TMTPost --  The American depositary receipts (ADRs) of Li Auto Inc. dived as much as 17.8% before settling 16.1% lower Wednesday, underperforming the U.S. stock benchmark S&P 500, which edged down 0.6% that day, while the Nasdaq Golden Dragon China Index, which tracks 65 China-exposed U.S.-listed companies, closed 3.6% lower.  Shares suffered a major selloff despite sales beat of the Chinese electric vehicle (EV) maker posted earlier Wednesday.  

Credit：Li Auto

Li Auto reported total revenue of RMB31.7 billion (US$4.2 billion) for the quarter ended June 30 with a year-over-year (YoY) rise of 10.6%, stronger than Wall Street estimates of RMB31.42 billion. Diluted net earnings per American depositary share (ADS), or EPS, slumped 51.8% YoY to RMB1.05 (US$0.10), slightly ahead of analysts’ projection of US$0.09. Net income was RMB1.1 billion, representing a YoY decrease of 52.3% and an increase of 86.2% from the previous quarter. On non-GAAP basis, diluted EPS was RMB1.42 and net income was RMB1.5 billion, down 45% and 44.9% YoY, respectively.

The stellar revenue was driven by vehicle sales. Li Auto delivered  a total of 108,581 EVs in the second quarter, just shy of analysts expected 108,611 units. The delivery represented a YoY increase of 25.5%. Delivery in July gained 49.4% YoY to 51,000 units, Vehicle business brought RMB30.3 billion that quarter with a 8.4% YoY increase, topping analysts’ forecast of RMB29.99 billion.

Since the second quarter, Li Auto has emerged as the sales champion of Chinese automotive brands in the RMB200,000 and above new energy vehicle (NEV) market amid intense competition, buoyed by segment leadership across all Li Auto models and enhanced store efficiency, said chairman and CEO Li Xiang. He added that cumulative deliveries of the company surpassed the 800,000-vehicle milestone in June, making history for Chinese premium automotive brands

Li Auto Chief Finance Officer (CFO) Li Tie highlighted gross margin remained healthy at 19.5% despite the imparct from ramping up a new model. “As Li L6 production stabilizes and our cost reduction and efficiency enhancement measures take full effect, we expect an increase in both our margins and cash flow in the second half of the year. Looking ahead, we are committed to investing in technological and product advancements to drive steady business growth, while simultaneously optimizing our cost structure,” Li said.

In the face of intense competition especially in the homeland auto market, Li Auto delivered a stronger-than-anticipated revenue at the cost of more than 50% decline in net income in the second quarter. Its vehicle gross margin only dropped 2.3 points YoY and 0.6% points from three months ago to 18.7%, still better than Wall Street projection of 18%.

Shares selloff reflected investors’ reaction to the headwinds that still exist. Vehicle margin recorded both YoY and quarter-over-quarter (QoQ) declines, which led to lower vehicle prices. And lower pricing is a result of fierce competition that has been an issue for EV stocks all year. Third Bridge analyst Rosalie Chen noted that Li Auto has now dropped its average product price to below RMB300,000 (US$42,109) with the launch of its EV model L6. Commenting resuts for the second quarter beat and opearing expenses controlled well, Citi analyst Jeff Chung maintained rates shares Buy but cut his price target for ADRs by 11.5% to US$26.20, citing lower valuation targets.   

Looking forward, Li Auto expected delivery for the third quarter to be between 145,000 and 155,000 vehicles, an increase of 38% to 47.5% from a year earlier. Total revenue for the current quarter is expected to be between RMB39.4 billion and RMB42.2 billion, up 13.7% to 21.6% YoY. The solid guidance stilled failed to help reverse shares selloff.