Li Auto Earnings: Strong Results Mitigating Market Concerns of Competition and Profitability

Li Auto reported fourth-quarter revenue 6% ahead of the high end of its guidance. Vehicle margin of 23% staged an upward trend sequentially, with adjustments of warranty reserve and economies of scale offsetting the impact of price promotions. Vehicle delivery guidance was also better than market expectations. We increase our fair value estimate to USD 51.00 per ADS (HKD 198.20 per share) from USD 39.10 per ADS (HKD 151.90 per share), which implies a forward 2024 price/sales ratio of 2 times and price/earnings of 33 times.