A dearth of new models coupled with rebates to compete with Chinese rivals could see Li Auto’s (LI) sales drop 10% and profits evaporate in 2026, leading J.P. Morgan to downgrade the automaker to Underperform from Neutral and lower its price target by 22% to $14.
“Our primary reservation on Li Auto is a lack of major new models this year when competitors are launching [extended range EVs] and BEVs that overlap with Li’s existing offerings,” writes J.P. Morgan’s Nick Lai.
To address competitive pressures, Li (LI) is currently offering rebates of RMB 20-30K and discounts on its models. The potential impact on the company’s top-line coupled with price cuts, incentives, and input cost inflation, could cost Li Auto (LI) its fragile profitability and ultimately, a further correction in its share price (currently down 31% year-over-year).
Cost pressures are not just isolated to Li Auto (LI), however, as Lai anticipates bottom-line pressure across the EV industry from higher prices for lithium, copper, and storage chips. Spot prices for these have risen by 30% to 50% recently, and cost pressure will likely start to kick in across the supply chain into the second quarter of this year, Lai predicts.
Accordingly, Lai cut earnings estimates for key OEMs in 2026, including BYD (BYDDY) (BYDDF), Great Wall, Nio (NIO), Xpeng (XPEV), Leapmotor, and Li Auto (LI).
On the flip side, by accelerating production in overseas markets, extending distribution networks further, and increasing product offerings, Chinese OEMs should mitigate tariff headwinds and the European Union’s anti-dumping price policy.
J.P. Morgan’s downgrade of Li Auto (LI) is weighing on shares, leading to a 3% loss in the share price on Monday.