Tesla’s rival Li Auto reports big drop in earnings, margins in warning to rivals

Posted by Admin May 20, 2024 Bussiness

Li Auto, Tesla’s closest competitor in China’s electric-car market, reported weaker than expected results for the first quarter as deliveries failed to match expectations and margins came under pressure amid a bruising price war.

The premium electric-vehicle (EV) maker said earnings fell 37 per cent to 591.1 million yuan (US$81.7 million) from a year earlier, according to a Hong Kong stock exchange filing on Monday. They declined 90 per cent from the final quarter of 2023.

While its revenue of 25.6 billion yuan was in line with the consensus among analysts, the Beijing-based company fell short of their net income forecast of 1.12 billion yuan, according to data compiled by Bloomberg.

“As a profit star, Li Auto’s woeful performance showed how a brutal price war could affect the major players,” said Eric Han, a senior manager at Suolei, an advisory firm in Shanghai. “It is likely to hurt investors’ confidence in China’s EV industry.”

Chairman and CEO Li Xiang says the firm places too much emphasis on sales volume and competition. Photo: Sohu

The stock climbed 4.2 per cent to HK$99.90 in Hong Kong trading on Monday, before the first-quarter report was announced. However, it has slumped 28 per cent so far this year, and 14 per cent over the past 12 months.

Li Auto, one of the few Chinese EV builders that have already eked out a profit, handed over 80,400 vehicles to customers from January and March, a 53 per cent decrease from the preceding quarter. This represented the first sequential drop in deliveries since the third quarter of 2022, the filing showed.

Chairman and CEO Li Xiang in late March downgraded its sales outlook after recognising mistakes in its business focus and strategy by getting caught up in the domestic price war. It had placed “excessive emphasis on sales volume and competition” instead of creating value for its customers and driving operating efficiency, he added.

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Per-vehicle margin, or the gap between the selling price and tangible costs such as raw materials, labour and logistics, narrowed to 19.3 per cent from 22.7 per cent in the three months ending December 2023.

“The decrease in vehicle margin over the fourth quarter of 2023 was mainly due to lower average selling price as a result of pricing strategy changes in the first quarter of 2024,” Li Auto said in a statement.

The firm expects to deliver between 105,000 and 110,000 vehicles in the current quarter, representing a 21 to 27 per cent increase from the same period in 2023. Revenue should grow at an annual pace of 4.2 per cent to 9.7 per cent, or 29.9 billion yuan to 31.4 billion yuan, it said.