理想: 增程已老、純電難混，i6 能否逆風翻盤？

$Li Auto(LI.US) released its Q2 2024 financial report after the Hong Kong stock market closed and before the U.S. stock market opened on the evening of August 28, Beijing time. Li Auto's Q2 performance was generally in line with expectations, but the guidance for Q3 was very poor. Specifically:

① Q2 vehicle sales gross margin slightly declined quarter-on-quarter, but within expectations: As Li Auto had already provided guidance, Q2 saw significant promotions for the L series, leading to a quarter-on-quarter decline in vehicle sales prices, while the Mega facelift was still ramping up. Therefore, the company's guidance indicated that Q2 gross margin would decline to around 19%, and the actual vehicle sales gross margin was 19.4%, basically in line with expectations. The main reason for the quarter-on-quarter decline was the drop in vehicle sales prices.

② Q2 vehicle sales prices continued to decline quarter-on-quarter, but the decline was better than expected: Q2 vehicle sales revenue was 28.9 billion, slightly above the expected 28.6 billion, but the year-on-year growth rate of vehicle sales revenue turned negative for the first time (-5%).

The quarter-on-quarter decline in vehicle sales prices was mainly due to promotions for clearing old models of the L series in Q2, but the overall decline was less than expected, resulting in slightly better-than-expected vehicle sales revenue.

③ Q2 net profit rebounded quarter-on-quarter, with some leverage effect from sales: Net profit for the quarter was 1.09 billion, in line with the expected 1.1 billion. R&D expenses continued to rise quarter-on-quarter due to investments in intelligence, but sales expenses were reasonably controlled.

④ However, Q3 guidance is very poor: Both Q3 sales guidance and revenue guidance are significantly below market expectations, with the core issue being the sales guidance, as the L series faces significant sales pressure.

Dolphin Research's overall view:

Overall, Li Auto's Q2 performance was generally in line with expectations, but the guidance for Q3 was very poor.

Looking at the Q2 performance itself, starting with the vehicle sales business that the market is most concerned about, as Li Auto had already provided guidance, Q2 saw significant promotions for the L series, leading to a quarter-on-quarter decline in vehicle sales prices, while the Mega facelift was still ramping up. Therefore, the company's guidance indicated that Q2 gross margin would decline to around 19%, and the actual vehicle sales gross margin was 19.4%, basically in line with expectations.

In terms of vehicle sales revenue, vehicle sales prices also continued to decline quarter-on-quarter, still due to promotions for clearing old models of the L series in Q2, but the overall decline was less than expected, resulting in slightly better-than-expected vehicle sales revenue.

Regarding the bottom line net profit, net profit for the quarter was 1.09 billion, in line with the expected 1.1 billion. R&D expenses continued to rise quarter-on-quarter due to investments in intelligence, but sales expenses were reasonably controlled.

The real issue lies in the Q3 guidance, where both sales guidance and revenue guidance are significantly below market expectations, with the core issue being the sales guidance. Dolphin Research has previously mentioned this in the article "Li Auto: i8 Quickly Admits Defeat, Can't Save Li Auto?"

Q3 sales guidance is only 90,000-95,000 units, compared to Q2's 111,000 units, even declining quarter-on-quarter by 14%-19%, while market expectations are still at 138,000 units, which is clearly too high.

Since Li Auto's July sales of 31,000 units have been announced, and August sales are estimated to be around 29,000 units based on current weekly sales trends, the Q3 sales guidance implies September monthly sales of 31,000-36,000 units. Excluding the sales expectations for i8 and Mega (Li Auto previously estimated i8 deliveries of around 8,000 units in Q3), the Q3 sales guidance implies that September's L series basic sales have already declined to 22,000-27,000 units, while July/August L series basic sales were around 29,000/23,000 units (estimated values), indicating significant pressure on L series basic sales.

Dolphin Research believes the core reason for the decline in September's L series basic sales is the imminent launch of the direct competitor Aito's new M7 in September, which is expected to continue impacting Li Auto's basic sales of L6+L7, and Li Auto is unlikely to reduce prices for the L series before the i6 launch to ensure the success of its pure electric strategy.

Looking back at Li Auto's stock price, since the i8's order volume fell short of expectations after its launch, Li Auto's stock price has retreated from the pre-i8 launch high of $32 to the current $22.6, a retreat of 30%.

