Shares of Li Auto Inc. (LI) took a hit Thursday after the Chinese electric vehicle maker reported a rough fiscal fourth quarter. Deliveries slid, margins shrank, and revenue missed expectations—a combination that tends to make investors a bit nervous.

The numbers tell a clear story: quarterly revenue fell 35% year-over-year to 28.8 billion Chinese yuan, or about $4.11 billion. That came in below the analyst consensus of $4.28 billion. Adjusted net earnings landed at 0.25 yuan per American depositary share (4 cents), just shy of the Street's expectation of 5 cents.

Vehicle sales, the company's main revenue driver, dropped 36.1% to $3.9 billion. The primary culprit? Fewer cars rolling off the lot. Li Auto delivered 109,194 vehicles in the quarter, down 31.2% from the 158,696 units it delivered a year earlier. On the bright side, that's still an improvement from the 93,211 vehicles delivered in the prior quarter.

For context, it's worth looking at how some rivals fared. Nio Inc. (NIO) reported quarterly deliveries of 124,807 vehicles, up 71.7% year-over-year. Tesla Inc. (TSLA), meanwhile, delivered a record 418,227 vehicles globally in the quarter, though that figure was down 16% from a year earlier. So while Li Auto isn't alone in facing challenges, its decline stands out.

Profitability took a hit, too. Vehicle margin contracted to 16.8% from 19.7% a year ago. Gross margin fell to 17.8% from 20.3%. The company posted an adjusted operating loss of 188.4 million yuan ($26.9 million), compared with an adjusted operating income of 4.2 billion yuan in the same quarter last year. Adjusted net income plummeted to 274.4 million yuan ($39.2 million) from 4 billion yuan a year earlier.

Some of that pressure came from costs tied to the recall of the Li MEGA in the third quarter of 2025. Still, the company ended the quarter with $14.5 billion in cash and equivalents—a war chest that gives it some breathing room. Net operating cash flow was 3.5 billion yuan ($503.5 million), down from 8.7 billion yuan a year earlier. Free cash flow came in at 2.5 billion yuan ($352.9 million), compared with 6.1 billion yuan in the year-ago quarter.

On the operational front, Li Auto has been expanding its footprint. As of Dec. 31, 2025, it operated 548 retail stores across 159 cities, along with 561 service centers and 3,907 supercharging stations with 21,651 charging stalls.

Chairman and CEO Xiang Li said the company's strategic adjustments in 2025 started to pay off in the fourth quarter, improving organizational efficiency, supply capacity, and the sales system. He noted that these changes boosted store productivity, eased production constraints for the Li i6, and helped Li i8 sales recover. Looking ahead, Xiang said Li Auto will enter an important product cycle in 2026, with the new Li L9 scheduled to launch in the second quarter. The model is expected to feature upgrades in powertrain, autonomous driving, and chassis technology.

CFO Tie Li didn't sugarcoat the challenges. He said the company maintained a resilient gross margin in the fourth quarter by leveraging operational strength and strict cost control, "despite short-term pressure from model transitions and intensifying competition." He added that a solid financial foundation supported full-year profitability, with year-end cash holdings of 101.2 billion yuan, giving the company "strong capacity to pursue growth in embodied AI and global expansion."

But the outlook suggests more bumps ahead. For the first quarter of 2026, Li Auto expects revenue between 20.40 billion yuan and 21.60 billion yuan ($2.90 billion to $3.10 billion). That represents a year-over-year decline of 21.3% to 16.7% and is well below the analyst consensus estimate of $4.11 billion. The company expects vehicle deliveries of 85,000 to 90,000 units, which would be a decrease of 8.5% to 3.1% from a year earlier.

In short, Li Auto is navigating what its CFO called "brutal" competition while managing a model transition and recall-related costs. The company has cash, a growing retail network, and new products on the horizon—but for now, the road looks challenging.