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China Earnings Electric eMobility eV Nio Research Note

NIO Q1 earnings: Deutsche Bank’s first look

reported weak first-quarter underlying results but showed surprising Opex discipline to start the year and also presented a better-than-feared outlook for second-quarter sales, Edison Yu's team said.

NIO (NYSE: NIO) today reported weaker-than-expected first-quarter earnings, but emphasized on the analyst call that more prudent cash management will follow, as well as expressing confidence in delivering 20,000 vehicles per month in the coming months.

As usual, Deutsche Bank analyst Edison Yu's team provided their first impressions of the earnings report.

Here's what the team had to say.

1Q23 Earnings First Look

NIO reported soft underlying 1Q results, largely as previewed but showed surprising opex discipline to start the year, and also initiated a better than feared 2Q volume outlook.

Deliveries for the first quarter were already reported at 31,041 units, leading to revenue of 10.7bn RMB, vs. our/consensus 10.9bn/11.7bn forecasts, hurt by lower ASP.

Gross margin of 1.5% was below our 2.5% forecast (consensus >7%), driven by downside in vehicle margin (5.1% vs. our 6.5%), partially offset by better "other" margin (-21.0% or +870bps QoQ).

Opex of 5.5bn was materially below our expectations, both on R&D and SG&A.

All together, adjusted EPS of (2.51) came in better than our/consensus estimates.

Management provided a stronger than expected outlook for 2Q23, calling for 23,000-25,000 deliveries. This compares to our 23,000 unit forecast and suggests June will be up materially QoQ (~11,000 at mid-point vs. just 6,155 in May) as the new ES6 ramps up quickly.

We suspect there were concerns June may see some supply chain constraints that don't appear to be materializing. This translates into 8.7-9.4bn RMB in revenue, vs. our 9.0bn forecast.

Looking beyond, management is targeting >20,000 deliveries per month in 2H including 10,000 of new ES6 in July. This will likely be difficult to achieve (sustain at least), in our view, given underperformance of the sedans (ET5, ET7) and we don't think management will get credit for this.

On vehicle margin, 2Q will still be under pressure with 3Q recovering back to double digits and 4Q >15%.

R&D is expected to still trend around 3-3.5bn (non-GAAP basis) per quarter and SG&A will step up sequentially in 2Q although the CEO's tone suggested certain incremental spend could potentially get pushed out at least until the performance of core NIO stabilizes.

Lastly, NIO is officially pushing out its operating profit breakeven target by a year (or less), which is long overdue based on our latest modeling.

NIO Q1 earnings miss expectations, gross margin drops to 1.5%

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CATL China Electric eMobility eV Insights Research Note

CATL shares plunge after Morgan Stanley downgrades rating to underweight

Second-tier battery makers may adopt a more aggressive pricing strategy to gain market share in the second half of the year, and could face increasing risks to its market share and margins in the domestic market, Morgan Stanley said.

Morgan Stanley downgraded its rating on CATL, citing market share risks, sending shares of the Chinese power battery giant tumbling in morning trading.

"We downgrade CATL to UW as we think second-tier battery makers may adopt more aggressive pricing strategies to gain market share in 2H23," analyst Jack Lu's team said in a research note sent to investors earlier today.

As of press time, CATL shares traded in Shenzhen were down about 6 percent to near their lowest point of the year.

Earlier this year, Morgan Stanley upgraded CATL to equal weight, while being bearish on most battery material makers, as it believes CATL is better able to respond to slowing demand and leverage its cost advantages and bargaining power across the broader value chain.

Now, Lu's team believes that the dual-sourcing battery strategy of local EV companies may help the Tier 2 battery makers achieve their goals, while CATL may face increasing risks in terms of market share and margins in the domestic market.

In February, CATL launched a lithium rebate program to trade cheap lithium resources for market share. However, the subsequent plunge in lithium prices to below RMB 200,000 per ton has led to significant uncertainty about the program, the team said, adding that they have not received any further news about the program.

Meanwhile, battery makers have been offering fairly significant price cuts against the backdrop of falling lithium prices in the second quarter, the team noted.

