Li Auto Cut to Hold From Buy by HSBC

Li Auto's earnings will likely remain under pressure next year, given its sluggish fourth-quarter revenue and sales guidance, says Morningstar analyst Vincent Sun in a note. The vehicle recall of its MEGA model, which Morningstar estimates lowered gross profit by around CNY1 billion, resulted in an operating loss for 3Q, he notes. The company's management expects volume growth to resume next year with the resolution of the battery supply bottleneck and new generation plug-in hybrid model launches, he says. However, competition will likely pressure Li Auto's sales volume growth while the contribution from battery models remains low, he says. Morningstar cut Li Auto's vehicle sales volume forecast by 15% to 17% between 2025 to 2029. (jiahui.huang@wsj.com; @ivy_jiahuihuang)

Li Auto has yet to bottom out in terms of quarterly performance amid further challenges ahead, Nomura analysts write in a note. Li Auto faces fierce competition from peers to its L series full-electric vehicles, as well as a bottleneck in i6 battery capacity. The company is also dealing with fallout from a recall of its MEGA model, while facing a seasonal softer sales period, Nomura says. Looking ahead to 2026, Li Auto may face more pressure on margin and shipments in 1Q compared with 4Q 2025, due to weaker demand and the upcoming reduction in China's EV purchase tax exemption, it adds. The brokerage maintains a neutral rating on Li Auto with a target price of $31.00. The ADRs last closed at $18.43. (jiahui.huang@wsj.com; @ivy_jiahuihuang)