On Monday, Morgan Stanley reaffirmed its positive stance on Li Auto (NASDAQ:LI), maintaining an Overweight rating with a steady price target of $65.00.
The latest financial results for the first quarter of 2024 revealed that Li Auto's net income dropped significantly by 90% quarter-over-quarter to RMB 591 million, which was just at the lower threshold of the market's expected GAAP profit range of RMB 600-800 million. This translates to a profit of RMB 7,400 per vehicle, aligning with the lower end of Morgan Stanley's estimate of RMB 7,500-8,500.
Li Auto's revenue saw a 39% decrease from the previous quarter, totaling RMB 25.6 billion. This decline was attributed to a 39% fall in vehicle volume and a 1.5% dip in the average selling price (ASP).
The gross profit margin (GPM) for vehicles also fell by 3.4 percentage points quarter-over-quarter to 19.3%, which was slightly below Morgan Stanley's expectation of 19.4%. The drop in GPM was impacted by less favorable production scales and increased promotional activity aimed at clearing inventory of the 2023 L series models.
The company's operating loss was primarily driven by the unfavorable scale effects. Research and Development (R&D) expenses decreased by 13% quarter-over-quarter to RMB 3 billion, which is approximately 19% of the full-year guidance of RMB 16 billion.
Selling, General, and Administrative (SG&A) expenses also saw a 9% quarter-over-quarter reduction. Li Auto's expansion slowed down, with only 7 new stores opened in the quarter compared to 106 in the fourth quarter of 2023.
Despite the operating losses, which amounted to RMB 585 million, investment income was a notable positive, reaching RMB 1.1 billion and effectively offsetting the operating losses. Looking ahead to the second quarter of 2024, Li Auto anticipates a rebound in vehicle volume, forecasting 105-110k units, which marks an increase of 31-37% from the previous quarter.
This projection is based on robust order intake for the L6 model and is expected to contribute to a revenue growth of 17-22% quarter-over-quarter, despite an anticipated 11% dilution in the second quarter's ASP.
InvestingPro Insights
As Morgan Stanley continues to back Li Auto with an Overweight rating, a glance at real-time data from InvestingPro enriches the context for investors considering the stock's current position and future potential. With a market capitalization of $26.41 billion and a P/E ratio standing at 15.16, the company demonstrates a solid valuation in the market. This is further supported by a strong free cash flow yield, as indicated by an adjusted P/E ratio for the last twelve months as of Q4 2023 at 16.3.
Despite recent operational challenges, Li Auto holds a significant advantage with more cash than debt on its balance sheet, as per InvestingPro Tips. This financial stability is critical for weathering the recent decline in vehicle volume and gross profit margin. Additionally, the company's stock price has experienced volatility, with a 21.78% fall over the last three months. However, it's crucial to note that Li Auto is projected to be profitable this year, a sentiment echoed by analysts and reflected in the company's substantial revenue growth of 173.48% in the last twelve months as of Q4 2023.
Investors seeking to delve deeper into Li Auto's prospects can explore further with InvestingPro, which offers additional insights and metrics. For instance, the InvestingPro Fair Value estimate stands at $30.25, suggesting potential upside from the previous close price of $24.89. For those looking to leverage these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With over 10 additional InvestingPro Tips available, investors can gain a comprehensive understanding of Li Auto's financial health and market position.
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