Li Auto reported Q3 2025 financial results showing the company's first quarterly loss in 11 quarters, marking a dramatic reversal for the former top performer among Chinese EV startups. This episode analyzes Li Auto's crisis and explains why NIO investors need to understand what's happening with one of their biggest competitors in the Chinese electric vehicle market.Li Auto's Q3 2025 performance showed severe deterioration across key metrics. Revenue totaled 27.4 billion REN, down 36.2 percent year-over-year. The company posted a net loss of 624 million REN, ending an 11-quarter profitability streak that had made Li Auto an industry benchmark. Vehicle deliveries fell to 93,200 units in Q3, down 39 percent year-over-year, forcing the company to lower its annual sales target twice in 2025, from an initial 700,000 vehicles to 640,000 vehicles.Vehicle gross profit margin declined from 20.9 percent to 15.5 percent. Li Auto attributed this partly to recall impacts, stating the margin would have been approximately 19.8 percent excluding recalls. However, even the adjusted figure represents significant pressure compared to historical peaks. November 2025 deliveries totaled 33,181 units, down 31.9 percent year-over-year, placing Li Auto last among major Chinese EV startups behind NIO's 36,275 and XPeng's 36,728 deliveries.Three core problems contributed to Li Auto's crisis. First, the company's range-extended electric vehicle technology became commoditized as competitors including Leapmotor, XPeng, and Xiaomi launched similar products with better specifications at lower prices. Market data shows range-extended vehicles' share in China's new energy vehicle market declined from 10.7 percent in 2024 to 9.8 percent in first half 2025, with range-extended sales declining year-over-year for five consecutive months since June.Second, Li Auto's pure electric transformation encountered major obstacles. The MEGA flagship pure electric model launched in 2025 with controversial futuristic design that failed to resonate with consumers. The i8 pure electric SUV delivered only approximately 5,700 units monthly average in September and October 2025, falling far short of expectations. While the lower-priced i6 pure electric sedan achieved nearly 50,000 pre-orders in 48 hours, its success created internal competition, cannibalizing sales from the higher-positioned i8 and existing range-extended L series models.Third, internal management and supply chain issues compounded operational challenges. Li Auto's attempt to implement a professional manager governance system borrowed from Huawei proved incompatible with the company's entrepreneurial culture. At the Q3 earnings conference, CEO Li Xiang acknowledged the system failure, stating it resulted in longer decision chains and decreased efficiency, calling recent years performance the worst version of ourselves. The company announced a full return to startup mode beginning Q4 2025. Additionally, over-reliance on single suppliers caused the i6 to be impacted by component shortages affecting production schedules.Li Auto is attempting a turnaround through three strategies. First, massive R&D investment with full-year 2025 R&D expenses expected to reach 12 billion REN, with over 6 billion REN allocated to artificial intelligence and intelligent driving, representing more than 50 percent of total R&D budget. Second, product diversification including a December 2, 2025 announcement of strategic partnership with Zeiss to release smart glasses. Third, organizational restructuring by abandoning professional manager systems and returning to agile startup execution mode.For NIO investors, Li Auto's crisis reveals three critical lessons.

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