"Li Auto delivered mostly in-line 1Q24 earnings results and 2Q24's volume outlook bracketed our forecast but pricing pressure appears much worse than anticipated," said Deutsche Bank.

Li Auto (NASDAQ: LI) reported first-quarter earnings today. As usual, Deutsche Bank shared their first impressions of the earnings report.

Here are the key takeaways from analyst Wang Bin's team in a research note sent to investors today.

Li Auto delivered mostly in-line 1Q24 earnings results and 2Q24's volume outlook bracketed our forecast but pricing pressure appears much worse than anticipated.

Deliveries were already reported for 1Q at 80,400 units, leading to revenue of RMB 25.6bn, in line with DBe/consensus (302k ASP).

Total gross margin of 20.6% was also consistent with our/consensus estimates, with vehicle/service margin of 19.3%/43.0% (-340bps/-210bps QoQ, hurt by lower ASP). Opex of RMB 6bn was above our expectation, driven by higher spending on both SG&A and R&D.

Adjusted EPS was RMB 1.21, slightly higher than DBe of RMB 1.17 while below the consensus RMB 1.47, helped by net interest/other income.

Free cash flow came in at RMB (5.1)bn (first time negative since 3Q22), materially better than anticipated, boosted by working capital.

Management initiated 2Q guidance calling for 105,000-110,000 deliveries, in line with our 107,500 forecast, implying a big step-up in May/June to average of +40,000 units vs. April at 25,787.

Revenue is expected to be RMB 29.9-31.4bn (vs. DBe/consensus at RMB 33.7bn/38.6bn), suggesting much lower ASP sequentially (low RMB 270k or down ~10% QoQ), reflecting the price cut in late April (RMB 18- 30k) and launch of the cheaper L6 (mix headwind).

With full-year volume tracking at or below the low end of the latest company guidance (560,000), we expect management to provide an update on this and the ~20% gross margin target.

Moreover, Li Auto has been reportedly conducting layoffs which, in our view, reflects a right-sizing of the cost structure to improve profitability given the lower sales trajectory.

Li Auto sees net income fall in Q1, guidance for Q2 misses expectations