Following the release of this disappointing financial report, Dolphin Research expects Li Auto's stock price to continue retreating to a safer price level (around $20), after which funds will reevaluate the potential success of Li Auto's i6, as the risk of betting on i6 is greater and requires a stronger safety margin.

The risk of betting on the i6 model is greater and requires a stronger safety margin:

① If the i6 fails again this time, Li Auto will once again experience the "Mega moment" of 2024, delaying the pure electric strategy by another year, while the extended-range strategy continues to falter, and the stock price may quickly fall to Dolphin Research's estimated pessimistic price of $15-18, at which point the risk will be cleared, making it a more suitable entry point.

Especially if Li Auto's L series basic sales fail to succeed with the i6 series, although the extended-range large six-seater competition remains intense in the second half of the year, Li Auto can reduce prices to boost sales in the short term, and with the launch of the extended-range major facelift in 2026 and sufficient cash flow safety cushion (XX billion), along with the upward option of intelligent driving, Li Auto still has enough time to adjust its strategy.

② If the i6 pricing exceeds expectations (e.g., pricing below 220,000 yuan, further lowering by 20,000-30,000 yuan compared to L6 pricing), achieving "electricity cheaper than oil" to ensure i6 sales, and i6 sales successfully reach 10,000-15,000 units, although the L series basic sales decline is a high probability trend, the market is expected to start switching to the 2026 dimension, pricing the success of next year's extended-range major facelift + pure electric strategy, and the stock price is expected to evolve towards Dolphin Research's neutral to optimistic scenario of $30-40.

Below is a detailed analysis:

Since Li Auto's sales have already been announced, the most important marginal information is: 1. Q2 vehicle sales gross margin; 2. Q3 2025 performance outlook.

1. Vehicle sales gross margin continues to decline quarter-on-quarter, but within expectations

Starting with the vehicle sales business that the market is most concerned about, as Li Auto had already provided guidance, Q2 saw significant promotions for the L series, leading to a quarter-on-quarter decline in vehicle sales prices, while the Mega facelift was still ramping up. Therefore, the company's guidance indicated that Q2 gross margin would decline to around 19.4%.

The actual vehicle sales gross margin for the quarter was 19.4%, continuing to decline by 0.4 percentage points from the previous quarter's 19.8% vehicle sales gross margin to 19.4%, basically in line with the market expectation of 19.3%.

(Note: Q2 2022 vehicle sales gross margin data excludes the impact of 800 million+ contract losses, and Q2 2023 vehicle sales gross margin data excludes 400 million warranty reserves)

Looking at the specific single vehicle economics:

1. Single vehicle price declined by 6,000 yuan quarter-on-quarter to 260,000 yuan, mainly due to continued clearance of old models in Q2

Because Li Auto continued to clear old models this quarter, and guidance indicated that vehicle sales prices would continue to decline quarter-on-quarter, the market expected this quarter's vehicle sales price to be 257,000 yuan, while the actual vehicle sales price was 260,000 yuan, slightly above the market expectation of 257,000 yuan.

① Continued clearance of old models in Q2:

In Q2, Li Auto continued to clear old models, with promotions to clear inventory of old L6/L7/L8/L9 SUVs before the launch of facelift models in May (single vehicle discounts of 10,000/12,000/12,000/16,000 yuan), with an average price reduction of 3%-4%, lowering vehicle sales prices.

② Slight improvement in model structure quarter-on-quarter, with Mega's proportion increasing

This quarter, the model structure actually showed a slight improvement trend quarter-on-quarter, with the proportion of Mega, the highest-priced model, increasing by 0.5 percentage points, while the proportion of the low-priced L6 decreased by 0.9 percentage points, offsetting some of the impact of price reductions for clearing old models.

2. Single vehicle cost declined by 3,000 yuan quarter-on-quarter to 210,000 yuan, with some release of scale effects

This quarter, the single vehicle cost was 210,000 yuan, declining by 3,000 yuan quarter-on-quarter, mainly due to a 20% quarter-on-quarter increase in vehicle sales to 111,000 units, releasing some scale effects.

3. Finally, Q2 single vehicle gross profit was 51,000 yuan, basically in line with the market expectation of 50,000 yuan

Looking at the single vehicle profitability, Li Auto's gross profit per vehicle in Q2 was 51,000 yuan, declining by 2,000 yuan quarter-on-quarter, mainly due to the decline in vehicle sales prices.

