Li Auto (2015.HK) has demonstrated its profitability for the first time.
According to the first-quarter report, Li Auto's operating revenue was 18.79 billion yuan, a year-on-year increase of 98.8%; net profit was 930 million yuan, compared to a loss of 10.87 million yuan in the same period last year; if the equity incentive expenses are excluded, Li Auto's net profit for the first quarter was 1.41 billion yuan.
Boosted by this news, Li Auto's stock price soared by 14%, and at one point during the trading day, the increase exceeded 17%. So, how should we view this performance?
Firstly, let's look at the operating revenue.
Given the sales volume in the first quarter, which is a known factor, there is not much divergence in the market's expectations for Li Auto's operating revenue. However, it is worth mentioning that, due to the Spring Festival, the first quarter is typically a slow season, but even so, Li Auto's operating revenue for the first quarter still exceeded that of the fourth quarter of last year, showing a positive quarter-on-quarter growth, which is quite remarkable.
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Secondly, let's consider the net profit.
A net profit of 930 million yuan was completely unexpected by the market. This is also the most important reason why the stock price surged after the company's performance was announced. 930 million yuan implies that Li Auto's net profit margin for the first quarter is 5%, and if the equity incentive expenses are added back, this figure is 7.5%.
What does this mean?
BYD (002594.SZ) has a net profit margin of 3.64%, which is roughly half of Li Auto's. Note that BYD's figure includes the lithium battery and semiconductor businesses, while Li Auto only has the whole vehicle business.Focus on the gross margin.
It is important to emphasize that the significant rebound in ideal profitability is not due to a substantial increase in gross margin. In fact, the gross margin for the first quarter of the ideal was 20.4%, slightly lower than the same period last year. From this, one can infer that the company achieved this performance by significantly reducing various costs such as marketing expenses and administrative expenses without affecting the quality of the vehicles.
This can be understood in light of the recent incident where the CEO of Ideal personally responded to media criticism.
One can imagine that if Ideal relies on scale advantages and the growth of software revenue to increase its gross margin to 25%, could the net profit margin reach 10% or even higher?
Additionally, there is the free cash flow.
The importance of this figure lies in the fact that, unlike net profit, free cash flow truly reflects a company's profitability. In the first quarter of this year, Ideal's free cash flow was 6.7 billion yuan. What does this mean? It is equivalent to seven times the net profit of the same period and three times the annual total for 2022.
In one sentence, unlike the profits obtained through previous financial adjustments, this time it is a solid profit!
Let me reiterate, as of the end of the first quarter of 2023, Ideal's cash reserves were 65 billion yuan, breaking through the 60 billion yuan mark for the first time, showing a trend of increasing quarter by quarter.
Finally, looking at the company's sales guidance.
For the second quarter of this year, Ideal's sales guidance is 76,000 to 81,000 vehicles, which is equivalent to a monthly sales target of 25,000 to 27,000 vehicles. This means that in June of this year, Ideal may aim for a monthly sales target of 30,000 vehicles. Where is this number impressive? Compared to itself, the sequential growth rate is close to 50%; compared to peers, it may be twice or even more than NIO's sales volume.Li Auto's target for 2023 is to "ensure 250,000 and strive for 300,000 vehicles," and currently, it does not seem particularly difficult to exceed the annual target.
Some may worry about a single issue: whether Li Auto's sales can continue to grow in the future?
Let's discuss our views.
Firstly, in the "300,000+" luxury car market, Li Auto has consistently ranked in the top five for luxury brand sales, being the highest-ranked Chinese brand and increasingly approaching the status of BMW, Benz, and Audi (BBA). Note that this includes not only new energy vehicles but also traditional fuel vehicles. This means that in terms of brand recognition and brand level, Li Auto has already established a solid position.
Secondly, unlike NIO, Li Auto currently has only three models, and each is a best-seller. This indicates that Li Auto's product development capability is very strong, and the company has the ability to continuously create best-selling models. According to Li Auto's plan, the first flagship pure electric MPV will be launched by the end of 2023, followed by six pure electric models. With a strategy of "extended-range + pure electric," there is still much to look forward to.
Thirdly, as of the end of the first quarter of 2023, Li Auto has 299 retail stores covering 123 cities. It is evident that there is still a significant room for improvement in this channel number.
Fourthly, it is expected that starting from 2024, Li Auto will achieve Level 4 autonomous driving. At that time, with a substantial sales base, Li Auto's software revenue is also expected to increase significantly.
In summary, 2023 marks the official entry of Li Auto into a new phase of "from 1 to 10," and the true rise of Li Auto as a domestic luxury brand has officially begun.