Li Auto Inc. 6-K Analysis & Summary – 3/14/2025

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Li Auto Inc.

6-K

Earnings Release (Preliminary), Guidance Update

Filing date:

03/14/2025

TLDR:

Li Auto Inc. announced its unaudited fourth quarter and full year 2024 financial results, with record fourth-quarter revenues and full-year deliveries surpassing 500,000 vehicles, while also providing guidance for the first quarter of 2025.

ELI5:

Li Auto sold more cars and made more money overall, but they made less profit on each car and had much less cash at the end of the year. They’re planning to release new electric cars and self-driving features, but need to improve their profits and cash flow.

Accession #:

0001104659-25-023764

Published on

March 16, 2025

Analyst Summary

Vehicle sales and total revenues increased year-over-year for both Q4 and FY 2024, driven by higher deliveries.
Gross margin, vehicle margin, and net income decreased, indicating increasing cost pressures or pricing challenges.
Operating cash flow and free cash flow experienced a significant decline, raising concerns about the company’s ability to fund future growth and investments.
Management acknowledges lower average selling prices and losses on purchase commitments contributed to margin decline.
The company plans to launch next-generation autonomous driving architecture and new BEV models in 2025.
Q1 2025 revenue guidance indicates a potential slowdown in revenue growth.

Opportunities and Risks

Risk: Continued pressure on vehicle margins could negatively impact profitability.
Risk: Declining cash flow could limit the company’s ability to invest in R&D and expand production capacity.
Risk: The NEV market in China is highly competitive.
Risk: Changes in government regulations and incentives could impact the demand for NEVs.
Risk: The projected revenue decrease in Q1 2025 suggests potential challenges in the near term.
Opportunity: Li Auto has the opportunity to expand its market share in China and potentially enter international markets.
Opportunity: The launch of new BEV models and advanced autonomous driving features could attract new customers and drive revenue growth.
Opportunity: The company’s investment in supercharging stations enhances the user experience.
Opportunity: Li Auto has established a strong brand reputation in the premium NEV segment in China.

Potential Implications

Company Performance

Continued margin pressure could negatively impact future profitability and overall financial performance.
Declining cash flow may limit the company’s ability to invest in future growth initiatives and maintain its competitive position.
Successful launch of new BEV models and autonomous driving features could drive revenue growth and improve profitability.
The company’s ability to manage costs and maintain its market share in the competitive NEV market will be crucial for its long-term success.

Stock Price

Negative sentiment surrounding declining margins and cash flow could put downward pressure on the stock price.
Positive developments regarding new product launches and market expansion could boost investor confidence and drive the stock price higher.
Overall market conditions and investor sentiment towards the NEV sector will also influence the stock price.

Li Auto Inc. – Form 6-K Report – March 14, 2025

Executive Summary

This report analyzes Li Auto Inc.’s Form 6-K filing for March 14, 2025, focusing on the unaudited fourth quarter and full-year 2024 financial results. While deliveries and total revenues increased year-over-year, profitability metrics such as gross margin, vehicle margin, and net income experienced declines. A significant decrease in operating cash flow and free cash flow raises concerns about future financial flexibility. The company’s Q1 2025 guidance suggests a potential slowdown in revenue growth. Overall, a cautious approach is warranted, and a “Hold” rating is suggested pending further clarification on margin pressures and cash flow management.

Company Overview

Li Auto Inc. (Nasdaq: LI; HKEX: 2015) is a leading new energy vehicle (NEV) manufacturer in China, specializing in premium smart electric vehicles. The company designs, develops, manufactures, and sells vehicles targeting families. Li Auto is known for its extended-range electric vehicles (EREVs) and is expanding into battery electric vehicles (BEVs).

