Li Auto's Q2 report reveals a robust income and the third consecutive quarterly profit.
Photo by Fan Jianlei
By ZHOU Shuqi
Li Auto released its Q2 financial report on Tuesday, revealing a robust operating income of 28.6 billion yuan (US$7.2 billion), more than triple last year's income as the company goes from strength to strength. Cash on hand stands at 73.8 billion yuan, a 42.8 percent increase compared to just the previous quarter.
While the numbers appear to be in line with most expectations, the company's US stock fell 8 percent after the report was released.
The results are undeniably good, but it is important to remember that a startup is exactly that, all successful EV startups are growing fast – the unsuccessful ones are generally failing. Weak sales during the pandemic have set the bar for improvement rather low. Li Auto sold only 28,700 vehicles last in Q2 last year. This year, that's up to 86,500, with 30,000 sales in June, alone. H1 deliveries have already exceeded last year's total.
Pleasingly for CEO LI Xiang, the gross profit margin has reached 21.8 percent, well above Tesla's 18.2 percent. At this stage in the company's growth, a profit margin of over 20 percent is necessary to ensure long-term investment in R&D. Li's target is 25 percent.
While many peers face loss upon loss, Li Auto has just achieved its third consecutive profitable quarter, a net profit of 2.3 billion yuan. If Li Auto turns a profit for the full year - and all the signs indicate that it can do just that - it will be very big news indeed. Becoming the first Chinese EV startup to turn an annual profit will be not only a genuine milestone for the company and for Li but for the entire industry.
It is expected that Li Auto's deliveries in Q3 will top 100,000. Sales are tipped to exceed the full-year target of 300,00 by at least 10 percent.
Li's first all-electric model, the MEGA, is set for release in Q4 and the boss expects it to be the leader in the 500,000-yuan price range. Nothing if not self-assured, Li believes his team will overtake Mercedes-Benz, BMW, and Audi to become China's top luxury car – EV or otherwise. And he expects to do it next year.
To do that, Li Auto' will have to sell at least about 800,000 units next year, with a monthly delivery average exceeding 66,000 units, effectively doubling the current monthly sales level.
Li Auto's R&D expenses for Q2 were 2.4 billion yuan, a YoY increase of 58.4 percent and a 31 percent increase from the previous quarter. Currently, Li Auto is conducting autopilot trials in Beijing and Shanghai The company's large language model, Mind GPT, has also begun testing.
The success is not entirely based on inspiration and technology. Li Auto spent 2.3 billion yuan on sales and marketing in Q2, a 40.4-percent increase from Q1.
During the earnings call, Li Xiang said that he wanted all Li Auto showrooms that have been operating for more than six months to sell at least 100 cars a month. That's almost all of them. Li Auto has well in excess of 300 showrooms and service centers around the country, with only 25 opening up in the quarter.
Li Auto has some very expensive plans for its charging network in the pipeline. With only 37 supercharging stations nationwide, there are plans for over 300 by the end of this year and over 3,000 in the next two years.
