by approximately 91% from current levels. The long-term HK$1 trillion target is more than nine times the current market value.
Li Auto stated in its announcement that it is adjusting the long-term incentive arrangements for core management members, shifting from fixed time-based vesting awards to a structure that better aligns the interests of core management with shareholder interests and the group's long-term performance. Core management members will benefit only when the company's share price rises, related market cap performance targets are achieved, and shareholder value is tangibly enhanced.
Against the backdrop of intense competition in the new energy vehicle market and the shift from profit to loss, whether Li Auto's substantial incentive plan will serve as a long-term bond to unite the team or remain a capital narrative difficult to realize will require time to tell.
It is noteworthy that the orientation of this incentive was already reflected in the 2025 compensation structure. Ma Donghui's total compensation for 2025 was 36.289 million yuan, of which share-based payment expenses accounted for 33.033 million yuan, or 91.03% of his total pay. Li Tie's total compensation was 23.291 million yuan, with share-based payment expenses of 20.225 million yuan, constituting 86.84% of his total remuneration.
The announcement also disclosed a second equity incentive plan. Under its 2019 plan, Li Auto granted 5.5572 million restricted share units to Ma Donghui and 99 other employees, valued at approximately HK$316 million. The assessment criteria for this second plan are primarily linked to performance metrics, including but not limited to work quality, efficiency, collaboration, and management. The total value of these two equity incentive plans amounts to HK$23.06 billion.
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