Macquarie has adjusted its view of Chinese electric vehicle maker Li Auto, raising its recommendation from Underperform to Neutral in a research note dated May 29. The bank said that while margin pressure and softer demand remain material challenges, several indicators suggest the company may be approaching a trough after a difficult start to 2026.
Quarterly performance and margin dynamics
According to Macquarie, Li Auto’s first-quarter 2026 results were likely the weakest of the year. The company reported a net loss of RMB2.1 billion for the quarter, a result the brokerage noted was still ahead of market expectations. Revenue for the period totaled RMB22.98 billion, representing a sequential decline of 20.1% and a year-on-year drop of 11.4%.
Li Auto’s gross profit margin compressed sharply, falling to 7.9% from 17.8% in the previous quarter. Vehicle-level margins moved down into single digits, a deterioration that Macquarie attributed to a higher share of sales comprised of the lower-margin i6 battery electric vehicles, together with volatility in raw material costs.
What could stabilise results
Despite those headwinds, the brokerage flagged signs that demand may be stabilising and that product mix and profitability could improve over the coming quarters. Management has scheduled several model introductions: a new L8 model is planned for late June, with L7 variants expected to launch in the second half of 2026. Company targets include a 20% increase in annual vehicle volumes.
Macquarie also highlighted balance-sheet strengths as a source of downside protection. Li Auto holds roughly RMB94 billion in cash reserves, an amount approaching its market capitalisation of about RMB113 billion. The firm has also announced a US$1 billion share buyback programme, which Macquarie said adds to the support for the stock.
Forecasts, targets and competitive backdrop
Even as it upgraded the rating, Macquarie trimmed its operational outlook: its 2026 vehicle delivery forecast for Li Auto was reduced by 12%. The broker now expects the company to report a net loss of RMB0.32 per share for 2026, a reversal from its earlier projection of profitability for the year.
The brokerage slightly lowered its Hong Kong-listed price target to HK$57 from HK$59, while leaving the US-listed target unchanged at US$15. Macquarie said both targets indicate limited downside from prevailing trading levels.
Competition remains a pressing concern. The note emphasized that Li Auto faces mounting pressure from a growing field of extended-range EV competitors and continues to struggle to gain traction in the pure battery EV segment. Nonetheless, analysts at the bank said Li Auto’s fundamentals appear to be moving toward a bottom after the weak start to 2026.
Summary
Macquarie upgraded Li Auto to Neutral on May 29, citing early signs that demand and product mix could improve after a challenging first quarter. The company reported a RMB2.1 billion net loss for Q1 2026, revenue of RMB22.98 billion, and a gross margin contraction to 7.9%. The broker trimmed delivery and earnings forecasts for 2026, cut the Hong Kong price target slightly and highlighted Li Auto’s substantial cash buffer and US$1 billion buyback as downside protection.