About the company

Li Auto, which has been operating since 2015, is best known for its SUV model Li ONE, which is very popular in China. Although it specializes primarily in hybrid vehicles, it is looking to get into the mainstream with its first pure electric car, the Li Mega. The company is trying to adapt to the growing competition in electric vehicles in China. It is also focusing its strategy on expanding charging stations and increasing the availability of its vehicles. In addition to technological innovation, Li Auto is also focusing on developing intelligent and autonomous [1]features in its vehicles, which puts it in competition with global leaders in the EV industry.

Delayed launch of planned models

Following poor sales of its all-electric Mega, Li Auto has decided to postpone the launch of its three new electric SUVs until the first half of 2025. The company cites a lack of fast-charging stations and little capacity to display these new models in its dealerships as the two main reasons for this decision. In the automaker's own words, it has prioritized investing in the development of infrastructure for EVs instead of quick profits. It is Li Auto's charging network that is lagging behind rival companies like Nio and Tesla. By comparison, Li Auto had about 400 fast-charging stations available in China by mid-May, while Tesla has about 2,000 and Nio as many as 2,200. According to analysts at China Merchants Bank, building such infrastructure could negatively impact the carmaker's profitability in the near future.

The Li Mega has been a disappointment

The March launch of its first battery-electric vehicle, the Li Mega, fell short of expectations. The car was supposed to compete with other vehicles priced above 500k CNY (69k USD). Instead, the company delivered just over 3 thousand units in the first month of the model's launch, while analysts had expected monthly sales of the Li Mega to reach 8 thousand units.[2]  The carmaker subsequently saw total month-on-month shipments of its vehicles fall by 11.03 % to 25,787 units in April, although this was a slight increase on a year-on-year basis. For the January-April period, deliveries were up 35.68% year-on-year to total 106,187 vehicles. The company faced a challenging start to 2024 with monthly declines, partly caused by Chinese New Year celebrations. In response to the drop in deliveries, Li Auto cut prices on most of its vehicles and its Beijing factory saw reduced activity last week, with many employees taking time off due to Li Mega's weak sales.[3] [4]

New tariffs on Chinese imports from the U.S. government will mainly affect electric cars

US President Joe Biden announced a series of new tariffs on Chinese imports, including a 100% tariff on electric vehicles. The aim is to prevent cheap Chinese exports from devaluing US government investment in key manufacturing sectors. Although the immediate impact on US consumers may be minimal given the low sales of Chinese electric vehicles in the US, the tariffs are seen as a precautionary measure to deter China from flooding the market with surplus products. However, there are concerns that Chinese electric vehicle production could shift to Mexico to avoid the tariffs.[5] Already the first reports of such moves by the US at the beginning of the month have caused share prices of major Chinese electric car makers, including Li Auto, to fall. Still, the impact of the tariffs on Chinese manufacturers may be uncertain, as sales are primarily focused on the domestic market, where demand remains strong.[6]

Economic results for the first quarter

In the first quarter of 2024, Li Auto Inc. achieved a significant year-on-year increase in total sales, which reached 25.6 billion CNY (3.6 billion USD), an increase of 36.4%, but a decline of 39% compared to the previous quarter. Despite the revenue growth, net profit fell 36.7% to 591.1 million CNY (81.9 million USD) compared to the first quarter of 2023. Earnings per share decreased as well, reaching 0.56 CNY (0.08 USD), down 37.1% year-on-year. Overall, these results are inconsistent for the automaker.[7]

Stock Rating

CFRA downgraded shares of Li Auto from a "Hold" rating to a "Sell" rating and lowered the target price from 50 USD to 18 USD. The downgrade reflects the company's struggling profit margins despite year-over-year sales growth. Analysts expect Li Auto's revenue growth to exceed 70% between 2024 and 2025, but intense competition in China's electric vehicle market could limit average selling prices and increase research, development and marketing spending.[8][1]

Li Auto Inc's share price performance over the past 5 years. (Source: Google Finance)*

Conclusion

Li Auto's future will depend on its ability to adapt to a rapidly changing market and to cope with increasing competition from other Chinese and international electric vehicle manufacturers. The company is now facing significant infrastructure investments, which, along with the delayed launch of new car models, may hinder its growth and profitability. New US tariffs on Chinese imports also pose a significant challenge.

Adam Austera, Principal Analyst at Ozios

[*] Past performance is no guarantee of future results

[1] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://www.investing.com/news/stock-market-news/li-auto-delays-pure-electric-suv-launch-due-to-insufficient-fast-charging-network-3449070

[2] https://auto.economictimes.indiatimes.com/news/passenger-vehicle/li-auto-delays-pure-electric-suv-launch-due-to-insufficient-fast-charging-network/110289798

[3] https://cnevpost.com/2024/05/01/li-auto-deliveries-apr-2024/

[4] https://cnevpost.com/2024/05/19/some-employees-li-auto-beijing-plant-extra-break-report/

[5] https://www.theguardian.com/us-news/article/2024/may/15/joe-biden-us-tariffs-chinese-evs-electric-vehicles-details

[6] https://www.investing.com/news/stock-market-news/china-ev-stocks-sink-on-reports-of-us-tariffs-3433535

[7] https://ir.lixiang.com/system/files-encrypted/nasdaq_kms/assets/2024/05/20/3-11-11/Li%20Auto%20Inc.%20Announces%20Unaudited%20First%20Quarter%202024%20Financial%20Results.pdf

[8] https://www.investing.com/news/company-news/li-auto-stock-downgraded-to-sell-price-target-slashed-on-q1-report-93CH-3448511