Li Auto's poor earnings report yet the stock price rose? Morgan Stanley: "The bad news is fully priced in" rather than a reversal, the key going forward is "self-developed chips and capacity ramp-up"

Despite the weak third-quarter financial report and lackluster guidance, Li Auto's stock price unexpectedly rebounded. According to Chasing Wind Trading Desk, on November 26, Morgan Stanley analyst Tim Hsiao's team released a latest research report indicating that this seemingly counterintuitive market reaction is essentially a "tactical rebound" after the negative impact of the MEGA model has been fully priced in. For investors, the key now is not to get bogged down by the poor short-term data, but to assess whether the company can endure the supply chain bottlenecks and achieve a turnaround through self-developed technology by 2026. Tactical Rebound After Negative Sentiment Exhaustion The market's reaction to Li Auto's "poor data coupled with rising stock prices" has left many puzzled. Morgan Stanley stated in the report that investors need not overinterpret this short-term fluctuation. Rather than a fundamental reversal, it is more about the market confirming the negative "shoe dropping" of the MEGA model, leading to an emotional release. "Investors find it 'puzzling' that the weak third-quarter data and sparse sales guidance have triggered a rise in stock prices. We tend to attribute this to a tactical rebound after the MEGA uncertainty has been fully discounted." Supply Chain Pain and Margin Pressure The fundamentals still face severe challenges, primarily due to supply chain bottlenecks. The report pointed out that the production ramp-up of the Li i6 model is slow, and even with the introduction of secondary suppliers, the battery shortage is unlikely to be filled in the short term, with monthly production capacity expected to reach 20,000 units only by early 2026. Additionally, to address recalls, MEGA battery packs are prioritized for existing users, further lowering the delivery expectations for the fourth quarter of 2025. "Li Auto expects that the adjusted overall vehicle profit margin in the fourth quarter will decline by 3-4 percentage points quarter-on-quarter to 15-16%, mainly affected by increased promotions and an unfavorable product mix. Management still hopes that after the production capacity runs smoothly next year, the i6 profit margin can rebound from the current level of less than 15% to over 15%." The Bet on 2026: Self-Developed Chips and L Series Upgrade Morgan Stanley believes that Li Auto's future entirely hinges on the "technological gamble" of 2026. The company plans to regain its dominance in extended-range electric vehicles (EREV) through the upgrade of the 2026 L series, with the core variable being the implementation of self-developed technology—especially the autonomous driving chip codenamed M100. "The large-scale adoption of the self-developed AD chip M100 is a key support for realizing its embodied intelligence ambitions. Li Auto will also equip the new L series and subsequent I series with the M100 chip as the backbone of its AI system." In addition, Li Auto will launch a self-developed powertrain solution that includes a 5C battery and enhanced electric drive system. Morgan Stanley maintains its "Overweight" rating and a target price of $32, but under the dual pressure of declining pure electric profit margins and extended-range sales pressure, investor confidence in the 2026 L series release will be crucial in determining the stock price direction