"Our checks with tier-two battery makers indicate that the price cuts could be in the range of 10-20% during the quarter, with some battery makers likely offering more aggressive cuts than others," the team wrote.

Such actions could threaten CATL's market share in its domestic market, and market share potential is an important stock price driver, the team said.

CATL's power battery installed base in China was 10.26 GWh in April, ranking first with a 40.83 percent share, but down from 44.95 percent in March, China Automotive Battery Innovation Alliance (CABIA) data from last month showed. Data for May is Expected to be available in a few days.

(NYSE: NIO) and (NASDAQ: LI) are bringing in new battery suppliers instead of making CATL their sole supplier, Lu's team noted.

"With many new models being launched in the domestic EV market, we think CATL's domestic market share could come under pressure," the team said.

As background, since late last year, regulatory filings for NIO's new NT 2.0-based models have shown battery suppliers that include the smaller CALB in addition to CATL.

Last month, NIO filed to use semi-solid-state batteries from Beijing WeLion New Energy Technology in its models.

On February 8, Li Auto officially launched its first five-seat SUV, the Li L7, and announced the introduction of Sunwoda Electric Vehicle Battery and Svolt Energy as new battery suppliers.

More and more Tier 2 companies are adopting increasingly aggressive pricing strategies, and CATL may have to do the same, according to Lu's team.

Despite a short-term recovery in value chain orders, there will still be excess battery capacity in the short term and price competition is inevitable, the team said.

In addition to the market share pressure it faces domestically, Lu's team believes CATL's overseas path is increasingly uncertain.

"Some investors have argued that CATL's market share overseas is yet to see signs of decline; however, in our view CATL's overseas market is under increasing scrutiny and becoming more and uncertain, limiting visibility," the team wrote.

CATL has tried to penetrate overseas markets through exports and localization of production, but both pathways are increasingly at risk due to geopolitical tensions, particularly in the US, the team said.

Notably, Lu's team stressed that if the cost of battery materials and minerals continues to fall, this could give car companies more room to pursue new technologies and other battery performance metrics.

"If this is the case, CATL could regain any lost market share and continue to dominate the global battery market, leveraging its strong R&D capabilities and bargaining power over the supply chain. Our bull case scenario assumes 60% global market share in the long term," the team wrote.

Global EV battery market share in Jan-April: CATL 35.9%, BYD 16.1%

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China Electric eMobility eV Insights Nio NIO ES6 Order Backlog Research Note

NIO’s new order intake hits year-to-date high with launch of new ES6, Morgan Stanley says

Confirmed orders for the ES6 accounted for 35-40 percent of new orders in May, meaning inflows since the model's launch in the last week of May have been quite meaningful, Morgan Stanley said.  |  US | NIO HK | NIO SG

(Image credit: CnEVPost)

The new ES6 is critical for NIO (NYSE: NIO) to turn around its weak sales performance. So what has the model contributed to NIO since its launch? A new research note from Morgan Stanley provides a good reference.

NIO's overall new order intake hit a year-to-date high, boosted by the launch of the new ES6, analyst Tim Hsiao's team said in a research note sent to investors on June 5.

The team said they have been tracking some feedback from startups' major sales channels in major Chinese cities since early last year to better understand the latest market dynamics.

The team shared their key findings in their research note while noting the limitations of their sampling methodology.

Confirmed orders for the ES6 accounted for 35-40 percent of new orders in May, implying quite a meaningful inflow since the model hit the market in the last week of May, the team said.

As background, NIO officially launched the new ES6 on May 24 and delivered it to its first owners the same night, the fastest from launch to delivery in the company's history.

Including the battery, the new ES6 has a starting price of RMB 368,000 ($51,680), making it NIO's least expensive SUV.

NIO saw overall traffic at its flagship stores in Tier 1 cities increase 30-40 percent month-on-month in May and continued that momentum in early June after the company brought the new ES6 to market, Hsiao's team said, citing their latest checks.

"Overall store traffic at the stores we track is back to the level seen this February but still 20% below last September's level, when the company rolled out ET5," the team said.

