Stock Analysis & Ideas

Li Auto Q4 Earnings Preview: What To Expect

Chinese EV innovator Li Auto (NASDAQ: LI) is scheduled to release its fourth-quarter and full-year 2021 results on Friday, February 25, 2022, before U.S. markets open.

Wall Street analysts maintain a Strong Buy recommendation on LI stock but shares are yet to attain forecasted levels. Perhaps the upcoming earnings installment could provide some catalysts. 

Li Auto is a designer, developer, and manufacturer of smart electric SUVs with cutting-edge technology. The company currently sells just one vehicle, the hybrid-electric Li-One sport utility vehicle, and another model is expected to be unveiled during the second quarter of 2022 for initial deliveries during the third quarter.

Due to the risks noted below, I’m currently neutral on the Chinese EV maker’s shares.

What to Expect?

Back in November, the company provided fourth-quarter revenue guidance for $1.37 billion to $1.46 billion, representing an increase between 112.7% and 127% year-over-year. Increased deliveries between 30,000 to 32,000 vehicles will power sales growth for the quarter.

Wall Street analysts are even more bullish on Li Auto’s revenue growth with a revenue estimate of $1.52 billion for the upcoming quarterly report, representing a 133% year-over-year increase. 

The consensus earnings per share (EPS) estimate for the fourth quarter of 2021 is less than $0.01 per diluted share, which could show a decline from the previous year’s $0.13 per share.

Over the last three reported quarters, Li Auto missed analyst EPS estimates for the first two quarters. However, the company beat analyst earnings estimates for the most recent quarter.

Production growth at Li Auto is being accompanied by strategic rollouts of distribution centers. At the end of October last year, the company had 162 retail sales outlets covering 86 cities, and management’s target was to have 200 retail stores operational by the end of December, covering more than 100 cities.

Li Auto Good at Meeting Management Guidance

Li Auto debuted on the Nasdaq in July 2020 through an initial public offering (IPO) of sponsored depositary receipts. The company has usually delivered in line with management’s prior guidance. 

Most noteworthy, a recent update revealed that Li Auto had 220 retail stores in 105 cities as of January 31, 2022. The company is attaining its stated objectives. This should be a positive execution update for LI stock investors to appreciate.

During the third-quarter earnings call in November 2021, Li Auto’s president Yanan Shen announced the release of NOA (Navigate on Autopilot) upgrade to Li-One users by end of December.

NOA became available to users on December 6, and users logged more than two million kilometers (1.243 million miles) during the Chinese New Year holiday, which ran from January 31 to February 6, 2022.

Current Revenue Growth Drivers for Li Auto

Li Auto’s business emanates from sales of its single Li-One EV model which has gained wide market acceptance. This would seem like a risky bet as the modern consumer loves variations and differentiated products. The competition has been launching new models. However, Li Auto remains largely unmoved. 

During the third-quarter earnings call, Yanan said,”… we will unveil X01 to the market in the second quarter next year (2022) and start to deliver in the third quarter…We would choose to sell big volume with one model rather than very quickly launched a lot of models, but only sell a small volume.”

Memories of how tech giant Apple (AAPL) changed the mobile phone industry with the iPhone come to the fore. Designed and manufactured to perfection, a single product can still be resoundingly successful in a young market.

Production for the Li-One was around 14,000 units per month as of November last year. Management expects it to pick up to 15,000 vehicles per month. January 2022 deliveries were impressive, and sequential growth should continue as the company ramps up the business.

LI Stock Price Performance

Li Auto’s stock price has traded in a 52-week range of $15.98-$37.45. The stock’s all-time high price is $41.95 last attained on November 23, 2020.

Shares rallied by 9.4% in two days three months ago after the company released stellar Q3 earnings numbers. The stock has been trading lower since then, perhaps setting the stage for a stronger lift post earnings this month.

Wall Street’s Take on LI Stock

Li Auto stock has a consensus Strong Buy rating from Wall Street analysts based on eight Buy ratings. The average LI stock price target of $48.57 represents 63.5% upside potential over the next 12 months.

Risks to Consider

Geopolitical tensions remain a significant factor to consider.

Moreover, there is a dark cloud hanging over Chinese companies listed on U.S. exchanges. Risks relate to auditing-related tussles. Negotiations are ongoing. However, it remains anyone’s guess whether U.S. authorities will be granted increased access into Chinese firms’ “internals.”

Until the matter gets resolved, affected stocks may remain subdued for longer. Risks of being delisted from deeply liquid American exchanges remain high.

Further, rumors that Li Auto’s CTO Wang Kai might leave the company could dampen investor enthusiasm if confirmed. The company’s advanced tech is arguably a selling point to a growing customer base. This attribute needs no disturbances.

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