Li Auto: A Slow Start To A Challenging 2024

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Li Auto: A Slow Start To A Challenging 2024

seekingalpha05-18

Li Auto will announce first-quarter results on Monday, after a slow start to the year in terms of deliveries.Demand for the newer Li L6 and Li MEGA models was lower than expected due to a price war in...

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Alvin2042
·05-19
A big part of why Li Mega miserable sales is the ugly design!
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href=https://seekingalpha.com/article/4694322-li-auto-slow-start-to-challenging-2024><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Li Auto will announce first-quarter results on Monday, after a slow start to the year in terms of deliveries.Demand for the newer Li L6 and Li MEGA models was lower than expected due to a price war in...</p>\n\n<a href=\"https://seekingalpha.com/article/4694322-li-auto-slow-start-to-challenging-2024\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BYDDF","symbol_name":"BYD Co., 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ETF-NikkoAM"},"translate_title":"理想汽车：充满挑战的2024年的缓慢开端","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"XPEV":1,"NIO":1,"LI":1,"BYDDF":1,"NIO.SI":0.6,"EVS.SI":0.6,"09866":0.6},"content_text":"Li Auto will announce first-quarter results on Monday, after a slow start to the year in terms of deliveries.Demand for the newer Li L6 and Li MEGA models was lower than expected due to a price war in the EV market and macroeconomic factors.A softer macroeconomic backdrop will pose a challenge for Li Auto, which generally sells more to the upmarket sector in China.Because of the current headwinds, we expect first-quarter results to come in sluggish, and eyes will be on what the second half of 2024 will bring.   Robert Way After an eventful quarter, both in terms of macroeconomic developments in China and new developments in the Chinese EV market, Li Auto Inc (NASDAQ:NASDAQ:LI) will report first-quarter results on Monday. Since our last coverage of the maker of extended-range electric vehicles (EREV) and battery-electric vehicles (BEV) in February, the stock has fallen 14.29% from $30.26 to $25.89, despite first rising to $46 after excellent fourth-quarter results. This comes after Li Auto faced lower order intake than initially expected from its recently launched Li L6 and Li Mega models, as well as an overall slow start to the first quarter in terms of deliveries. According to multiple reports this week, for instance, it is expected that Li Auto will cut 18% of its workforce, after cutting prices across the board for all models except the recently launched Li L6 in previous weeks. Nevertheless, we look at some recent key developments, what lies ahead for the upcoming first-quarter results and why we are currently changing our rating for Li Auto to a ‘hold rating’. Data by YCharts Off To A Slow Start To start with recent deliveries, Li auto reportedly delivered 25,787 vehicles in April, a slow start after the recent launch of the Li MEGA in March and the Li L6 in April, although large-scale deliveries of the Li L6 will only start this month. Deliveries across the board were seemingly lower in Q1, which could also be attributed to the timing of the Chinese New Year. In total, Li Auto delivered 80,400 vehicles in the first quarter. That is lower than the initially expected 100,000-103,000, but higher than the latest updated expectations, which assumed deliveries between 76,000 and 78,000. CnEVPost The company also recently noted that orders for the recently launched Li L6 have already exceeded 41,000 units, with the vehicle currently Li Auto's least expensive vehicle available at 249,800 RMB or $34.6K. The introduction of their latest model is accompanied by an industry-wide competition and price war for market share with other major EV competitors such as Tesla (TSLA) and BYD (OTCPK:BYDDF), which have also significantly lowered their prices in recent months. The other recently launched all-electric Li MEGA came in a different price range with a price tag of $77.84K. In our previous article, we described our doubts about the competitive advantage by pointing out the competition from the XPeng X9 (XPEV), which had similar statistics to the Li MEGA but was almost 30% cheaper. The launch of this high-price EV, as we noted, also came at a time of increased economic pressure in the Chinese economy, which may have made certain Chinese citizens less eager to buy premium EVs. Post-launch, sales also got off to a rather slow start, with the company indicating that the initial target of 70k-80k units would probably have to be lowered to 50k-60k units. On the other hand, Li Auto is not the only one struggling, as generally, monthly sales of NEVs across China have been lower than expected. CnEVPost This has also led Li Auto to lower its 2024 sales target from 800,000 sales to 560,000-640,000 sales for the full year. As Q1 concerns, reports have also indicated that inventory is starting to build up, with Li Auto's stock reportedly higher especially for Li L9 and Li L7 models. All Eyes On Q1 As for the first-quarter results on Monday, we think the focus will be on the sales outlook for the rest of the year and in particular the future roadmap of new models expected to be launched in 2H 2024, as mentioned in the previous earnings call: In the second half of the year, as we've communicated before, we will be releasing yet another three pure electric SUV models, all standard common standard with 5C charging and all-wheel drive. And I would like to emphasize those cars are very, very competitive. And they will become the top choice for family users in their respective price segments. It will also be interesting to see whether Li Auto's gross margins will meet their target of 20%, to which management previously insisted, despite the challenging macroeconomic backdrop and a tough competitive environment. We will also look forward to any hints on what the updated sales prospects of Li L6 and Li Mega will look like for the rest of the year. In terms of expectations, we think both revenue and net results will be soft due to lower sales in Q1, with estimated revenues averaging around $3.80BN, according to Seeking Alpha, which is significantly lower than last quarter's $5.80BN. Seeking Alpha Estimated earnings