NIO stores' retail conversion rate -- the ratio of orders to traffic -- remained largely steady at 5 percent in May, the team said, adding that consumers need more time to get a closer and deeper look at the new model and they expect conversion rates to climb gradually with broader test drives.

Hsiao's team believes the starting price for the new ES6 looks a bit conservative, but their checks last week at major NIO flagship stores in Tier 1 cities suggest that order momentum has been picking up.

"Certain stores we talked to further suggest that NIO's orders as a whole exceeded 9k units in May. Within this, ES6 basically dominated order inflow after taking confirmed orders from last week of May," the team said.

On a full-month basis, the new ES6 accounted for more than 35 percent of total orders, which suggests a quite meaningful turnaround at the end of the month, the team said.

Orders for NIO look a bit overly concentrated at the moment, Hsiao's team said, adding that some salespeople they interviewed suspended order intake for the ES8 and EC6 during the model changeover.

NIO's sedan models, such as the ET7, saw orders drop by about 20 percent in May from a year earlier, according to the team.

"ET5 and the all-new ES6 contribute about 80% of new orders, implying likely greater volatility if other high-margin models fail to catch up," the team said.

Notably, NIO is still in the process of getting the new ES6 capacity to climb, and the model contributed very little to deliveries last month.

The EV maker delivered 6,155 vehicles in May, down 7.55 percent from April and down 12.37 percent year-on-year, according to data released June 1.

The deliveries included 2,396 SUVs and 3,759 sedans, NIO said.

NIO will complete the capacity ramp for the new ES6 in June to deliver vehicles as soon as possible, Jim Wei, the company's senior vice president of customer operations, said in a June 1 announcement of May delivery figures on the NIO App.

($1 = RMB 7.1212)

NIO Q1 earnings preview: Struggling along for another quarter

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China Earnings Earnings Preview Electric eMobility eV Insights Nio Research Note

NIO Q1 earnings preview: Struggling along for another quarter

Deutsche Bank expects to report soft results for the first quarter, with downside risk to margins, though some relief in on the way.

NIO (NYSE: NIO) will report first-quarter unaudited financial results on Friday, June 9, before the US markets open. As usual, Deutsche Bank analyst Edison Yu's team provided their preview.

"NIO is suffering from weaker-than-expected demand and is facing its greatest adversity since nearly going bankrupt in 2020," the team said in a research note sent to investors today titled "Struggling along for another quarter."

The team expects NIO to report soft results in the first quarter, with downside risk to margins, and a very weak outlook for sales, and margins in the second quarter.

First quarter earnings

Previous data showed that NIO delivered 31,041 vehicles in the first quarter, slightly above the lower end of the guidance range of 31,000 to 33,000 vehicles.

NIO's previous revenue guidance for the first quarter was between RMB 10.93 billion and RMB 11.54 billion, implying year-on-year growth of about 10.2 percent to 16.5 percent.

Yu's team expects NIO to report revenue of RMB 10.9 billion in the first quarter, with a gross margin of 2.5 percent and adjusted earnings per share of RMB -3.07.

This compares to the current analyst consensus estimates of RMB 11.7 billion, 7.4 percent, and RMB -2.66, respectively, in a Bloomberg survey.

Looking ahead, Yu's team expects NIO to deliver 21,000-23,000 units in the second quarter.

NIO delivered only 12,813 units in April and May combined due to very low demand for the ET7 and ES7, the team noted.

The EV maker delivered 6,155 vehicles in May, down 7.55 percent from 6,658 in April, according to data released on June 1.

Why the weak sales?

While production and supply chain issues appear to be resolved, underlying demand for NIO's premium BEVs has been disappointing as customers opt for gasoline models from German luxury carmakers BMW, Mercedes-Benz, Audi and EREVs, Yu's team said.

The team attributed NIO's recent weak sales to 3 main factors. The following is from their research note:

1. NIO's pricing is the highest amongst the start-ups and premium BEV demand has been generally weak across the board.

2. The premium segment appears to be electrifying more slowly which may be counter-intuitive to those outside China. Based on our analysis of the premium SUV market (>300k RMB), the BEV mix is only 12% YTD, compared with PHEV (includes EREV) at 18%, leaving 70% for ICE.

