AsianFin -- The American depositary receipts (ADRs) of Li Auto Inc. gained 2.9% on Thursday as the artificial intelligence (AI) push including the development of automotive chips appears outweighs quarterly earnings miss and weaker guidance released by Tesla Inc.’s Chinese rival.
Credit：Li Auto
Li Auto reported total revenue of RMB30.25 billion (US$4.2 billion) for the quarter ended June 30 with a year-over-year (YoY) decreased of 4.5%. The top line reversed a 1.1% YoY rise three months ago, and missed the Wall Street estimates of RMB32.47 billion polled by Bloomberg by 6.8%.
On non-GAAP basis, diluted net earnings per American depositary share (ADS), or EPS, slumped 35.2% YoY to RMB1.37,below analysts’ projection of RMB1.42. Non-GAAP net income dropped 2.3% YoY to RMB1.46 billion, whereas Wall Street looked for profit of RMB1.59 billion with a 5.78% YoY increase after a decrease of 20.5% from the previous quarter.
Li Auto’s gross profit margin, as the only metrics in line with estimates, stood at 20.1%, edging up from the margin of 19.5% a year ago, The vehicle margin advanced 0.7% points YoY to 19.4%, thanks to lower average cost of sales. “In the second quarter, we remained focused on cost optimization and operational efficiency enhancement while navigating a dynamic market, achieving solid profitability that underscores our financial resilience and effective execution,” commented the Chief Financial Officer (CFO) Li Tie.
The sales and earnings miss reflected the pressure Li Auto is facing amid an intense price war in China’s electric vehicle (EV) sector.
The company delivered a total of 111,074 EVs in the second quarter with a YoY increase of 2.3%.The volume was 8.8% less than analysts expected 121,826 units, representing a 12.2% YoY gain. Vehicle business brought RMB28.9 billion that quarter with a 4.7% YoY decrease, while analysts projected sales to rise 5.5% YoY to RMB31.97 billion.
Li Auto attributed the YoY fall in revenue to lower average selling price (ASP) due to different product mix, interest subsidies provided to customers and increased sales incentives, partially offset by the increase in delivery.
Li Auto’s outlook also disppointed investors. The company anticipated delivery of 90,000 and 95,000 vehicles for the current quarter, representing a YoY decrease range of 37.8% and 41.1%. the guidance suggested much deeper-than-expected decline in delivery. Analysts expected the delivery to shed 11.4% YoY to 135,327 units. Li Auto estimated sales for the third quarter to plunge between 38.8% and 42.1% YoY to RMB24.8 billion and RMB26.2 billion, at least 36% less than analysts anticipated RMB 41.15 billion.
In spite of the big miss in guidance, Li Auto CEO Li Xiang on an earnings call stressed the potential of intelligence in driving purchase decisions. "We believe that intelligence is becoming an increasingly critical, maybe even the most critical driver of users’ purchasing decision."
Li also highlighted the company’s advancements in AI, noting, "We anticipate that with the enhancements in reinforcement training, model scale and computing power, the speed of our progress will far exceed anything we’ve seen in our previous approaches."
“We will continue to invest in products and intelligence, and look forward to the September launch of Li i6 to expand our model lineup and further elevate our position in China’s premium BEV market,” said Li in a statement. In response to a question about i6 at the conference, Li expressed his confidence on the launch.
“I’m pretty confident that the i6 will become a most competitive product in the large five-seater SUV market, because it has a unique exterior design. It has industry leading space and comfort and a very long range and one of the best real world range. It would also be equipped with our industry leading VLA driver large model. It will also be the best handling Li Auto product for till today. On Li I6, we’ll be taking a more user centric, a new way of marketing,” said Li.
Following the earnings call, Jefferies analysts said investor worries surrounding Li’s EV strategy may be overstated. They noted that Li’s self-developed AI chip is being tested in vehicles and preparing for deployment by 2026, moreover, the company has maintained a cash-rich position. The analysts expects monthly sales of i8 and i6 to reach 5,000 and 10,000 units, respectively, by the end of the year.
