Overall, $Li Auto(LI.US) $LI AUTO-W(02015.HK) delivered a good performance this quarter, with both the gross margin and revenue of the automotive business exceeding market expectations.

In terms of the critical automotive business gross margin, this quarter's gross margin reached 20.9%, surpassing the market expectation of 20.2%, and exceeding Li Auto's previous guidance of 19%+ for the third quarter. The key to the better-than-expected performance lies in the fact that the decline in vehicle prices was less than the market anticipated.

This quarter, due to the continued increase in the proportion of the low-priced L6, the market's expectation for vehicle prices has dropped to 266,000 yuan. However, Dolphin Jun speculates that due to breakthroughs in Li Auto's intelligent driving, the selection ratio of the higher-priced Max and Ultra versions has increased, offsetting some of the impact of the higher proportion of L6, ultimately driving both revenue and gross margin of the automotive business to exceed expectations.

Regarding the three expenses, the unexpected aspect this quarter was that R&D expenses were significantly lower than expected, mainly due to layoffs in the second quarter, which reduced the number of R&D personnel and led to a decrease in overall employee compensation, as well as no new products launched in the third quarter, resulting in reduced design and R&D costs. Ultimately, operating profit reached 3.4 billion, exceeding the market expectation of 2.2 billion. However, as the third quarter has passed, the market is also very concerned about the progress in the fourth quarter. The fourth quarter sales guidance is 160,000 to 170,000 vehicles, and based on current weekly sales, October sales were approximately 51,000 vehicles, implying an average monthly sales of 55,000 to 60,000 vehicles in November/December, which basically meets expectations.

However, in terms of vehicle prices, the implied vehicle price for fourth quarter revenue has dropped to less than 260,000 yuan. This continued decline in price implies two aspects of information: ① The proportion of L6 will continue to increase; ② In the fourth quarter, due to the lack of new models, there is a possibility of continuing price wars to boost sales. The launch time of the Aito M8 has not yet been determined, and if it is launched before the end of the year, it will also negatively impact the sales of the directly competing L8.

With just so-so sales expectations and lower-than-market price expectations in the fourth quarter due to the lack of new products, the product rhythm and expectations for the pure electric new products to be launched next year become particularly important. Dolphin Jun will pay attention to whether Li Auto's earnings report will disclose any information.