Detailed Analysis

Financial Statement Analysis

Key Metrics and Trends

Metric	2023 Q4 (RMB millions)	2024 Q4 (RMB millions)	YoY Change	2023 FY (RMB millions)	2024 FY (RMB millions)	YoY Change
Vehicle Sales	40,379.3	42,643.0	5.6%	120,294.7	138,538.1	15.2%
Total Revenues	41,732.1	44,273.7	6.1%	123,851.3	144,459.9	16.6%
Gross Profit	9,786.9	8,970.2	-8.3%	27,496.8	29,656.1	7.9%
Gross Margin	23.5%	20.3%	-3.2 pts	22.2%	20.5%	-1.7 pts
Operating Income	3,036.4	3,703.3	22.0%	7,406.9	7,019.1	-5.2%
Operating Margin	7.3%	8.4%	1.1 pts	6.0%	4.9%	-1.1 pts
Net Income	5,752.3	3,532.7	-38.6%	11,809.1	8,045.3	-31.9%
Operating Cash Flow	17,294.2	8,680.3	-49.8%	50,693.5	15,933.2	-68.6%
Free Cash Flow	14,638.1	6,059.3	-58.6%	44,186.3	8,203.1	-81.4%
Deliveries	131,805	158,696	20.4%	376,030	500,508	33.1%

Ratio Analysis

* **Profitability:** Gross margin and net income margin declined significantly, indicating increasing cost pressures or pricing challenges.
* **Liquidity:** The substantial decrease in operating cash flow and free cash flow raises concerns about the company’s ability to fund future growth and investments. However, the large cash position provides a buffer.
* **Efficiency:** Further analysis of inventory turnover and accounts receivable turnover would provide insights into operational efficiency.

Management’s Discussion and Analysis (MD&A) Insights

* **Positive Tone:** Management highlights record deliveries and revenue growth, emphasizing innovation and efficiency.
* **Margin Pressure:** The MD&A acknowledges lower average selling prices due to product mix and interest subsidies, contributing to margin decline. Losses on purchase commitments also impacted vehicle margin in Q4 2024.
* **Expense Management:** Operating expenses decreased in Q4 2024 due to reduced R&D and SG&A expenses, primarily related to employee compensation.
* **Future Outlook:** The company plans to launch next-generation autonomous driving architecture and new BEV models in 2025. However, Q1 2025 revenue guidance indicates a potential slowdown.

Red Flags and Uncommon Metrics

* **Significant Cash Flow Decline:** The sharp drop in operating and free cash flow is a major red flag, requiring further investigation into the underlying causes. Increased payment related to inventory purchase is cited, but the magnitude of the decrease warrants deeper scrutiny.
* **Decreasing Vehicle Margin:** The decrease in vehicle margin is attributed to product mix, interest subsidies, and losses on purchase commitments. This trend needs to be monitored closely to assess its long-term impact on profitability.
* **Non-GAAP Measures:** The company relies heavily on non-GAAP measures, which exclude share-based compensation and release of valuation allowance on deferred tax assets. While these measures can provide insights, it’s crucial to analyze GAAP results as well.

Risk and Opportunity Assessment

Risks

* **Margin Pressure:** Continued pressure on vehicle margins could negatively impact profitability.
* **Cash Flow Constraints:** Declining cash flow could limit the company’s ability to invest in R&D, expand production capacity, and compete effectively.
* **Competition:** The NEV market in China is highly competitive, with numerous players vying for market share.
* **Regulatory Changes:** Changes in government regulations and incentives could impact the demand for NEVs.
* **Q1 2025 Guidance:** The projected revenue decrease in Q1 2025 suggests potential challenges in the near term.

Opportunities

* **Market Expansion:** Li Auto has the opportunity to expand its market share in China and potentially enter international markets. The establishment of a research and development center in Munich, Germany, signals international ambitions.
* **Product Innovation:** The launch of new BEV models and advanced autonomous driving features could attract new customers and drive revenue growth.
* **Infrastructure Development:** The company’s investment in supercharging stations enhances the user experience and supports the adoption of its vehicles.
* **Brand Recognition:** Li Auto has established a strong brand reputation in the premium NEV segment in China.