This compares with the overall market that is 21% BEV and 10% PHEV, showing customer preferences are quite different depending on the sub-segment.

Our read is the EREV value position is resonating with a much broader audience than anticipated which Li Auto has done a very effective job at maximizing.

3. We believe NIO's brand appeal has hit a wall of sorts as it is struggling to get momentum outside of Shanghai (and surrounding provinces) and also beyond finance/tech social circles.

To illustrate this, we look at the performance of NIO's best-selling ET5. Nearly 40% of sales mix comes from this region and ET5 sells quite poorly in the south despite in theory having the broadest appeal amongst NIO's offerings.

Moreover, based on our channel checks, affluent older customers simply are not buying into the brand (yet) and still prefer traditional BBA cars.

Management will need to figure out ways to augment the appeal of its unique services such as battery swapping. For existing customers, the usage is actually quite high, having set records during recent holiday (69k swaps in one day or ~20% of car parc).

Some relief on the way

NIO officially launched the new ES6 -- the best-selling NIO SUV in history -- in China on May 24, and deliveries began the same night.

In addition to the new ES6, NIO will also begin deliveries of the new ES8 and the ET5 Touring, a derivative of the ET5 sedan, this month.

NIO's deliveries in June will get a boost from a full month of new ES6 deliveries and partial contributions from the ET5 Touring, Yu's team said.

The new ES6 starts at RMB 368,000, higher than expected, as many potential buyers are comparing it to the Li Auto Li L7, which starts at RMB 319,800, the team said.

(Image credit: CnEVPost)

For the ET5 Touring, the team expects pricing to be at RMB 335,000 - RMB 345,000, slightly higher than the regular ET5.

NIO management aims to capitalize on the success of the 001, which proves there is a sizable local market for luxury sport EV wagons, the team said.

Yu's team expects NIO to see only a minimal improvement on vehicle margins in the second quarter.

"While lower battery input costs should help by at least 1-2% sequentially along with phasing out of aggressive promotional activity on first-gen 866 models, this will be partially offset by lack of overhead absorption/higher D&A as overall volume in 2Q will be down materially compared with 1Q," the team wrote .

As sales improve in the second half of the year, auto margins should return to double digits, the team said.

On the operating cost side, with sales under so much pressure, Yu's team suspects NIO management may be forced to show some level of restraint.

"We are skeptical NIO can achieve 'core' breakeven in 4Q23 and overall breakeven in 2024," the team wrote.

Also, cash burn will intensify due to declining deliveries, similar to what XPeng is experiencing, the team said, adding that they suspect NIO management will roll back its previous RMB 10 billion capex outlook.

Notably, the team remains bullish on the company's prospects, despite many investors have lost patience after multiple sales and margin disappointments.

"We think the stock is already embedding in a very negative path forward and we reiterate NIO's longer-term strategy of having multiple brands, holistic charging infrastructure, and an aspirational ecosystem can still ultimately win out once the dust settles on the EV wars," The team wrote.

NIO's local peers react to launch of new ES6

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Battery News Battery Prices China Electric eMobility eV Lithium Carbonate Lithium Prices Raw Materials Research Note

Battery cell prices in China fall 9% MoM in May, report says

Strong increases in lithium carbonate prices will not be immediately reflected in lithium battery prices, and prices of other raw materials are still falling, TrendForce said.

Battery cell prices in China fall 9% MoM in May, report says-CnEVPost

Prices for power battery cells continued to fall in May, even though the price of lithium carbonate, a key raw material, saw a big drop, according to a new report.

The average price of battery cells used in electric vehicles (EVs) fell about 9 percent in May from April, local research firm TrendForce said in a research note today.

The average price of square ternary cells fell 9.4 percent to RMB 0.75 ($0.1054) per Wh in China in May, while square lithium iron phosphate cells fell 9.5 percent to RMB 0.67 per Wh and soft pack ternary cells fell 9 percent to RMB 0.79 per Wh, according to the report.