2. Q3 guidance is very poor, with significant pressure on the implied L series basic sales

a) Q3 sales guidance: 90,000-95,000 units, continuing to decline quarter-on-quarter

Q3 sales guidance is 90,000-95,000 units, compared to Q2's 111,000 units, even declining quarter-on-quarter by 14%-19%, while market expectations are still at 138,000 units, which is clearly too high.

The core reason for the decline in September's L series basic sales is the imminent launch of the direct competitor Aito's new M7 in September, which is expected to continue impacting Li Auto's basic sales of L6+L7, and Li Auto is unlikely to reduce prices for the L series before the i6 launch to ensure the success of its pure electric strategy.

b) Q3 revenue guidance is also significantly below expectations, but the implied vehicle sales price is rising quarter-on-quarter

Li Auto's Q3 revenue guidance is 24.8-26.2 billion yuan. If this revenue guidance corresponds to vehicle sales revenue guidance (referencing previous quarters), the implied vehicle sales price is 276,000 yuan, rising by 16,000 yuan quarter-on-quarter, mainly due to the increased proportion of high-priced i8.

Li Auto expects to deliver 8,000 i8 units in Q3, with i8 expected to account for nearly 10% of the model structure in Q3, along with the ramp-up of Mega in Q3, driving the quarter-on-quarter increase in vehicle sales prices.

4. Reasonable control of three expenses

1) R&D expenses: AI investment and new model development lead to quarter-on-quarter increase in R&D expenses

This quarter, Li Auto's R&D expenses were 2.81 billion yuan, in line with market expectations, continuing to grow by 300 million yuan quarter-on-quarter. The continued quarter-on-quarter increase in R&D expenses is mainly due to

① Continued increase in investment in intelligence:

Li Auto has guided that R&D investment in 2025 will be 11-12 billion yuan, with AI investment exceeding 6 billion yuan, accounting for nearly half of R&D expenses, with approximately 2.7 billion yuan invested in AI infrastructure (accounting for 45% of AI investment), including base models, inference chips, operating systems, terminal computing power, and cloud computing power.

Additionally, 3.3 billion yuan of R&D investment will be allocated to AI product technology development (accounting for 55%), covering areas such as VC large models, Li Auto Assistant, intelligent agents, smart cockpits, smart industry, and smart commerce.

② R&D investment in new pure electric models:

At the end of July, Li Auto's new pure electric model i8 was launched, and the i6 is set to launch in September. R&D investment in the first half of the year was also preparing for the pure electric models that will be the focus in the second half of the year.

2) Sales and management expenses: Increased channels and i8 launch marketing investment lead to quarter-on-quarter increase in sales and management expenses

This quarter, sales and management expenses were 2.7 billion yuan, increasing by 200 million yuan quarter-on-quarter, mainly due to the addition of sales channels and increased marketing activities related to the i8 launch.

In terms of channel construction, Li Auto added 30 retail stores and 9 service centers in Q2, mainly in preparation for the launch of pure electric models i8 and i6.

5. Revenue has already turned negative year-on-year

With sales already announced, Li Auto's total revenue for Q2 was 30.3 billion yuan, basically in line with the expected 30 billion yuan, but the year-on-year growth rate of revenue has turned negative (-5%).

Among them, vehicle revenue slightly exceeded expectations, mainly because the decline in vehicle sales prices was not as large as the market expected, while other sales and service revenue was 1.36 billion yuan in Q2, slightly below the expected 1.5 billion yuan, mainly due to lower-than-expected delivery volume this quarter, resulting in lower-than-expected revenue from automotive sales-related products and services.

In terms of gross margin, the overall gross margin for the quarter was 20.1%, declining by 0.4 percentage points quarter-on-quarter, mainly due to the quarter-on-quarter decline in vehicle sales gross margin. Other business gross margin was 33.5%, also declining by 2 percentage points quarter-on-quarter, which Dolphin Research estimates may be related to certain discounts in the insurance business and increased promotional efforts in parts sales.

7. Free cash flow continues to decline quarter-on-quarter

This quarter, operating cash flow was -3 billion yuan, mainly due to an increase in inventory by 1.6 billion yuan to 11.7 billion yuan, and a decrease in operating capital, leading to a continued quarter-on-quarter decline in free cash flow by 1.3 billion yuan to -3.8 billion yuan.

