Deutsche Bank expects Li Auto's management to guide third-quarter deliveries at around 100,000 units, driven by strong demand for the Li L7 and Li L8.

Li Auto (NASDAQ: LI) will report its unaudited financial results for the second quarter on Tuesday, August 8, before the US markets open. As usual, Deutsche Bank analyst Edison Yu's team shared their preview.

Previously released figures show that Li Auto delivered 86,533 vehicles in the second quarter, exceeding the upper end of its guidance range of 76,000 to 81,000 vehicles. This was up 201.65 percent year-on-year and up 64.56 percent from the first quarter.

Li Auto's previous revenue guidance for the second quarter was between RMB 24.22 billion yuan ($3.37 billion) and 25.86 billion yuan, implying year-on-year growth of 177.4 percent to 196.1 percent.

 

In a research note sent to investors on August 1, Yu's team said they expect Li Auto to have a strong second quarter as vehicle sales came in above the high end of guidance.

Specifically, the team expects Li Auto to report second-quarter revenue of RMB 27.8 billion, a gross margin of 21.0 percent, and adjusted earnings of RMB 1.93 per share.

By comparison, the current consensus analyst estimates in a Bloomberg survey for these metrics are RMB 26.5 billion, 20.6 percent, and RMB 1.28, respectively.

The team expects Li Auto to post a vehicle margin of 20.6 percent in the second quarter, up 80 basis points from 19.8 percent in the first quarter.

The team said its model assumes Li Auto's operating expenses to increase significantly in the second quarter relative to the first quarter.

Yu's team expects Li Auto's management will likely guide third-quarter deliveries at around 100,000 units, driven by strong demand for the Li L7 at close to 15,000 units per month and the Li L8 at about 10,000 units per month.

As a backdrop, Li Auto delivered 34,134 units in July, up a modest 4.79 percent from 32,575 units in June due to current capacity constraints.

Li Xiang, founder, chairman and CEO of Li Auto, said in a Weibo post on August 1 that capacity is the only bottleneck the company is currently facing and that this has no solution in the current quarter.

In the fourth quarter, Li Auto will challenge itself to hit the 40,000-unit monthly delivery mark, Li said on July 1.

Yu's team believes Li Auto's 40,000 monthly delivery target may be too aggressive as competition intensifies and market share reaches its natural ceiling.

"We think Nio's new ES6 and Xpeng's upcoming G9 refresh could limit further growth on L7/L8 given more competitive entry level pricing," the team wrote.

Li Auto's market share in premium SUVs has reached 22 percent, which suggests it may have reached its near-term ceiling, considering that even German luxury brands Mercedes-Benz, BMW, and Audi's respective shares are in the 20 percent range.

Future incremental growth will have to come mainly from the cheaper Li L6 SUV, the Li L5, which could be a sedan or wagon, and pure electric vehicles that will initially be very expensive and won't sell in high volumes, the team said.

For the full year 2023, Yu's team expects Li Auto to deliver 350,000 vehicles, an upward revision of 75,000 from its previous forecast. For the full year, the team expects Li Auto to generate revenue of RMB 114 billion.

In terms of gross margins, the team expects them to improve sequentially with the complete phase-out of the Li One and lower battery costs. However, this will be partially offset by a weaker mix of Li L7 and Li L8.

($1 = RMB 7.1917)

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