China's Li Auto gave strong EV delivery guidance early Thursday after handily beating earnings estimates for the third quarter. But Li Auto stock tumbled near a buy point amid competition and margin worries.
Late Wednesday, Polestar, co-owned by Chinese car giant Geely, warned on demand for electric vehicles, while missing Q3 revenue estimates. Polestar stock tumbled Thursday.
Both premium EV startups compete somewhat with Tesla. Li's L7 SUV is seen as a Tesla Model Y rival. The upcoming Polestar 4 is also expected to challenge the Model Y in China.
Li Auto Earnings
Estimates: Analysts, on average, expected Li Auto to swing to earnings of 37 cents per ADR share from a loss of nine cents a year ago, according to FactSet. Revenue was seen surging 242%, year over year, to $4.592 billion.
Results: Li Auto earned 45 cents per ADR share, well above estimates. Revenue surged 271%, year over year, in local currency terms, to RMB 34.68 billion ($4.75 billion), slightly ahead of views. Revenue was also up 21% quarter over quarter.
That marked the fourth straight profitable quarter, as well as the fourth quarter of sharply accelerating sales growth, FactSet shows. Li Auto is on track for its first annual profit in 2023, amid a China price war.
The premium EV startup had topped $1 billion in revenue for the first time in Q3 2021, and $3 billion for the first time in Q2 2023.
Gross margin of 22% expanded year over year and also improved slightly quarter over quarter. Free cash flow of RMB 13.22 billion ($1.81 billion) rose 37.5% from the prior second quarter.
Outlook: Li Auto sees 125,000-128,000 deliveries in Q4, up from 105,108 in Q3. With the hybrid SUV maker already delivering 40,422 in October, that implies 84,578-87,578 over November and December.
Li also guided for Q4 revenue of RMB 38.46 billion-RMB 39.38 billion ($5.27 billion-$5.40 billion), which would be a year-over-year gain of 118%-123%.
EV Margins Under Scrutiny Amid Competition
The revenue guidance implies lower average selling prices, quarter over quarter, Deutsche Bank's Yu said in a Nov. 9 research note. He estimated a 20,000 RMB ($2,746) decline. "This should add pressure to vehicle margin on a sequential basis despite cost profile / scale improving," Yu said.
The analyst had earlier flagged EV competition from Huawei-backed Aito electric vehicles.
CFRA analyst Aaron Ho shared similar concerns. "We are neutral on Li Auto's fundamentals mostly due to the fierce competition in China's electric vehicle (EV) market," Ho said. That limits average selling price gains while keeping expenses high, as Li Auto launches multiple new products, he added.
Li Auto Stock
U.S.-listed shares of Li Auto slid 4.3% to 37.65 on the stock market today. Li Auto stock closed near session lows. The China EV stock is consolidating above the 50-day moving average with a 47.33 buy point, the MarketSmith chart shows.
Investors could use Tuesday's high of 40.03 as an aggressive entry.
Li Auto tumbled in late September amid reports of sizable discounts due to greater competition, including from Aito, backed by Chinese tech giant Huawei.
Notably, Huawei was hit with U.S. sanctions on the grounds of national security risk.
Li is expanding into battery electric vehicle, or BEVs. It continues to outsell startup rivals XPeng and Nio.
XPeng reports Q3 earnings on Nov. 15. Nio has yet to announce a date.
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Polestar Earnings, Polestar Stock
Analysts, on average, expected the EV startup to widen net losses per share by one cent to 15 cents, according to FactSet. Revenue was seen jumping 62%, year over year, to $705.6 million.
Late Wednesday, Polestar posted Q3 revenue of $613 million, a 41% increase but well below estimates. An earnings release showed a 33% higher operating loss in the quarter, "primarily driven by a lower gross profit and higher operating expenses."
The company also updated guidance. It now expects 60,000 EV deliveries and a 2% gross margin this year. It previously expected to deliver 60,000-70,000 electric vehicles and 4% gross margin in 2023.
The company cited "weakening global consumer demand, particularly affecting the rate of EV adoption."
Separately, it said Geely and Volvo will provide additional liquidity. Polestar is co-owned by China's Geely and Sweden's Volvo Cars.
Polestar stock slid 5.1% to 2.07% Thursday, not far from recent record lows.
Polestar had already reported 13,900 EV deliveries in the third quarter, a 50% increase year over year.
It will start deliveries this quarter of the important Polestar 4 in China. Polestar describes the electric SUV as "more premium, more luxurious" than Tesla's Model Y.
