Ideal "Sharp Decline in Volume and Price": The Culprit Isn't MEGA but Supply Chain Shortfalls

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As the first profitable new energy vehicle manufacturer, Li Auto changed its previously smooth development trajectory in 2025, beginning to show signs of declining sales and prices. That year, vehicle deliveries reached 406,000 units, a 31.2% decrease year-over-year. Additionally, the gross profit margin for the full year was 17.9%, down from 19.8% the previous year.

Previously, market and public opinion focused mainly on MEGA’s “ Waterloo” issue. However, after a new provision for all MEGA-related losses (including recalls) in 2025, Li Auto’s gross profit margin of 16.8% still remained significantly below the 19.7% of the same period last year.

Clearly, not all problems can be attributed to MEGA. The core points of this article are:

First, Li Auto’s current issues are not with MEGA, but with supply chain management after switching to pure electric mode.

Second, the operational losses in 2025 are essentially due to management sacrificing profit to scale up, aiming to strengthen bargaining power in the supply chain.

Third, the pressures Li Auto faces in 2026 will not be less than those in 2025.

i6 Discount Sales: Short-term Solution to Supply Chain Shortcomings

While new energy vehicle startups are competing fiercely in the pure electric segment, Li Auto decisively chose extended-range vehicles. This approach alleviated charging anxiety among pure electric vehicle owners at the time, and the success of Li ONE and subsequent models further strengthened Li Auto’s position in the extended-range segment, directly boosting its supply chain management capabilities. These two factors interacted positively, creating a virtuous cycle.

When NIO and Xpeng were mired in losses (with gross margins below zero and vehicle prices below cost), Li Auto maintained a leading gross profit margin and was the first among similar companies to turn profitable. Reflecting on these contrasting performances, it’s clear that the differences cannot simply be attributed to “management ability.”

Meanwhile, after 2025, Li Auto’s gross profit margin began to show a downward trend, while Xpeng and NIO’s margins continued to improve, with the three lines in the chart converging.

Using “management ability” to interpret these phenomena is increasingly inappropriate; instead, a supply chain management framework should be introduced.

Because pure electric supply chains and extended-range supply chains are entirely different, the former revolves around “engine + generator + small batteries,” and Li Auto has accumulated mature systems and cost advantages from past operations. When the company reverts to pure electric mode, it must fill gaps in large batteries, 800V high-voltage platforms, SiC electric drives, thermal management, ultra-fast charging, and self-developed chips—all new challenges for management.

The game between companies and their supply chains is essentially straightforward: volume. When a company has sufficient shipment volume, it naturally becomes a favored partner for suppliers, and vice versa. Li Auto’s switch to pure electric mode makes it a newcomer in this segment, requiring it to demonstrate its shipment potential at the negotiation table.

After the pure electric i6 launched with relatively low gross margins (Zhaoyin International once predicted margins around 10%), this is a typical “volume over margin” strategy. Previously, the market viewed this as a “strategic misstep” by management. However, from a supply chain management perspective, it’s understandable: if Li Auto wants to compete in the pure electric supply chain, it must follow the paths taken by NIO and Xpeng years ago. To quickly fill gaps, it needs to take bolder market share strategies, and pricing at low margins is one of the few options.

Li Auto’s performance in 2025 can be seen as a necessary stage of corporate development. Broadly speaking, it reminds us that there are no shortcuts in business operations. Years ago, Li Auto avoided internal competition by adopting extended-range technology, and now it must address its shortcomings again—there’s no alternative but to go the full route.

2026 Will Still Be Challenging

Since we previously attributed Li Auto’s current situation mainly to “supply chain management,” the question remains: can Li Auto make breakthroughs in 2026? This is also a common concern among the market.

Since late 2025, global commodity prices have risen to varying degrees, putting greater pressure on downstream industries. Companies need higher pricing power at the terminal to offset rising costs; otherwise, their profitability will be severely impacted.

In this context, Li Auto’s supply chain management efforts are accelerating, including:

1. Introducing a “horse race” mechanism among multiple suppliers. For example, starting in November 2025, Li Auto launched a dual-battery supplier model for the i6, involving CATL and XinWanda, to diversify supply sources and improve bargaining power while ensuring stable capacity.

2. Gradually implementing self-developed core technologies, such as the Mach 100 chip, 800V high-voltage platform, and fully active suspension system, which will reduce reliance on external suppliers and further optimize costs.

3. Expanding the pure electric product lineup. The i6, i8, MEGA, and the upcoming i9 will cover markets from 200,000 to 550,000 units, creating scale effects that will further reduce supply chain costs.

In theory, Li Auto’s management will have more leverage over the supply chain in 2026 than last year. However, this does not necessarily mean the company will emerge from its low point and return to glory, as market dynamics are constantly changing, and competitors may iterate faster.

As shown in the chart, after the start of 2026, Li Auto’s monthly deliveries are already close to last year’s figures. However, considering the high proportion of extended-range vehicles, the pure electric delivery numbers still lag behind NIO and Xpeng (Xpeng’s deliveries are between 15,000-20,000 units, NIO between 20,000-27,000). When comparing only pure electric vehicles, Li Auto still has a significant gap to close. First Shanghai Securities predicts that if Li Auto can resolve its supply chain issues, monthly production of the i6 could exceed 20,000 units, which would be a major positive for the company.

Since late 2025, authorities have intensified efforts to curb “internal competition,” especially targeting price wars in the automotive industry. For profitable EV companies, this is a positive development, allowing them to secure more stable profits. However, for Li Auto, which is still catching up, it may mean “cutting back” on price strategies. In 2026, the company will need to focus heavily on supply chain management, including but not limited to: reducing accounts payable periods (affecting cash flow), and introducing multiple suppliers for competitive bidding (raising quality management standards). The sales data from January-February and recent stock performance indicate that Li Auto’s tasks in 2026 are indeed challenging.

Additionally, we must pay close attention to how short-term setbacks might affect internal morale. The underperformance of MEGA and the simultaneous decline in volume and price this year have led to a noticeable increase in employee turnover. As a company that has enjoyed a smooth ride so far, this is a critical test for Li Auto and CEO Li Xiang. We hope the company can review its issues, streamline operations, and recover quickly from the downturn.