Li Auto Earnings: Solid Results Overshadowed by Weak Deliveries Guidance

Li Auto LI reported second-quarter revenue 11% above the high end of the firm’s guidance. A vehicle margin of 21% improved by 1.3 percentage points from last quarter, largely benefiting from economies of scale and less impact from promotions for the Li ONE SUV. However, vehicle delivery guidance for the third quarter fell short of market expectations, which also indicates increasing competition from the Nio ES6 SUV in our view. We increase our 2023-25 revenue and profit estimates, but reduce the outer years’ profitability assumptions. We raise our fair value estimate to USD 35.50 per ADS (HKD 136 per share) from USD 31 per ADS (HKD 120 per share), which implies a forward 2024 price/sales ratio of 1.5 times.

Second-quarter revenue grew 2.3 times year over year to CNY 28.7 billion. The growth was underpinned by 2 times growth in the quarter’s vehicle deliveries to 86,533 units and a 9% gain in the average selling price. The 7% sequential decline in the ASP was mainly due to a higher volume contribution from the lower-priced L7 SUV. Vehicle margin for the second quarter improved by 1.3 percentage points to 21.0% from the first quarter and remained stable year over year despite a product mix change. With a decrease in operating expense ratios, CNY 430 million for interest income and CNY 324 million for other income, Li Auto reported second-quarter net profit of CNY 2.3 billion compared with a CNY 618 million net loss a year ago.

For the third quarter management guided vehicle deliveries to grow 16%-19% quarter over quarter to 100,000-103,000 units and total revenue to rise 13%-16% year over year to CNY 32.3 billion-CNY 33.3 billion. The high end of delivery guidance implies a monthly sales volume of about 34,000 units for August and September, which we believe missed market expectations of 35,000-40,000 units. The firm attributed the conservative guidance to a components supply bottleneck and is confident it can ramp up monthly sales to 40,000 units in the fourth quarter.