The average price of battery-grade lithium carbonate in China has rebounded to RMB 254,300 per ton in May, up more than 28 percent from April, TrendForce said.

As of the end of May, battery-grade lithium carbonate was priced at RMB 305,000 per ton in China, up 57.22 percent from RMB 194,000 per ton on May 4, according to data from Mysteel monitored by CnEVPost.

Although the strong price increase in lithium carbonate is driving up the cost of cells, this will not be immediately reflected in lithium-ion battery prices in the short term, TrendForce said.

In addition, prices of other materials needed for lithium-ion batteries, such as cathode precursor materials, anode materials, diaphragms, electrolytes and PVDF, are still falling, so lithium-ion battery prices continued to be lower in May, the report said.

After a strong rebound in lithium prices in early mid-May, they have gradually stabilized in the second half of the month, TrendForce said, adding that the Chinese power battery market is still slowly recovering in May, with demand improving slightly.

Lithium prices rose rapidly on one hand because of the low willingness of suppliers to offer lower prices, and on the other hand because of increased demand from downstream battery makers to replenish their inventories in May, according to the report.

Lithium prices began a strong rebound in May, with a single-day gain of up to 10,000 yuan per ton, which is an irrational increase, TrendForce said.

Actual demand for lithium was not growing at a high rate, but was steadily recovering, TrendForce said, adding that the peak in demand is expected to come in June.

($1 = RMB 7.1190)

Lithium carbonate prices up RMB 2,500 per ton

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Battery News Battery Prices China Electric eMobility eV Lithium Carbonate Lithium Prices Raw Materials Research Note

Battery cell prices in China fall 9% MoM in May, report says

Strong increases in lithium carbonate prices will not be immediately reflected in lithium battery prices, and prices of other raw materials are still falling, TrendForce said.

Battery cell prices in China fall 9% MoM in May, report says-CnEVPost

Prices for power battery cells continued to fall in May, even though the price of lithium carbonate, a key raw material, saw a big drop, according to a new report.

The average price of battery cells used in electric vehicles (EVs) fell about 9 percent in May from April, local research firm TrendForce said in a research note today.

The average price of square ternary cells fell 9.4 percent to RMB 0.75 ($0.1054) per Wh in China in May, while square lithium iron phosphate cells fell 9.5 percent to RMB 0.67 per Wh and soft pack ternary cells fell 9 percent to RMB 0.79 per Wh, according to the report.

The average price of battery-grade lithium carbonate in China has rebounded to RMB 254,300 per ton in May, up more than 28 percent from April, TrendForce said.

As of the end of May, battery-grade lithium carbonate was priced at RMB 305,000 per ton in China, up 57.22 percent from RMB 194,000 per ton on May 4, according to data from Mysteel monitored by CnEVPost.

Although the strong price increase in lithium carbonate is driving up the cost of cells, this will not be immediately reflected in lithium-ion battery prices in the short term, TrendForce said.

In addition, prices of other materials needed for lithium-ion batteries, such as cathode precursor materials, anode materials, diaphragms, electrolytes and PVDF, are still falling, so lithium-ion battery prices continued to be lower in May, the report said.

After a strong rebound in lithium prices in early mid-May, they have gradually stabilized in the second half of the month, TrendForce said, adding that the Chinese power battery market is still slowly recovering in May, with demand improving slightly.

Lithium prices rose rapidly on one hand because of the low willingness of suppliers to offer lower prices, and on the other hand because of increased demand from downstream battery makers to replenish their inventories in May, according to the report.

Lithium prices began a strong rebound in May, with a single-day gain of up to 10,000 yuan per ton, which is an irrational increase, TrendForce said.

Actual demand for lithium was not growing at a high rate, but was steadily recovering, TrendForce said, adding that the peak in demand is expected to come in June.

($1 = RMB 7.1190)

Lithium carbonate prices up RMB 2,500 per ton

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China Electric eMobility eV Insights Research Note XPeng XPeng G6

XPeng making its last stand with G6, says Deutsche Bank

With margins and cash burn looking worse following first-quarter earnings, management may be making its last stand with the G6, Deutsche Bank said.  |  XPeng US | XPeng HK

(Image credit: CnEVPost)

XPeng (NYSE: XPEV) is expected to officially launch its new SUV, the G6, late next month, which analysts say will be crucial as the company continues to face weak sales and financial performance.

