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Li Auto Inc. (NASDAQ:LI) reported its fourth quarter results, closing out a record year of growth and increased profitability. The Chinese automaker has found success by focusing on the premium electric vehicle segment, specifically through its line of extended-range electric vehicles like a type of hybrid that has attracted buyers transitioning from conventional engines.
That strategy, which represents an alternative to other electric vehicle names, including all-battery electric models, helps explain the outperformance of LI's share price, up more than 70% over the past year, in a time when global sales of electric vehicles have slowed.
We covered some of these topics with an article on LI in 2023 and reiterated a bullish view with today's update. With otherwise solid fundamentals and a solid outlook, we expect further upside for the stock.
LI Earnings Summary
Non-GAAP Q4 LI Diluted net earnings per US depositary share (EPADS) amounted to US$0.60 based on RMB 4.6 billion or (US$633 million) in adjusted net income, representing an increase of 362% from 0 .13 dollars from last year's period.
That increase sees an increase in vehicle revenue of RMB 40 billion (US$5.69 billion). 134% year over year and even 20% sequentially starting in the third quarter. For context, Li Auto delivered 131.8 thousand units in the fourth quarter compared to just 46.3 thousand in the fourth quarter of 2022. The sales effort was achieved through 467 retail stores covering 140 cities, compared to the 288 stores in 121 cities last year.
source: IR company
The story has been the launch of several new L series models since 2022, including the Li 7 in early 2023 like the compact 5-seater SUV. For the full year, LI Auto delivered 376,000 vehicles, up from 133,000 in 2022.
That increase has been impressively accompanied by improved margins, leading to 2023 being the company's first full year of profitability. Fourth-quarter vehicle margin of 22.7% increased from 20.0% at the end of 2022, while operating margin of 7.3% reversed a loss of -0.8% a year earlier.
source: IR company
Management explains that the expanded operational scale is directly translating into firming financial efficiency that is expected to continue through 2024. In terms of official guidance, the company expects vehicle deliveries in the first quarter of 2024 between 100,000 and 103,000, compared with 52.6 thousand in the period last year. The revenue target between RMB 31.3 billion (US$4.4 billion) and RMB 32.2 billion (US$4.53 billion), if confirmed, would be 69% higher year-on-year at the midpoint.
A key development this quarter was the launch of the company's “Li AD Max 3.0”, which provides more advanced autonomous driving capabilities with driver monitoring, assisted driving features and an automated parking system. There was also an update to the in-car voice assistant that uses the company's in-house big language AI model.
What's next for Li Auto?
2023 was a big year for the company in terms of diversifying its model lineup, but 2024 may be even more important ahead of the launch of the BEV Mega L6 which is expected to launch in April.
It is understood that by the end of 2024, Li Auto will have four extended-range electric vehicle (EREV) models, plus four all-electric options. The appeal here is to meet not only a variety of customer needs, but also to strengthen the flywheel of growth opportunities.
Management expects monthly deliveries to reach more than 70,000 in June and 100,000 by the end of 2024, implying growth of 60% compared to the annualized rate of the fourth quarter.
The figures relate to the current 2024 consensus forecast that Li Auto will deliver 58% revenue growth with EPS of $1.74, up 9% year-over-year considering the spending requirements of the initial ramp-up period. new models. Heading into 2025, momentum should continue with another 36% increase in full-year sales, while profits will accelerate again as margins stabilize.
Seeking Alpha
So when we look at Li Auto, this is a case where the company maintains big ambitions but has already built an impressive track record that adds to its credibility. In our view, Li Auto's positioning warrants a valuation premium where the current Forward P/E of around just 22x looks compelling given the momentum.
We know that recent growth is well ahead of its EV peers, and we would say that the company's advantage is precisely in its clear leadership in EREVs, which have represented the fastest growing category within the new vehicle market. China energy. With data until the third quarter of 2023EREV sales increased 157% year-on-year compared to just 14% for BEVs.
The feeling is that more and more consumers are recognizing this model as a good option that captures many of the advantages of electric vehicles while maintaining some of the comforts in terms of range and affordability of an ICE. The implication is that LI is capturing market share in China compared to BYD Company Limited (OTCPK:BYDDF) and XPeng Inc. (XPEV), for example.
According to the stock price chart, LI is trading back above the $40.00 level, which has represented an area of technical resistance dating back to 2022. The argument we make is that the latest results help add a tailwind of bullish sentiment where today's outlook is likely to be stronger. never. On the upside, the 2023 high near $48.00 becomes the next target that we believe the stock can reach sooner rather than later.
Seeking Alpha
Final thoughts
There is a lot to like about Li Auto, as the company seems to be gaining traction as a major auto brand that deserves global attention. Compared to several high-profile EV startups in recent years that failed to successfully commercialize a platform, Li Auto's profitable growth is a sign of good management that is pushing the company in the right direction.
That said, there are some risks worth covering to consider. Broader economic data out of China has been disappointing over the past year and Li Auto would not be immune to a deeper contraction. The electric vehicle market remains very competitive and many different players will try to take advantage of the same opportunities that Li Auto is currently targeting.
Weaker-than-expected results through 2024 could introduce a new round of volatility into the stock. Monitoring points here include the company's monthly vehicle delivery updates as well as financial margins over the next few quarters.
