What Next For Li Auto After Its Weak Delivery Guidance?

LI: Li Auto logo
Li Auto

Li Auto stock (NASDAQ:LI) posted a weaker than expected set of Q2 2022 results last week, missing expectations on both revenues and earnings, while also providing a weaker than the expected delivery outlook for Q3. For the second quarter, the Chinese EV maker’s revenues rose by 73% year-over-year to $1.3 billion, while its net loss stood at about $0.04 per share, as operating expenses grew much faster than sales. For the third quarter, Li expects to deliver between 27,000 and 29,000 vehicles, marking an increase of just 11.5% versus last year at the midpoint, and a decline of about 2.5% versus Q2. This would mark the second straight quarter of delivery declines for the company this year. Although Li Auto is witnessing strong demand for the recently launched flagship L9 SUV, with sales likely to hit 10,000 units in September per management, demand for the company’s bread and butter Li-One model appears to be on the decline, hurting overall delivery volumes. Earlier this month, the company began offering a roughly $1,000 incentive on the Li-One as it looks to bolster sales.

While Li stock has declined by about 3% over the last five trading days, while remaining down by about 4% year-to-date, we think that there are a couple of factors that could help the stock. Investors probably shouldn’t worry too much about the near-term decline in Li-One sales. The vehicle, which has been the sole model in Li’s lineup since 2019, is understandably seeing lower interest given the company’s refreshed pipeline models. Apart from the L9, Li is also planning to launch another model called the L8, a lower-priced, scaled-down version of the L9, around the fourth quarter and this could help the company drive overall volumes higher.  Li is also getting more efficient with its production despite higher input costs and supply chain issues, as the company’s gross margins picked up to 21.5% in Q2, up from 18.9% last year.  Moreover, overall EV demand and favorable regulation in China remain a big tailwind for Chinese EV players. Between January and July, deliveries of new energy vehicles – a broad term that includes hybrids, EVs, and fuel cell vehicles – rose by over 2x versus last year. This could help Li Auto, which has highly differentiated vehicles that have a small gasoline engine that generates additional electric power and extends range.

Check out our analysis on Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for more details on how Li Auto stock stacks up versus its peers Nio and Xpeng.

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Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 LI Return -6% -4% 7%
 S&P 500 Return 0% -13% 85%
 Trefis Multi-Strategy Portfolio -1% -14% 236%

[1] Month-to-date and year-to-date as of 8/23/2022
[2] Cumulative total returns since the end of 2016

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