Goldman Sachs downgraded Li Auto Inc to a neutral rating from buy on Tuesday after reviewing the company's fourth-quarter 2025 results, and the move sent the stock lower in pre-market trading.
The bank cut its 12-month target price for Li Auto's American depositary receipts by 21%, to $19 from $24, and lowered its target for the company's Hong Kong-listed shares by 20%, to HK$74 from HK$93.
Goldman Sachs flagged an expected period of deteriorating profitability, projecting two quarters of widening net profit losses in 1Q26 and 2Q26 - a trough not seen since 3Q22. The brokerage expects lackluster unit growth and compressed vehicle gross margins, forecasting year-on-year volume changes of -6% and +2% across the two quarters and vehicle gross margins of roughly 5% and 10% respectively, which it describes as the lowest levels since 1Q20.
As part of its reassessment, Goldman Sachs trimmed its 2026-2028 volume outlook by 5 percentage points to a compounded growth assumption of 22%, citing the company's softer guidance and a reduced model launch cadence. The firm now anticipates one facelift model instead of the three it had previously expected.
The brokerage also cut its gross margin assumptions by between 0.4 and 1 percentage point and reduced net profit forecasts across its modeled years by between 21% and 34%.
For the first quarter, Li Auto's own guidance indicates vehicle margins of around 5%. Goldman Sachs noted that promotional activity, tax subsidies and lower supplier rebates are each putting pressure on margins by roughly 3 to 4 basis points. The bank further highlighted rising component costs in the electric vehicle bill-of-materials, estimating an average increase of about RMB4,000.
Management's published guidance calls for approximately 20% year-on-year volume growth in 2026 and for first-quarter deliveries of 85,000 to 90,000 vehicles. Goldman Sachs' proprietary forecast for 2026 stands at 476,000 units, equivalent to 17% growth.
Profitability is expected to remain subdued in Goldman Sachs' view. The firm projects an EBIT margin of negative 0.4% for 2026, a modest improvement from negative 0.5% in 2025, with first-half margins weakening to negative 9% before recovering to roughly 5% in the second half of the year. On a per-unit basis, vehicle unit profit is forecast to fall to RMB5.4k from RMB5.9k.
Goldman Sachs also called out increased spending plans, expecting research and development costs to rise to approximately RMB12 billion in 2026, up from RMB11 billion in 2025.
On balance sheet metrics, Li Auto finished 2025 with net cash of RMB92 billion and a total liabilities-to-asset ratio of 53%.
What this means
- Goldman Sachs' rating and target cuts signal a reassessment of Li Auto's near-term profitability profile and product cadence.
- Volume and margin downgrades suggest downside pressure on earnings and unit economics for the electric vehicle segment.
- Despite headwinds, the company retains a strong net cash position entering 2026.
Key data points (as reported)
- ADR 12-month target: $19 (down from $24).
- Hong Kong target: HK$74 (down from HK$93).
- Expected near-term vehicle gross margins: ~5% and ~10%.
- Goldman Sachs 2026 volume forecast: 476,000 units (17% growth).
- Projected vehicle unit profit: RMB5.4k (down from RMB5.9k).
- Net cash at end-2025: RMB92 billion; liabilities-to-asset ratio: 53%.