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Li Auto Inc. (LI) had a rough Wednesday. The Chinese electric vehicle maker reported a mixed second quarter and a weak revenue outlook, and investors responded by pushing the stock to a fresh 52-week low.
Here's the thing: revenue actually beat expectations. But when you dig into the numbers, there's a lot to be concerned about, and the guidance for the current quarter didn't help.
Revenue fell 15.1% year over year to 25.7 billion Chinese yuan ($3.78 billion). That still topped the analyst estimate of $3.70 billion, and it was up 11.7% from the previous quarter. So there's some sequential momentum, but the year-over-year picture is clearly weaker.
The bottom line was a different story. Li Auto reported an adjusted loss of 1.49 yuan, or 22 cents, per American depositary share. Analysts had expected a loss of just 1 cent per share. That's a big miss.
Vehicle sales declined 16.7% to $3.5 billion, hurt by lower deliveries and a weaker product mix. But sequentially, vehicle sales rose 11.8% as deliveries and average selling prices improved.
Deliveries totaled 98,330 vehicles, down from 111,074 a year earlier but up from 95,142 in the first quarter. That's an 11.5% drop year over year.
The margin story is where things get ugly. Vehicle margin fell to 9.4% from 19.4% a year earlier, mainly because of a different product mix. Gross margin declined to 11% from 20.1%. That's a massive compression.
Adjusted operating loss totaled 2.1 billion yuan ($308.6 million), compared with adjusted operating income of 1.2 billion yuan a year earlier. Adjusted net loss was 1.5 billion yuan ($220.9 million), versus adjusted net income of 1.5 billion yuan in the prior-year quarter.
On the balance sheet, Li Auto held $12.9 billion in cash as of June 30. Operating cash flow was a slim 15 million yuan ($2.2 million), compared with an outflow of 3 billion yuan a year earlier. Free cash flow improved to negative 1.3 billion yuan ($191.7 million), from negative 3.8 billion yuan a year earlier and negative 7.4 billion yuan in the previous quarter. So cash burn is easing, but it's still negative.
Despite the financial strain, Li Auto continues to expand its physical footprint. As of June 30, it operated 495 retail stores across 160 cities, plus 536 service centers and authorized body and paint shops across 220 cities. Its charging network included 4,097 supercharging stations and 22,593 charging stalls.
Chairman and CEO Xiang Li struck an optimistic tone, noting that Li Auto remained China's top-selling domestic auto brand in the market for new-energy vehicles priced above 200,000 yuan during the first half.
The company has completed upgrades to its Li L series and is refreshing its battery-electric vehicle lineup. Xiang expects the new Li L6 to strengthen Li Auto's position in the SUV market priced between 200,000 yuan and 300,000 yuan.
Chief Financial Officer Tie Li said gross margin improved sequentially to 11%, helped by the new Li L9. He expects margins to expand during the second half as the product mix improves and refreshed models reach the market.
But the market wasn't buying it. Li Auto expects third-quarter revenue of 26.6 billion yuan to 28 billion yuan ($3.9 billion to $4.1 billion). That represents a year-over-year change ranging from a 2.8% decline to a 2.3% increase. The forecast fell below the analyst estimate of $5.11 billion.
The company expects to deliver 95,000 to 100,000 vehicles, representing growth of 1.9% to 7.3%.
Li Auto shares fell 2.2% to $12 at the time of publication Wednesday, touching a new 52-week low.
So what's the takeaway? Li Auto is facing a tough transition. Margins are squeezed, growth has stalled, and the guidance suggests the second half won't be much better. The company is betting on product refreshes to turn things around, but investors are clearly skeptical. For now, the stock is in the penalty box.
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