"With margins and cash burn looking materially worse following 1Q earnings, we believe management may be making its last stand with the G6," Deutsche Bank analyst Edison Yu's team said in a research note sent to investors yesterday.

The team's previous view assumed XPeng could see stable natural margin improvement from the sharp drop in battery input prices, but those savings were mostly offset by incremental promotional activity and a poor mix.

" Therefore, the importance of the upcoming G6 has become even GREATER," the team wrote.

XPeng reported weaker-than-expected first-quarter earnings on May 24, with gross margins plunging to 1.7 percent. As a comparison, that figure was 12.2 percent and 8.7 percent in the same quarter last year and the fourth quarter of 2022, respectively.

The company reported a negative 2.5 percent vehicle margin in the first quarter, compared to 10.4 percent in the same period in 2022 and 5.7 percent in the fourth quarter of 2022.

The decline was due to increased sales promotions and the expiration of the new energy vehicle (NEV) subsidy in China, XPeng said.

XPeng's new SUV, the G6, will officially launch in June, with volume deliveries starting in July, and production capacity will climb quickly, its management said in a May 24 analyst call after announcing first-quarter earnings.

The G6 will be a hot seller in China's new energy SUV market priced between 200,000 yuan ($28,200) and 300,000 yuan, and will enable XPeng's total deliveries to grow well above the industry's pace in the third quarter, the company said.

The G6 has been set aside about two months from the start of production to delivery, and XPeng expects the model to reach more than twice the sales of the P7i, its management said.

That means, according to Yu's team, that XPeng management expects the G6 to sell 6,000-8,000 units a month.

The G6 needs to be successful for XPeng to be truly relevant to the market again, the team said.

XPeng will likely price the G6 significantly lower than the Model Y (RMB 263,900), hoping to attract consumers with a sleeker design and updated interior, the team said, adding that the X is already taking this approach with a starting price of just RMB 190,000.

A leaked image on Chinese social media on May 22 showed XPeng seeing the first production vehicle of the G6 roll off the line.

XPeng expects second-quarter vehicle deliveries to be between 21,000 and 22,000, and given that it delivered 7,079 vehicles in April, the guidance means the company expects it will deliver a total of 13,921 to 14,921 vehicles in May and June.

Yu's team also noted that XPeng's cash burn trajectory was worse than expected.

"XPeng exited 1Q23 with <25bn RMB in net cash as A/P became a big drag on working capital. This was caused by poor sales performance and also suggests to us suppliers are becoming less accommodative," the team wrote.

After months of lackluster G9 demand, XPeng management may be under pressure from suppliers to be more conservative with its outlook, the team said.

That said, XPeng's operating expenses and capex discipline are still very much intact and should at least get the company through most of next year, Yu's team said.

($1 = RMB 7.0951)

XPeng Q1 earnings miss expectations, gross margin falls to 1.7%

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China Earnings Electric eMobility eV Insights Research Note XPeng

XPeng Q1 earnings: Deutsche Bank’s first look

" delivered even softer 1Q23 results than we previewed, accompanied by a muted 2Q outlook," Edison Yu's team said.

XPeng (NYSE: XPEV) reported weaker-than-expected first-quarter earnings today, and as usual, Deutsche Bank analyst Edison Yu's team provided their first look.

Here is the research note the team sent to investors today.

1Q23 Earnings First Look

XPeng delivered even softer 1Q23 results than we previewed, accompanied by a muted 2Q outlook.

Volume for 1Q was already reported at 18,230 units, leading to revenue of 4.03bn RMB, essentially in line with our 4.04bn estimate; vehicle pricing was slightly lower, offset by "Services and other."

Total gross margin declined 700bps QoQ to just 1.7%, missing our 5.0% estimate (consensus 6.1%), driven by lower vehicle margin (-2.5% vs. our 0.4% due to aggressive price cuts/promotions).

