Li Auto, a Chinese-based automaker, hopes for a 15 percent increase in automotive sales between April to June following a disappointing performance in the last quarter. The Nasdaq-listed automaker said on Wednesday that full deliveries for the second quarter would be in line with expectations, adding that it is “scoping” its operations for the rest of the year ahead. It also confirmed that it plans to increase its China sales headcount for the coming year. This comes as no surprise given the slowing Chinese economy, and industry watchers have expected a marked slowdown in China sales in coming quarters.
Why might Li want to join up with such a big competitor? Because it sees an opening for itself in China, analysts say. The Chinese market, which traditionally drives its own growth, is becoming more demanding. The government is pushing manufacturers to build more eco-friendly cars, and local manufacturers are feeling the heat. The lack of consumer-grade choices, coupled with the rampant corruption in local business environments, has kept Chinese manufacturers at bay for years. Now that competition has begun to pick up, Li is trying to ride the company into the future by developing its own EV brand.
In its first quarter, the stock traded on the Nasdaq closed at just over $120 million, well below its closing price of the last year of nearly $150 million. On the other hand, the company released earnings that showed a gain of almost 24 million pounds, or more than three billion pounds. That may have had something to do with the fact that gross profit margins between April and June were up almost six percent year on year. On the other hand, profits dipped slightly, perhaps as a result of a lower number of accounts receivable collections.
The question is, how did Li Auto perform during the quarter? And, how will it fare in its second full year on the Nasdaq? This article will look at some of the challenges Li faces as it seeks to continue to expand into new markets. As a start, we’ll look at the company’s efforts to raise funds. Our main findings will follow.
China’s State Financial Services Commission has blocked Chinese firms from raising money through the Nasdaq. Many foreign carmakers see this as a serious setback for their plans to penetrate the Chinese consumer market and enter into a large-scale expansion plan. So, what does the automaker need to do to secure the additional funding it needs to launch into new markets?
Li’s stock price is likely to fall further as the company gears up for more cuts in its production numbers. Some Chinese drivers who want to own a premium smart electric vehicle are looking at the homegrown brands among the two national brands as a cheaper alternative to the more expensive smart electric vehicles, especially in terms of the price of an electric motor. However, Li’s management is looking at the broader picture and the company is targeting to grow its base of middle-income consumers in both the metropolitan and rural areas over the next few years. This will help it raise its earnings before the cuts in production begin. A top management executive told analysts on the sidelines of the company’s release that the company will release another set of five new models in the next two months with new technologies such as “smart chips” to give better support to drivers, pedestrians, and motorists.
For instance, one of the new products is supposed to have GPS features. The program of the new Smart Electric Vehicle will also include an advanced computerized system for traffic and transportation management. A second major announcement made by the company regards the creation of a new series of battery electric vehicles to be marketed in China in partnership with local manufacturers. The project is said to cost over $1 billion, which is about six percent of the company’s current assets. The battery vehicles, which will be sold under the brand name of Liandi, are expected to cost less than ten thousand RMB (ten thousand dollars) for the standard model.
However, some Chinese drivers who want to own a premium smartev are looking at domestic brands to bolster their presence in China’s automobile markets. According to recent research by CIMB forecast, Li was the third largest selling vehicle brand in China in the first quarter this year. CIMB forecast that Li’s brand growth will continue to be above the expectations of industry watchers this year. This means that Li can keep its share of the lucrative Chinese car markets for the coming years and also emerge as a big player in global markets like Europe and the US.
