Li Auto’s Hong Kong Shares Drop After Weak Earnings Report

Disappointing Outlook Sparks Sell-Off

Li Auto Inc., a key competitor to Tesla in the Chinese electric vehicle market, saw its Hong Kong shares decline sharply following the release of its fourth-quarter 2024 earnings and a lackluster outlook for the first quarter of 2025. The company, listed as HK:2015, experienced a drop of up to 7% in its stock price, reaching HK$105.0, while its American shares (NASDAQ:LI) had already shed 4.3% the previous Friday. This downturn came despite Li Auto reporting record-high quarterly revenue of $6.1 billion, a figure that underscores its strong sales growth in recent years. However, the combination of underwhelming earnings per share and a cautious revenue forecast has rattled investors and analysts alike, leading to downgrades and heightened scrutiny of the firm’s position in China’s fiercely competitive EV landscape. The broader context of an ongoing price war and shifting market dynamics further complicates Li Auto’s path forward, making this a pivotal moment for the electric vehicle manufacturer.

The earnings report revealed that Li Auto delivered 158,696 vehicles in Q4 2024, reflecting a 20.40% increase year-over-year and a modest 3.84% uptick from the prior quarter. While these numbers highlight the company’s ability to scale production and meet demand, they fell short of its own guidance of 160,000 to 170,000 units, a miss that likely contributed to the negative market reaction. Revenue for the quarter hit $6.1 billion, driven by robust sales of its hybrid electric vehicles, but earnings per share painted a less rosy picture. The non-GAAP diluted net earnings per American Depositary Share (ADS) came in at $0.52, down from $0.58 in Q4 2023, signaling that profitability is under pressure. For the full year, non-GAAP diluted net earnings per ADS totaled $1.38, a decline from $1.57 in 2023. This erosion in margins stems largely from a brutal price war among Chinese EV makers, with companies slashing prices to capture market share, a trend that has squeezed profitability across the sector. Li Auto’s gross margin of 23.5% in Q4, while improved from 22.0% in Q3, still reflects the challenges of maintaining financial health in this cutthroat environment.

Looking ahead, Li Auto’s guidance for Q1 2025 has fueled further unease among investors searching for insights into the company’s near-term performance. The firm projected revenues between $3.2 billion and $3.4 billion, a range that represents a year-over-year decline of 8.7% to 3.5%. This forecast starkly contrasts with Wall Street’s expectations of $4.6 billion, amplifying concerns about Li Auto’s growth trajectory. Vehicle delivery estimates for the quarter, set at 88,000 to 93,000 units, indicate a respectable 9.5% to 15.7% increase from Q1 2024, yet this growth appears insufficient to offset the revenue shortfall. Company executives attributed the conservative outlook to seasonal factors, including the impact of the Chinese New Year, which typically slows automotive sales. However, the gap between Li Auto’s projections and analyst estimates suggests deeper challenges, such as intensifying competition from rivals like BYD, NIO, and Xpeng, all of whom reported share price gains of up to 3.7% on the same day Li Auto’s stock faltered. This divergence underscores the uneven fortunes within China’s EV sector and raises questions about Li Auto’s ability to maintain its competitive edge.

Analyst reactions have added to the pressure on Li Auto’s stock, with prominent firms revising their ratings in response to the earnings miss and weak guidance. Macquarie downgraded the stock from Outperform to Neutral, citing doubts about Li Auto’s capacity to sustain earnings growth amid rising competition and a crowded market. The firm also lowered its price target, reflecting a more cautious stance on the company’s valuation. Similarly, Nomura shifted its rating from Buy to Neutral, pointing to a challenging near-term outlook as Li Auto prepares to launch two new all-electric SUVs, the Li i8 and Li i6, later in 2025. These upcoming models aim to bolster the company’s presence in the battery electric vehicle (BEV) segment, a critical move as consumer preferences shift away from hybrid vehicles. Yet, the timing of these launches, combined with the immediate headwinds from pricing pressures and new offerings from competitors, has tempered optimism about their potential impact. Investors appear wary that Li Auto may struggle to regain momentum in the short term, even as it positions itself for long-term growth.

Despite these setbacks, Li Auto is not standing still. The company outlined ambitious plans during its earnings call, including the expansion of its supercharging network to over 2,000 stations by the time its BEV models hit the market, with a goal of 4,000 stations by year-end 2025. This infrastructure investment aims to support its transition to all-electric vehicles and enhance customer convenience, a key factor in driving adoption. Additionally, Li Auto is eyeing international markets, establishing a dedicated overseas division to spearhead exports following the Chinese New Year. The firm projects sales of 10,000 to 15,000 units of its Li Mega MPV abroad in 2025, signaling its intent to diversify beyond China’s saturated EV market. These initiatives reflect a strategic pivot to counter domestic challenges, but their success hinges on execution and the company’s ability to navigate global regulatory and competitive landscapes.

The broader outlook for Chinese EV manufacturers, including Li Auto, offers a glimmer of hope amid the current turbulence. Beijing is reportedly preparing additional subsidies to stimulate consumption, a move that could lift demand for electric vehicles and alleviate some pricing pressures. The penetration rate of new energy vehicles (NEVs) in China is expected to rise further by 2026, favoring brands with strong sales volumes like Li Auto, which delivered 500,508 vehicles in 2024. However, the immediate focus remains on how Li Auto can weather the storm of declining margins and investor skepticism. The company’s stock performance lagged the Hang Seng index, which rose 1% on the day of the sell-off, highlighting the specific challenges tied to its earnings report rather than a broader market downturn. Meanwhile, rivals like BYD (HK:1211), NIO (HK:9866), and Xpeng (HK:9868) capitalized on positive sentiment, with their shares climbing as investors rotated toward perceived winners in the EV race.

Li Auto’s journey reflects the broader dynamics of China’s electric vehicle industry, where rapid growth and innovation coexist with fierce competition and economic pressures. The company’s record revenue and delivery milestones demonstrate its operational strength, yet the earnings miss and cautious guidance reveal vulnerabilities that cannot be ignored. As Li Auto prepares to roll out new models and expand its footprint, its ability to adapt to market shifts and restore investor confidence will be critical. For now, the dip in its Hong Kong shares serves as a stark reminder of the high stakes in this fast-evolving sector, where even strong performers must continually prove their resilience. With government support on the horizon and a clear roadmap for growth, Li Auto has the tools to rebound, but the road ahead demands precision and agility in the face of unrelenting competition.