per share are also expected to come in at $0.20, compared with $0.59 last quarter. Needless to say, expectations for Q1 earnings have probably already been lowered, as during the Q4 earnings call, management initially expected deliveries to be higher and revenue to be around $4.40BN-$4.53BN. Still A Value Investment Despite the difficult quarter, we want to stress that Li Auto is still cheap in terms of valuation and there is likely to be value to be found in the stock. Li Auto has an interesting mix of an excellent balance sheet, favorable market competitiveness, growth and tremendous operational efficiency compared to most PHEV/BEV manufacturers. For instance, looking at Li Auto's great balance sheet, we see that net debt as of the last quarter was -$12.64BN, as the company has virtually no long-term debt and has cash and cash equivalents and short-term investments worth about $14.55BN. This is very intriguing considering that the company is valued at only $26.73BN. For instance, if we look at the tangible book value per share, which stands at $8.41 per share, meaning that about 1/3rd of the share price is currently supported by the tangible book value. Looking at operating results, Li Auto has been able to both grow revenue and increase operating margins through operating leverage. TIKR We also believe Li Auto is still cheap in several areas, especially when compared to other BEV/PHEV makers. On a P/FCF basis, the company appears to be trading at only 4.26x free cash flow, given its market capitalization of $26.54BN and free cash flow generation of $6.23BN over the past 12 months. Other PHEV/BEV makers such as BYD in China or Tesla, which partially produces in China, have similar FCF statistics, despite BYD trading at a valuation of $86.43BN and Tesla over $565.35BN. To highlight this discrepancy: Li Auto generated more FCF on a 12-month basis compared to Tesla as of the last quarter, despite the fact that Tesla's market cap is more than 20x that of Li Auto. This is all despite the fact that Li Auto still showed significant growth until the last quarter and has sufficient reserves from a balance sheet perspective. TIKR Even if we compare Li Auto with some other smaller competitors in China, such as NIO (NIO) and XPeng, we have recently seen a clear difference in operating results. While operating losses have continued to rise at both competitors, Li Auto has started to make a significant operating profit on an LTM basis. In other words, in the new energy vehicle market in China, there seem to be 3 companies in the lead, namely BYD, Tesla and Li Auto, with Li Auto's valuation figures still being the most favorable at present. TIKR However, the main reason we decided to move from a buy rating to a hold rating has to do with macroeconomic factors and our changed attitude towards investing in China. As things stand, we believe Chinese equities are still a bit of a value trap, given the tendency of companies trading at ridiculously low valuations and having strong balance sheets to decide not to buy back shares or pay significant dividends. The fact is simply that many Chinese companies are simply not repatriating capital to their shareholders, sometimes even despite trading low single digit P/FCF ratios. In our eyes, a company can be as profitable as it can be, but if no capital returns to investors at all, we still believe the terminal value is 0. An analogy can also be drawn, for example, with Russian stocks, which were fundamentally undervalued and trading at low multiples, but the terminal value still turned out to be 0 in US dollars after sanctions against Russia were announced and assets in Russian Rubles, such as shares, could not be sold for US dollars. In the case of China, there may also be reasons why companies refrain from buying back shares or issuing serious dividends, as it could promote capital flight and perhaps even put pressure in the FX market on the Chinese Yuan, which is already getting cheaper. Looking at Chinese equities, we would definitely keep an eye on the exchange rate, as it currently looks like more weakening may soon be on the horizon for the Chinese yuan when looking at its neighboring currency, the Japanese yen, which has similarities and has also shown significant weakness. Tradingview, Wright's Research Nevertheless, we still believe there is value to be found in Li Auto at very low valuations and reiterate our view that there is upside potential for shares at current prices. For example, we believe that an 8x P/FCF multiple or a valuation of $49.80BN is very reasonable, taking into account the above information. Overall, the MSCI China index has also bottomed at 8x Forward P/E over the past 30 years, again supporting our call for a reasonable valuation at an 8x P/FCF multiple. With 1.06BN diluted shares outstanding, this equates to a price target of around $47, close to the all-time highs previously achieved and not far from our previous price target of $42 per share in February. The Bottom Line In short, we expect the first-quarter results to be quite weak, which on Monday could also affect the second-quarter results and outlook. Given factors such as inventory build-up, macroeconomic challenges and an ongoing price war in China's EV sector, we expect the current headwinds to continue for some time. All in all, we still believe in the value of Li Auto's shares and give it an updated price target of $47 despite the cautious outlook. We agree with Seeking Alpha's Quant, which currently rates Li Auto as ‘Hold’. Seeking Alpha  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[{"id":307483162497296,"gmtCreate":1716104295492,"gmtModify":1716104299519,"author":{"id":"3574415414802540","authorId":"3574415414802540","name":"Alvin2042","avatar":"https://static.tigerbbs.com/7eeb010e22e591b88d14cca40e702538","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3574415414802540","authorIdStr":"3574415414802540"},"htmlText":"A big part of why Li Mega miserable sales is the ugly design!","listText":"A big part of why Li Mega miserable sales is the ugly design!","text":"A big part of why Li Mega miserable sales is the ugly design!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/307483162497296","repostId":2436181922,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":0,"commentSize":1,"repostSize":1,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}