Chinese electric vehicle innovator Li Auto (LI) released market-beating fourth-quarter and full-year 2021 results on Friday. Results exceeded management’s prior guidance, and thoroughly beat Wall Street analysts’ forecasts.
Li Auto is a designer, developer, and manufacturer of smart electric SUVs loaded with cutting-edge technology. The company’s only available model, the hybrid-electric Li-One sport utility vehicle, continues to shine. Fourth-quarter deliveries hit a record 35,221 vehicles, a number higher than full-year 2020 deliveries of 32,624 cars.
A new model is to be unveiled during the second quarter of 2022 for initial deliveries during the third quarter. I am neutral on the stock.
Li Auto’s Q4, Full Year Performance
The company reported fourth-quarter revenue of RMB10.62 billion ($1.67 billion), up 156.1% year-over-year, and 36.6% sequentially. Vehicle sales naturally dominate the top line, and accounted for 97.6% of total revenue.
A quarterly net income of RMB295.5 million (US$46.4 million) showed a strong reversal from an RMB21.5 million loss during the third quarter. Most noteworthy, Li Auto generated positive RMB3.84 billion ($602.1 million) operating cash flow during the fourth quarter and $253.5 million in free cash flow after capital expenditures.
Vehicle margin for the quarter significantly expanded to 22.3% from 17.1% during the fourth quarter of 2020 and marginally improved from 21.1% in the third quarter of 2021.
Other sales and services revenue of $38.4 million represented a gain of 174.5% year-over-year.
For the full year of 2021, total revenue of RMB27.01 billion ($4.24 billion) represented an increase of 185.6% year-over-year. Vehicle sales were $4.1 billion, up 181.5% year-over-year.
Vehicle deliveries amounted to 90,491 in 2021, up 177% from 32,624 vehicles accepted by customers in 2020. Vehicle margin for the year was 20.6% in 2021, compared with 16.4% in 2020.
Li Auto’s fourth-quarter GAAP earnings per share (EPS) of $0.05 widely beat analyst estimates for under $0.01 per diluted share.
Li Auto Beat Forecasts, Again
Li Auto is slowly gaining a reputation of meeting and/or beating both management guidance and analysts’ forecasts. During the third-quarter earnings update in November, the company provided fourth-quarter revenue guidance for $1.37 billion to $1.46 billion.
The latest revenue beat was essentially a result of higher-than-expected vehicle deliveries during the last quarter of 2021. Management guided for deliveries of between 30,000 to 32,000 vehicles. LI stock investors could afford a smile.
Wall Street analysts had assigned a more bullish fourth-quarter revenue estimate for $1.52 billion. The company beat that forecast by almost 10%.
Beware of LI’s Conservative Business Outlook
Management at Li Auto provided a conservative first-quarter 2022 business outlook. The company expects Q1 2022 vehicle deliveries between 30,000 and 32,000 vehicles — the same range it forecasted for the fourth quarter of 2021.
Although expected Q1 deliveries represent a year-over-year increase of 138.5% to 154.4%, the numbers appear more conservative considering that 12,268 vehicles (40% of expected quarterly deliveries) have already been delivered in January alone.
Management also expects total revenue between $1.39 billion and $1.48 billion for this current quarter — an increase of 147.2% to 163.7% from a comparable period last year.
Lukewarm guidance could mean two things: management is setting a low bar so it can maintain a clean market-beating record. Or, the competition is catching up with the company.
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.
In a bid to meet increasingly strong market demand, the company agreed to establish its Chongqing manufacturing base in the Liangjiang New Area.
Li Auto’s CTO Resigns
As previously reported, a rumor that the company’s CTO Wang Kai might leave was confirmed on Friday. Kai tendered his resignation for personal reasons.
Ma Donghui, the company’s Chief Engineer, will assume Kai’s responsibilities. To guarantee a smooth transition, Kai will remain a senior advisor to the company until December 31, 2022.
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 $48.14 represents 72.6% upside potential over the next 12 months.
Investor Takeaway
It’s encouraging that Li Auto maintained its stellar earnings growth record, continued to exceed market expectations, and the company is already generating positive free cash flow from operations.
That said, there is this worrying dark cloud on U.S.-listed Chinese stocks. The threat of them being delisted from American exchanges over an auditing-related impasse remains real. For this reason, I remain neutral on the stock.
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