The team does not see compelling reason to own the stock as it will not have new products until the third quarter and the new EREV will target a relatively small segment.

(Image credit: Li Auto)

Li Auto today reported fourth-quarter earnings that beat expectations, with quarterly net profit up sharply from a year ago. Deutsche Bank analyst Edison Yu's team subsequently released their first look at the performance.

Here is the main content from the team's research note:

Li Auto reported strong 4Q results especially on margins while guidance was consistent with our ingoing expectations.

Deliveries were previously reported at 35,221 units, leading to revenue of 10.62bn RMB (vs. our 10.58bn forecast and consensus at 10.29bn).

Total gross margin of 22.4% came in above our 20.7% estimate (consensus at 21.1%), boosted by higher vehicle margin of 22.3% vs. our 20.6% forecast. Opex of 2,356m essentially matched our/consensus expectations.

All together, adjusted EPS of 0.68 came in materially above our 0.11 estimate, also benefitting from higher stock comp which is added back (nearly 2x higher).

Free cash flow of 1,615m was materially stronger than anticipated despite higher capex, likely supported by robust working capital performance.

Management provided in-line guidance for 1Q22 calling for 30,000-32,000 deliveries, matching our 31,000 forecast at the midpoint.

Given management's history of guiding conservatively, we would expect LI to deliver toward the high-end or exceed this range.

Revenue is expected to be 8.84-9.43bn vs. our 9.36bn forecast.

For the full-year, management expects to grow gross margin YoY despite the rapid rise in raw material prices.

Looking ahead, we can envision the stock trading well into the Mainland-Hong Kong Connect inclusion in mid-March (similar to what happened with Xpeng) but don't see compelling reasons to own the stock beyond that as it will not have new product until 3Q and the new EREV (not BEV) will be targeting a relatively small vehicle segment (full-size SUV).

Furthermore, the company confirmed CTO Wang Kai is leaving the company, reinforcing our view that LI still has much room to make up on the technology front relative to peers (i.e., still need to launch BEVs and develop next-gen ADAS/AD system).

Li Auto posts Q4 revenue of $1.67 billion, beating expectations