Opex of 2,654m came in below our model as higher R&D was offset by lower SG&A.

All together, EPS of (2.57) came in about in line with our (2.52) forecast.

Management provided a muted 2Q23 outlook, calling for 21,000-22,000 deliveries, vs. our 24,000 forecast, translating into 4.5-4.7bn RMB in revenue (vs. our 5.6bn).

This implies May/June seeing little to no MoM improvement as April garnered 7,079 units and pricing/mix facing further pressure (G9 demand still struggling and P7i constrained by component supply).

On the earnings call, we will look for further commentary on the exact timing of G6 deliveries (SOP seemingly has already begun), pricing, and volume expectations.

XPeng Q1 earnings miss expectations, gross margin falls to 1.7%

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China China EV Market Insight Earnings Electric eMobility eV Li Auto Research Note

Li Auto Q1 earnings preview: Shifting to higher gear

With sales near the low end of guidance, Li Auto's performance in the first quarter is expected to be somewhat mixed, but the outlook for delivery in the second quarter will be robust, according to Edison Yu's team.  |  Li Auto US | Li Auto HK

Li Auto Q1 earnings preview: Shifting to higher gear-CnEVPost

(Image credit: CnEVPost)

Li Auto (NASDAQ: LI) will report its unaudited financial results for the first quarter on Wednesday, May 10, before the US markets open. As usual, Deutsche Bank analyst Edison Yu's team provided their preview.

Li Auto continues to be the best-performing Chinese electric vehicle stock this year, which is well deserved, though it is expected to have a somewhat mixed quarter as sales approached the lower end of the original outlook, Yu's team said in a research note sent to investors today.

The automaker's management team took advantage of strong initial orders from customers in the premium SUV segment to quickly increase deliveries of new models, the team noted.

Yu's team expects a robust delivery outlook for Li Auto in the second quarter, supported by wide availability of the Li L7 and lower-priced versions of the Li L7 and Li L8.

"Positioning-wise, Li Auto remains the clear favorite in the group and likely stays there unless evidence of softening demand emerges later in the year," the team wrote.

First-quarter earnings preview

Yu's team expects Li Auto to report revenue of RMB 17.7 billion yuan in the first quarter, with a gross margin of 20.7 percent and adjusted earnings per share of 0.40.

The team's model assumes an increase in operating expenses relative to the fourth quarter.

This compares to the current analyst consensus estimates of RMB 18.9 billion, 20.5 percent and 0.49, respectively, in a Bloomberg survey.

Yu's team expects Li Auto's vehicle margin to increase by just 50 basis points sequentially, as average selling prices come under some pressure.

Li Auto delivered a record 52,584 vehicles in the first quarter, near the lower end of its previously provided guidance range of 52,000 to 55,000 vehicles.

Its revenue guidance for the first quarter was RMB 17.45 billion to RMB 18.45 billion, implying year-on-year growth of 82.5 percent to 93 percent.

Li Auto Q1 earnings preview: Shifting to higher gear-CnEVPost

Gearing up for big second quarter

For second-quarter delivery guidance, Yu's team expects Li Auto's management to target around 75,000 units, supported by deliveries of the Li L7 throughout the quarter and wide availability of the cheaper Air versions of the Li L7 and Li L8.

Li Auto launched the Li L7, its first five-seat SUV, on February 8.

The Li L7 is the least expensive in its product array, with Pro as well as Max versions starting at RMB 339,800 and 379,800 respectively. The Li L7 is available in a lower-priced Air version, starting at RMB 319,800.

Deliveries of the Li L7 Pro and the Li L7 Max began on March 11, and deliveries of the Li L7Air began in late April.

Li Auto is also offering an Air version of the Li L8, with a starting price of RMB 339,800. The Li L8 was previously available in Pro and Max versions with starting prices of RMB 359,800 and RMB 399,800, respectively.

Li Auto's other model, the flagship Li L9, is currently available only in the Max version, with a starting price of RMB 459,800.

Compared to NIO (NYSE: NIO), Li Auto has launched its latest model very efficiently, capturing the initial wave of demand, which is very important in a highly competitive market driven increasingly by product cycles, Yu's team said.

