Chinese EV maker Li Auto (LI) reported Q2 earnings, falling short of both Wall St. delivery targets and earnings estimates. The EV maker delivered 28,687 units of its flagship model, the Li ONE.

Perhaps, most importantly, is Li Auto’s guidance going forward. Li Auto noted in its Q2 earnings the automaker faced several pandemic-related challenges during the quarter.

Covid lockdowns in China have put a damper on the economy. Furthermore, global economic conditions are deteriorating between rising interest rates and geopolitical tension. With this in mind, deliveries of the Li ONE increased by 21.3% from last year. Yet, deliveries fell 9.5% from the first quarter’s delivery total of 31,716. The last thing an EV startup wants to see while in its early stages is a slip in deliveries.

Since its launch in 2015, Li Auto has grown into a leading EV company in China, with over 184,400 deliveries of its first EV model, the Li ONE. But Li has yet to turn a profit, like many EV startups.

Despite delivering fewer vehicles, Li Auto lost more money from operations ($146.1 million) in Q2 than in the first quarter ($65.2 million), representing an increase of 137%.

Investors are evidently not pleased with the news, as Li Auto stock is down almost 4% today; that said, shareholders will be watching closely to see if Li Auto can turn it around. A big focus will be on whether the company can improve its deliveries and profitability.

Like many EV startups, Li Auto is currently draining money to scale production and gain EV market share. Operating expenses reached $426.5 million in its Q2 earnings, an increase of 10% from Q1.

Li-Auto-q2-earnings-Li-L9
Li Auto Li L9 SUV Source Li Auto

Why Li Auto’s Q2 earnings are significant

A few takeaways from Li Auto’s Q2 earnings are significant as we advance. For one thing, the EV maker is spending more money on fewer vehicle deliveries.

Starting an EV company, or any auto company at that, is extremely difficult. To make and produce vehicles at scale is a capital-heavy task, meaning it takes funding to get the momentum rolling.

As the company starts producing and delivering vehicles, it often uses earnings from vehicle sales to put back into the business and promote future growth.

However, if Li Auto’s deliveries are falling and expenses are still rising, that can be an issue. To be fair, the Covid resurgence is the primary reason for the decline. Yet, competition in the EV market, especially in China, is also rapidly increasing.

Despite this, the company had a few positive takeaways. Li Auto launched its second EV model, the Li L9 – a smart SUV model. CEO Xiang Li had this to say about the launch:

Our second model, Li L9, a flagship smart SUV for families, has received positive feedback from our users since its launch on June 21, as evidenced by the especially strong number of non-refundable orders received for the vehicle.

Overall, Li Auto posted revenue of $1.3 billion in its Q2 earnings, up 73% YOY, but a decrease of 8.7% from Q1. The company had $8 billion in cash and equivalents at the end of Q2.

Looking ahead, Li Auto expects deliveries between 27,000 and 29,000 in the third quarter, with revenue ranging from $1.34 and $1.43 billion.

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About the Author

Peter Johnson

Peter Johnson is covering the auto industry’s step-by-step transformation to electric vehicles. He is an experienced investor, financial writer, and EV enthusiast. His enthusiasm for electric vehicles, primarily Tesla, is a significant reason he pursued a career in investments. If he isn’t telling you about his latest 10K findings, you can find him enjoying the outdoors or exercising