Li Auto slips in premarket after inventory charge widens Q3 loss

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By Geoffrey Smith 

AiVIF.com -- ADRs in Li Auto (NASDAQ:LI) fell in premarket after the Chinese maker of electric vehicles posted another hefty loss in the third quarter, against the backdrop of higher input costs and repeated economic disruption from COVID-19 lockdowns. 

The company was also forced to book a charge against unsold inventory of its previous flagship product, the Li ONE crossover, as the launch of new models cannibalized the Li ONE's customer base.

Li, seen as one of the major competitors to Elon Musk's Tesla (NASDAQ:TSLA) in China, said its net loss narrowed from the previous quarter but was still substantially wider than a year ago, with capital spending and surging costs for key inputs also hurting its results.

Cash flow from operations swung to an outflow of over $71 million, compared to cash generation of around $150M in the second quarter, "mainly due to the increase in payment related to inventory purchase," the company said. It added that the higher costs were only partially mitigated by higher sales revenue, despite claiming a successful launch for its new L9 SUV.

The inventory provision brought the profit margin on its vehicle sales nearly halved down to 12.0% from 21.2% in the second quarter. Stripping out the effects of the provision, the underlying vehicle margin declined more gently to 20.8%.

"Looking ahead, we are optimistic that with rapid production ramp-up, rigorous execution, and responsible cost management, we will realize greater economies of scale and further drive down costs, putting us back on track to hit our profitability inflection point," chief financial officer Tie Li said in a statement. 

Overall revenue rose 7% from the second quarter to 9.34 billion yuan ($1=CNY6.9528), thanks to the launch of the new L9 full-size SUV. As a result, revenue was up 20% from a year earlier. However, the net loss widened to 1.65B yuan from 645M in the second quarter, translating into a loss per share of 1.68 yuan, or 24c. 

For the fourth quarter, the company expects to deliver between 45,000-48,000 vehicles as it puts repeated production disruptions behind it. Revenue is seen between 16.5B and 17.6B yuan, which would represent an increase of some 60% from a year earlier. 

By 05:45 ET (10:45 GMT), Li ADRs were down 3.1% in premarket trading in New York.