Li Auto Earnings: Strong Start to 2023 With Stringent Cost Control Leading to Profit Turnaround

Li Auto’s LI first-quarter results look good at first glance, with revenue at the high end of the company’s guidance. However, profit turnaround came mainly from a jump in interest income following last year’s capital raise and lower research and development spending. Vehicle margin of 20% for the quarter was slightly weaker than our expectation, with promotions on the Li One offsetting better product mix. Benefiting from lower operating expense ratios and CNY 419 million in interest income on bank deposits, first-quarter net profit rebounded to CNY 930 million from a net loss of CNY 11 million in the prior-year quarter. We reduce our 2023-25 operating expense estimates, but keep long-term assumptions largely unchanged. We slightly raise our fair value estimate to USD 31 per ADS (HKD 120 per share) from USD 30.50 (HKD 119), which implies a forward 2023 price/sales ratio of 2.2 times.

First-quarter revenue grew 96% year over year to CNY 18.8 billion. This was underpinned by 66% growth in the quarter’s vehicle delivery to 52,584 units, and 19% gain in average selling price due to higher volume contribution from the higher-priced L9 sport utility vehicle. However, due to 1) the low-margin profile of the L7 SUV; and 2) promotions on the phase-out of the Li One, vehicle margin for the quarter declined to 19.8% from 22.4% in the first quarter last year, despite product mix improvement.

For the second quarter, management guided vehicle delivery to grow 165%-182% year over year to 76,000-81,000 units, and total revenue to increase 177%-196% year over year to CNY 24.2 billion-CNY 25.9 billion. The midpoint of the delivery guidance implies a monthly sales volume of around 26,000 units for May and June, which we believe is at the low end of the market expectation for 25,000-30,000 units. A major growth driver of the second-quarter’s sales will be from further ramp-up of the L7 and additional contribution from the low-end trim L7 Air and L8 Air, in our view.