This quarter's capital expenditure was 800 million yuan, remaining flat quarter-on-quarter. Li Auto continued to accelerate the construction of supercharging stations, adding 806 supercharging stations in Q2, bringing the total number of supercharging stations to 3,028, in preparation for the ramp-up of pure electric models.

Dolphin Research's historical articles, please refer to:

August 28, 2024, financial report commentary "Being rubbed on the ground by Huawei, can Li Auto still have good days?"

August 29, 2024, conference call minutes "Expected Q2 automotive gross margin to rise to over 19%"

May 20, 2024, financial report commentary "Li Auto: Profit flash crash! The moment to test faith has arrived"

May 20, 2024, conference call minutes "Delayed release of pure electric SUV to next year's first half (Li Auto 1Q24 conference call minutes)"

March 4, 2024, Li Auto launch event "Li Auto launch event: Slightly improved product strength, resolutely not reducing prices, pure electric small trial"

February 26, 2024, financial report commentary "Li Auto: Not being a "big mouth", just being a hard worker"

February 27, 2024, conference call minutes "No models below 200,000 yuan will be launched in the next 5 years"

November 9, 2023, financial report commentary "Newcomer vs veteran, can Li Auto compete with Huawei?"

November 9, 2023, conference call minutes "Making intelligent driving the core goal (Li Auto 3Q23 conference call minutes)"

August 8, 2023, financial report commentary "Peeling back the layers to see Li Auto: Is the "explosion" really that "ideal"?"

August 8, 2023, conference call minutes "Li Auto minutes: Capacity bottleneck in components, gross margin guidance remains at 20%+"

May 10, 2023, financial report commentary "Li Auto: Dominant, capable, the leader of new forces"

May 10, 2023, conference call minutes "Li Auto minutes: Market share first, gross margin target remains at 20%"

February 27, 2023, financial report commentary "Li Auto fierce as a tiger? Competition steady as a dog"

February 27, 2023, conference call minutes "Li Auto: "Capturing 20% of the luxury SUV market of 300,000-500,000 yuan in 2023""

December 9, 2022, financial report commentary "Li Auto profit flash crash? Not fatal, but very "awkward""

December 9, 2022, conference call minutes "2023, "billion" Li Auto, a pure electric vehicle"

August 16, 2022, financial report commentary "Li Auto throws thunder with a loud sound, L9 can't support the "collapsed ideal""

August 16, 2022, conference call minutes "Li Auto ONE was "eaten" by L9, L8 will be launched and sold early (meeting minutes)"

June 22, 2022, product launch highlights "L9, Li Auto's new "ideal""

May 10, 2022, meeting minutes "Li Auto: Three new products will be launched in 2023, welcoming the big year of the product cycle"

May 10, 2022, financial report commentary "Li Auto's ideal, all hopes are pinned on the second half of the year?"

February 26, 2022, meeting minutes "Completing the 0-1 validation period, see how Li Auto achieves 1-10 growth (meeting minutes)"

February 25, 2022, earnings call live broadcast "Li Auto (LI.US) Q2 2021 earnings call"

February 25, 2022, financial report commentary "Maximizing "cash" ability, Li Xiang's ideal becomes reality"

November 30, 2021, meeting minutes "Releasing pure electric models alongside Xiaomi, what does Li Auto rely on to compete? (meeting minutes)"

November 29, 2021, earnings call live broadcast "Li Auto (LI.US) Q2 2021 earnings call"

November 29, 2021, financial report commentary "In terms of making money, XPeng and Nio are not as good as it, is Li Auto opportunistic or long-term?"

August 31, 2021, meeting minutes "Li Auto: Surpassing Nio and XPeng in Q2, aiming for 150,000 units next year (meeting minutes)"

August 30, 2021, earnings call live broadcast "Li Auto (LI.US) Q2 2021 earnings call"

August 30, 2021, financial report commentary "Li Auto: Stable performance, strong momentum?"

June 30, 2021, comparison study of three fools - Part 3 "New forces in car manufacturing (Part 3): Doubling in fifty days, can the three fools continue to run wild"

June 23, 2021, comparison study of three fools - Part 2 "New forces in car manufacturing (Part 2): Market enthusiasm wanes, what do the three fools rely on to solidify their position?"

June 9, 2021, comparison study of three fools - Part 1 "New forces in car manufacturing (Part 1): Choosing the right people, doing the right things, let's take a look at the people and things of the new forces"

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