li auto

Li Auto (NYSE: LI) is trading sharply lower in US premarket price action today after the company released its earnings for the second quarter of 2022. Other Chinese EV (electric vehicle) stocks like NIO and Xpeng Motors are also deep in the red amid subdued sentiments.

Li Auto delivered 28,867 cars in the second quarter of 2022 which were 63.2% higher than the corresponding quarter last year. It delivered another 10,422 cars in July, 21.3% higher than the same month in 2021 but lower the13,024 June deliveries. The company achieved the milestone of producing the 200,000th car in July.

Li Auto reported revenues of $1.3 billion in the quarter, which were 73.3% higher YoY. The revenues however fell short of estimates. The company’s gross profit almost doubled over the period to $280.4 million at an impressive vehicle margin of 21.2%. However, its net losses also swelled to $95.5% which is 172% higher than the second quarter of 2021.

Its free cash flows also fell to $67.4 million in the quarter, which is less than half of what it delivered in the second quarter of 2021. The company ended the quarter with total cash of $8 billion. NIO and Xpeng are also flush with cash after they raised cash multiple times between 2020 and 2021.

Li Auto also raised $1.5 billion in its Hong Kong listing last year. It also has an ongoing $2 billion at-the-market stock offering in the US. Li Auto opted for a dual primary listing in the country amid rising US-China tensions. NIO and Xpeng have also listed in Hong Kong. Recently, Alibaba opted for a dual primary listing in Hong Kong instead of the secondary listing.

Chinese Companies Face Delisting Fears in the US

US-listed Chinese companies face delisting fears. The Holding Foreign Companies Accountable Act mandates that foreign companies listed would risk delisting if does not comply with the US PCAOB’s (Public Company Accounting Oversight Board) audits for three years in a row.

The Act was passed after the Luckin Coffee accounting scandal where US regulators found themselves handicapped amid the alleged lack of cooperation from Chinese regulators. US investors lost billions of dollars amid the accounting scandal.

Chinese companies have been offsetting the risk of potential US delisting through listing in Hong Kong. NIO has even gone for a listing in Singapore.

Meanwhile, in a surprise move, China has cut rates and infused liquidity in the economy to revive its sagging growth. The country’s retail sales increased only 2.7% YoY in July which was almost half of what analysts were expecting. Its industrial production, real estate investment, and fixed asset investment also missed estimates for the month.

The country’s real estate sector has been facing troubles. Many developers have not been able to develop the homes in the stipulated time. This has prompted many buyers to stop their mortgage payments.

However, the country’s automotive sales rebounded. Amid the lockdowns, China’s vehicle production took a hit. Now as production has rebounded, car sales have also spiked.

Li Auto Talked About Challenges

Commenting on the earnings, Li Auto’s CFO Tie Li said, “We are pleased with our solid second quarter results in the face of numerous pandemic-related challenges.” The company was hitherto delivering only the Li-One model. In June, it unveiled its SUV, the Li L9.

Li Auto’s CEO Xiang Li, said, “Our second model, Li L9, a flagship smart SUV for families, has received positive feedback from our users since its launch on June 21, as evidenced by the especially strong number of non-refundable orders received for the vehicle.”

Meanwhile, while companies like Li Auto and NIO are scaling up their deliveries, they are a pale shadow of Tesla as well as Warren Buffett-backed BYD. Incidentally, BYD became the largest seller of new energy vehicles globally in the first half of 2022 due to Tesla’s production woes in China.

Tesla has rebounded from its 2022 lows and earlier this month, Canaccord reiterated Tesla stock as a buy expressing optimism over its competitive lead in the EV market, and additional offerings in the energy and solar space

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