Li Auto Posts Second Straight Quarterly Profit. The Stock Is Rising.

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Chinese electric-vehicle maker

Li Auto

reported a profitable fourth quarter even as the company ramped up spending on vehicle development. The results looked pretty good and the stock was gaining in premarket trading Friday.

Li Auto (ticker: LI) rose about 1.9% to almost $28 a share.

S&P 500
and

Dow Jones Industrial Average
futures were down 0.7% and 0.6%, respectively.

Li earned an adjusted profit of about 1 cent a share from $1.63 billion in sales. Analysts expected earnings of about 2 cents a share from $1.56 billion in sales.

Earnings came in a little light. Still, it’s the company’s second consecutive quarterly profit, on an adjusted basis. What’s more, vehicle gross profit margins improved from the third quarter of 2021, even as the global auto industry worked through rising costs and a shortage of semiconductors that constrained auto production.

Margin comparisons with the fourth quarter of 2020 aren’t meaningful. Li is growing rapidly. Vehicle sales and gross profit grew 156% and 233% year over year, respectively.

Citigroup analyst Jeff Chung called the gross profit performance “slightly ahead” of his expectations and praised the company’s free cash flow generation in a research report Friday.

“We achieved profitability and [$600 million in] operating cash flow in the fourth quarter even as we accelerated the pace of R&D investment and sales network expansion,” said CEO Xiang Li in the company’s news release. “A significant reflection of our operating excellence.”

Looking ahead, the company expects to deliver about 31,000 vehicles in the first quarter and generate sales of about $1.43 billion. That’s a little less than the 32,000 vehicles and $1.5 billion in sales Wall Street is projecting.

The 31,000 is also less than the 35,221 vehicles delivered in the fourth quarter of 2021. Falling government incentives and normal seasonal patterns likely account for the sequential drop. The same pattern played out from the fourth quarter of 2019 going into the first quarter of 2021.

For now it looks like guidance is good enough, especially given how shares have traded. Coming into Friday trading, Li stock had fallen about 15% year to date and was down about 27% from its December 52-week high of about $37.45 a share.

Li stock has traded down with other high growth stocks as inflation, rising interest rates and the Russian-Ukraine conflict sapped investors’ willingness to hold growth stocks.

NIO

(NIO) stock, a Li peer, has dropped about 33% year to date and is 62% off its 52-week high.

Li management will host a conference call at 7:30 a.m. Eastern time to discuss results. Investors and analysts will be eager to hear more about the outlook for Chinese EV sales in the first quarter and the rest of 2022.

Write to Al Root at [email protected]