(Yicai) Nov. 28 -- Chinese new energy vehicle giant Li Auto has reported its first loss in 11 quarters in the third quarter of this year, mainly because of supply chain bottlenecks and costs related to the mass recall of Li Mega units.

Net loss totaled CNY624.4 million (USD87.7 million) in the third quarter, compared with a net profit of CNY2.8 billion a year earlier, the Beijing-based automaker announced on Nov. 26. Gross margin narrowed to 16.3 percent from 21.5 percent.

Revenue fell 36 percent to CNY27.4 billion (USD3.8 billion) in the three months ended Sept. 30 from the same period last year, as vehicle sales plunged 37 percent to CNY25.9 billion. Li Auto delivered 93,211 vehicles, down 39 percent in the period.

The gross margin decline mainly reflects the estimated costs of the Li Mega recall and higher manufacturing expenses per car amid lower output, Chief Financial Officer Johnny Li said during the earnings conference call, adding that excluding recall costs, the gross margin would have been 20.4 percent.

The State Administration for Market Regulation announced early this month that Li Auto will recall 11,411 Li Mega units, nearly half of all it has delivered, due to insufficient coolant corrosion protection. The news came after a Li Mega suddenly caught fire under its chassis while moving slowly, with the entire car engulfed in a massive fireball within 10 seconds.

After calling the third-quarter performance "mixed," Li Auto's Chief Executive Officer Li Xiang unveiled a major strategic reset for the company's second decade. He said that the professional management model may suit mature firms, such as Apple or BMW, but it is mismatched with the rapid shifts driven by the artificial intelligence era.

"We forced ourselves to embrace all kinds of changes," Li noted. "However, we all realized that we became diminished versions of ourselves." Li Auto will immediately return to an "entrepreneurial model," he explained, citing Nvidia and Tesla as examples.

Li also criticized the industry's ongoing competition over vehicles' range and size, describing it as a "waste of cost." Instead, he said the company will anchor its long-term strategy in embodied AI, aiming to turn cars into intelligent robots.

"Only if we choose embodied AI can we really change the life of our users," he pointed out, adding that the firm's M100 chip and new AI system will begin mass production next year.

Li Auto is navigating a difficult shift from an extended-range EV lineup to full battery EVs. President Ma Donghui acknowledged supply chain constraints for the Li i6 and Li i8 BEVs.

The i6 will adopt a "dual supplier strategy" for batteries starting this month, according to Ma. Its monthly production capacity should stabilize at 20,000 units early next year.

Addressing the upcoming expiration of China's purchase tax incentives, Ma expects a "pull forward effect" late this year, followed by a dip in the first quarter of next year. To offset this, Li Auto will introduce a new purchase program covering tax differences for orders placed before year-end.

In the fourth quarter, Li Auto expected to deliver between 100,000 and 110,000 vehicles and achieve revenue of CNY26.5 billion to CNY29.2 billion.

Despite the quarterly loss, Li Auto maintains a strong cash position, with CNY98.9 billion in reserves, which will underpin its heavy investment in embodied AI and autonomous driving technologies, according to the company's management team.

Editor: Futura Costaglione