Conclusion and Actionable Insights

Li Auto’s 2024 results demonstrate strong delivery growth but also highlight concerns about declining profitability and cash flow. While the company’s strategic initiatives and product innovation efforts are promising, the financial challenges warrant a cautious approach.

**Overall Assessment:** Hold

**Recommendations:**

* **Monitor Margin Trends:** Closely track vehicle and gross margins in future quarters to assess the effectiveness of cost management and pricing strategies.
* **Analyze Cash Flow Drivers:** Conduct a thorough analysis of the factors contributing to the decline in operating and free cash flow.
* **Evaluate Q1 2025 Performance:** Assess the company’s performance in Q1 2025 against its guidance and identify any underlying issues.
* **Assess Competitive Landscape:** Continuously monitor the competitive landscape and evaluate Li Auto’s ability to maintain its market position.
* **Review Capital Allocation Strategy:** Evaluate the company’s capital allocation strategy to ensure efficient use of resources and sustainable growth.

Li Auto Inc. Financial Analysis – Q4 and FY 2024

1. Commentary

Li Auto’s Q4 2024 results show mixed performance. Revenue increased year-over-year and quarter-over-quarter, driven by higher deliveries, but net income significantly decreased compared to Q4 2023. The company experienced a decline in gross margin, attributed to product mix and pricing strategies. While operating expenses decreased, the substantial drop in free cash flow raises concerns about cash management and investment activities. For the full year 2024, revenue increased, but net income and free cash flow decreased significantly compared to 2023.

2. Financial Ratio and Metric Analysis

Profitability

Metric	Q4 2024	Q4 2023	Change (pts)	FY 2024	FY 2023	Change (pts)	Industry Average	Notes
Gross Profit Margin	20.3%	23.5%	-3.2	20.5%	22.2%	-1.7	25-30%	Automotive industry average used as proxy. Declining margins are a concern.
Operating Profit Margin	8.4%	7.3%	1.1	4.9%	6.0%	-1.1	8-12%	Automotive industry average used as proxy. Slight increase in Q4, but decrease for the year.
Net Profit Margin	8.0%	13.8%	-5.8	5.6%	9.5%	-3.9	5-10%	Automotive industry average used as proxy. Significant decrease in both Q4 and FY.
Return on Assets (ROA)	N/A	N/A	N/A	4.96%	8.23%	-3.27	3-5%	ROA = Net Income / Total Assets. FY24: 8,045.25 / 162,349.08 = 4.96%. FY23: 11,809.13 / 143,467.47 = 8.23%. Automotive industry average used as proxy.
Return on Equity (ROE)	N/A	N/A	N/A	11.28%	19.50%	-8.22	10-15%	ROE = Net Income / Total Shareholder Equity. FY24: 8,045.25 / 71,320.38 = 11.28%. FY23: 11,809.13 / 60,575.22 = 19.50%. Automotive industry average used as proxy.
EPS (Basic)	RMB 3.52	RMB 5.72	-37.8%	RMB 8.06	RMB 11.90	-32.3%	N/A	Decrease in EPS reflects lower net income.
EPS (Diluted)	RMB 3.31	RMB 5.32	-37.8%	RMB 7.58	RMB 11.10	-31.7%	N/A	Decrease in EPS reflects lower net income.

Liquidity

Note: Balance sheet data is only available for year-end. Therefore, current and quick ratios can only be calculated for 2023 and 2024.

Metric	Dec 31, 2024	Dec 31, 2023	Change	Industry Average	Notes
Current Ratio	1.82	1.57	0.25	1.0-2.0	Current Assets / Current Liabilities. 2024: 126,309.78 / 69,215.90 = 1.82. 2023: 114,525.58 / 72,742.71 = 1.57.
Quick Ratio	1.70	1.48	0.22	0.8-1.5	(Current Assets – Inventories) / Current Liabilities. 2024: (126,309.78 – 8,185.60) / 69,215.90 = 1.70. 2023: (114,525.58 – 6,871.98) / 72,742.71 = 1.48.
Cash Ratio	1.09	1.26	-0.17	0.2-0.5	(Cash & Cash Equivalents + Short-Term Investments) / Current Liabilities. 2024: (65,901.12 + 46,904.55) / 69,215.90 = 1.63. 2023: (91,329.03 + 11,933.26) / 72,742.71 = 1.42.

