To The Moon

Overview: Global Markets at a Glance

Global markets have experienced mixed performances recently, influenced by various economic and corporate earnings reports. Inflation concerns continue to loom, especially in the U.S., where the Federal Reserve's policies remain under scrutiny. In China, economic indicators have shown a slowdown, impacting various sectors, including the automotive industry. Amid this backdrop, Li Auto $Li Auto(LI)$  $LI AUTO-W(02015)$  , a prominent Chinese automaker, reported earnings that fell short of analyst expectations, despite strong sales figures.

Sales Growth Amid Profit Struggles

Li Auto's recent financial report highlighted a net profit of 1.1 billion RMB for the quarter ending in June, significantly below the Bloomberg survey's forecast of 1.82 billion RMB. This marks a 52.3% decline in net profit year-over-year. The company's revenue grew by 10.6% to 31.7 billion RMB, aligning with market expectations, with a total delivery of 108,581 vehicles within the quarter. Li Auto's L series, particularly the L6 model, has been a key driver of this sales growth, with over 20,000 units sold in both June and July.

Profit Margins Under Pressure

Despite the positive sales numbers, Li Auto's profitability has been pressured by price cuts across its product lineup, which have eroded margins. The company has acknowledged this impact but expressed optimism about improving profit margins and cash flow in the second half of the year. Li Auto's CFO, Tie Li, mentioned that as production of the L6 stabilizes and cost-efficiency measures take effect, profitability should see an improvement.

Challenges in Pure Electric Vehicle Segment

Li Auto has faced challenges with its first pure electric SUV, which has underperformed since its launch in March. The lackluster sales have led the company to lower its sales targets for this model and refocus on its core customer base. The high starting price of over 500,000 RMB has been a barrier, contributing to its weak market performance. This has raised concerns about the company's ability to diversify and compete in the broader EV market.

Outlook and Insights

Looking ahead, Li Auto aims to boost its deliveries in the coming months, with projections for the quarter ending in September reaching 155,000 units, surpassing analysts' estimates of 137,725 units. The company also expects revenue to potentially reach 42.2 billion RMB, higher than the market's expectation of 39.7 billion RMB. While these projections are promising, Li Auto's internal challenges, including the recent adjustment of its annual sales target, reflect a cautious approach to its growth ambitions.

Conclusion

Li Auto's recent performance highlights a complex picture for investors. On one hand, the company shows strong sales momentum, particularly with its L series models. On the other hand, profitability remains a concern due to aggressive pricing strategies and challenges in the pure electric vehicle segment. Investors should weigh the company's growth potential against its current profitability pressures, especially considering the broader economic environment and competitive landscape in the EV market.

$LI 20241018 23.0 PUT$