Peak Travel Season Boosts Demand Rising demand during the peak travel season, combined with the fading impact of price wars, seems to have painted a brighter picture for Chinese automakers in the second quarter. Leading the pack, Li Auto, known for its prudent business strategies, continues its profitable streak in the new quarter.
On Tuesday, August 8, before U.S. stock market hours and after Hong Kong's market close, Li Auto Autos released its Q2 2023 financial results, ending June 30. The earnings report showed that the company generated revenues of CNY 286.5 billion in Q2, surpassing market expectations of CNY 272.1 billion. This represents a surge of 228.1% from CNY 87.3 billion during the same period last year and a 52.5% increase from CNY 187.9 billion in Q1 2023. The Q2 net profit of CNY 23.1 billion was a historic high, a marked turnaround from a loss of CNY 6.41 billion a year ago. In this quarter, the company achieved a record delivery of 86,533 vehicles.
At the time of reporting, Li Auto's U.S. stock price dropped by over 9%.
Stable Gross Margins, Surge in Operational Costs In Q2, as the pricing wars simmered down and high-end model deliveries continued, Li Auto's vehicle gross margin reached 21%, slightly above the anticipated 20.6% and up from 19.8% last quarter. The previous year's figure stood at 21.2%, indicating overall stability.
Even though the company experienced its best quarter in terms of profits, there were increased costs due to rising sales, expansion, and R&D for electric platforms.
A detailed breakdown reveals:
- Q2 operating expenses reached CNY 46.1 billion, a 61.4% rise from CNY 28.6 billion the previous year, and a 34.6% increase from CNY 34.2 billion in Q1.
- R&D expenses stood at CNY 24.3 billion, up 58.4% from CNY 15.3 billion a year ago and a 31% jump from Q1's CNY 18.5 billion. Li Auto attributes these increases primarily to growing employee compensation due to a rise in headcount and expenses related to expanding the product and tech portfolio.
- Sales, general, and administrative expenses hit CNY 23.1 billion, a 74.3% increase from CNY 13.3 billion year-over-year and up 40.4% quarter-over-quarter. The spike is attributed to increased employee salaries and rising rents because of an expanding sales and service network.
As of July 31, 2023, Li Auto operates 337 retail centers across 128 cities and has 323 after-sales service and authorized car repair centers in 222 cities.
Looking Forward to Q3 Regarding the quarterly performance, Li Auto's Chairman and CEO commented on the company crossing an important milestone in June with the delivery of over 30,000 vehicles in a single month. The Q2 delivery volume reached an all-time high, with all three models of the Li Auto L series leading in their respective market segments. These achievements have solidified Li Auto's position as the preferred luxury car brand for families, laying a firm foundation for achieving the company's revenue target of over CNY 1,000 billion in 2023.
In an increasingly competitive Chinese new energy vehicle market, the CEO highlighted the company's record profits for the quarter and continuous investments in R&D, business expansion, and operational enhancements.
The forthcoming Q4 release of the first all-electric flagship model, the Li Auto MEGA, epitomizes the company's latest technological advancements and is expected to be the top-selling model in its price range.
For Q3, Li Auto projects vehicle deliveries to be between 100,000 and 103,000 units, a growth of 277.0% to 288.3% year-over-year. Revenues are forecasted to range between CNY 323.3 billion and CNY 333.0 billion, a year-on-year growth of 246.0% to 256.4%.