Solvency/Leverage

Note: Balance sheet data is only available for year-end. Therefore, ratios can only be calculated for 2023 and 2024.

Metric	Dec 31, 2024	Dec 31, 2023	Change	Industry Average	Notes
Debt-to-Equity Ratio	0.13	0.14	-0.01	0.5-1.5	Total Liabilities / Total Shareholder Equity. 2024: 91,028.70 / 71,320.38 = 1.28. 2023: 82,892.25 / 60,575.22 = 1.37.
Debt-to-Assets Ratio	0.56	0.58	-0.02	0.4-0.6	Total Liabilities / Total Assets. 2024: 91,028.70 / 162,349.08 = 0.56. 2023: 82,892.25 / 143,467.47 = 0.58.
Interest Coverage Ratio	39.88	85.89	-46.01	5-10	Income from Operations / Interest Expense. 2024: 7,019.11 / 187.76 = 37.38. 2023: 7,406.88 / 86.25 = 85.89.

Activity/Efficiency

Note: Inventory Turnover, DSO, and DPO cannot be accurately calculated with the provided data. More detailed cost of goods sold and accounts receivable/payable information is needed.

Metric	FY 2024	FY 2023	Change	Industry Average	Notes
Asset Turnover	0.89	0.86	0.03	0.8-1.2	Total Revenue / Total Assets. 2024: 144,459.95 / 162,349.08 = 0.89. 2023: 123,851.33 / 143,467.47 = 0.86.

Valuation

Note: Valuation ratios are estimates based on the provided data and current stock price. The P/E ratio is calculated using estimated annual EPS.

Metric	Value	Notes
Price-to-Earnings Ratio (P/E)	11.77	Stock Price ($9.49) / Annual EPS ($0.81). EPS is calculated by multiplying Q4 EPS by 4.
Price-to-Book Ratio (P/B)	0.94	Market Cap (9,197.8M) / Book Value (9,770.85M). Book Value is total shareholder equity in USD.
Price-to-Sales Ratio (P/S)	0.46	Market Cap (9,197.8M) / Total Revenue (19,790.93M). Total Revenue is in USD.
Enterprise Value to EBITDA (EV/EBITDA)	10.03	EV = Market Cap + Total Debt – Cash. EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization.

Growth Rates

Metric	FY 2024	FY 2023	Change	Notes
Revenue Growth	16.6%	N/A	N/A	(144,459.9 – 123,851.3) / 123,851.3 = 16.6%
Net Income Growth	-31.9%	N/A	N/A	(8,045.3 – 11,809.1) / 11,809.1 = -31.9%
EPS Growth	-31.7%	N/A	N/A	(7.58 – 11.10) / 11.10 = -31.7%

Other Relevant Metrics

Vehicle Deliveries: Total deliveries increased by 20.4% YoY for Q4 2024 and 33.1% for FY 2024. This indicates strong demand for Li Auto vehicles.
Vehicle Margin: Vehicle margin decreased to 19.7% in Q4 2024 from 22.7% in Q4 2023 and to 19.8% in FY 2024 from 21.5% in FY 2023. This is attributed to product mix and pricing strategies.
Free Cash Flow: Free cash flow decreased significantly, down 58.6% YoY for Q4 and 81.4% for the full year. This is a major concern, potentially limiting future investments and growth.
Non-GAAP Metrics: The company presents non-GAAP net income and EPS, which exclude share-based compensation and other items. While these metrics can provide a different perspective on profitability, it’s important to consider the adjustments made and their impact on the overall financial picture. For example, the exclusion of share-based compensation expenses, while common, can mask the true cost of employee compensation.