In terms of gross margin, the team expects improvement on a sequential basis as production scales up and battery input costs fall.

Li Auto CFO is conservatively aiming for a gross margin of above 20 percent, given battery costs and a volatile macro backdrop, Yu's team noted, adding that they see 22 percent-23 percent as more realistic, with further upside dependent on battery input costs and average selling prices.

The real test for the company will come later this year, when it will struggle to maintain demand momentum with its three relatively large EREV SUVs in the face of increased competition, the team said.

Some cannibalization will naturally occur among Li Auto's models, but that will likely be offset by share gains from legacy foreign brands, Yu's team said.

The Li L9 sales have already dropped from 10,582 units in December to 5,831 units in March. Since September, foreign brands have lost about 7 percentage points of market share in the premium SUV segment, the team said.

The slow recovery in Chinese auto sales in recent months is something Yu's team attributes to customers prioritizing spending elsewhere after the Covid reopening and recognizing that car prices could fall further, and therefore not rushing to buy.

China's car sales have been slow to recover in recent months, and Yu's team attributes that to customers prioritizing spending elsewhere after the Covid reopening and recognizing that car prices could fall further and therefore not rushing to buy.

In terms of positioning, Li Auto remains the most popular of the Chinese EV startups and is likely to stay there unless there are signs of softening demand or a decline in execution, the team said.

Li Auto CEO predicts China NEV penetration to exceed 80% by Dec 2025

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Deutsche Bank on Apr China EV sales: Li Auto shines while NIO struggles

Edison Yu's team continues to expect most automakers to be aggressive, as market share is a top priority.

China's major electric vehicle (EV) makers announced their April deliveries yesterday, and Deutsche Bank analyst Edison Yu's team provided their take, as usual.

"April sales were generally better than feared for most OEMs we track with the exception of NIO who is struggling at the moment from both weak demand for its sedans and a major production platform transition for its SUVs," the team said in a note sent to investors yesterday.

continues to impress, setting a monthly delivery record and showing continued strong traction for its three models in the premium SUV segment, the team said.

As a backdrop, Li Auto delivered a record 25,681 vehicles in April, surpassing the 20,000-delivery mark for the second consecutive month.

NIO deliveries fell further to 6,658 in April as the product switch continued. XPeng delivered 7,079 vehicles in April, essentially unchanged from March, and the company appears to be on the cusp of emerging from the mire of weak sales that lasted about one year.

Here is the full text of Yu's team's note.

April sales were generally better than feared for most OEMs we track with the exception of NIO who is struggling at the moment from both weak demand for its sedans and a major production platform transition for its SUVs.

Li Auto continues to impress, setting a record for monthly deliveries, demonstrating continued robust traction in the premium SUV segment with its 3 models.

's volume held in about flat MoM as new P7i ramps up.

Overall, we continue to expect most OEMs to be aggressive as market share is the #1 priority. Although there were no big price cuts announced at the Shanghai Auto Show, our view is that there is likely another wave of price cuts to come as industry demand remains soft.

Moreover, the price of lithium carbonate has dropped dramatically this year which provides more cushion on the gross margin side.

April OEM recap

Li Auto delivered 25,681 vehicles (+23% MoM, +516% YoY), beating our forecast and setting a new monthly record. This includes >10,000 units of the L7 in its first full month of deliveries (vs. 7,702 in March).

XPeng delivered 7,079 vehicles (+17% MoM; -55% YoY), slightly below our expectations. The P7i mid-cycle face-lift should help volume in May/June as management expressed confidence in the order book.

XPeng officially revealed the G6 at the Shanghai Auto Show last month and this will be the most important product for the company this year to grow sales (double current monthly sales by end of 3Q), set for late June deliveries.

NIO delivered only 6,658 vehicles (-36% MoM, +31% YoY), below our forecast. Demand for ET5 and ES7 appear to be getting weaker sequentially while the rest of the portfolio is undergoing a platform transition (except for ET7 getting an interior upgrade this month).

Deliveries of the new EC7 began on 4/28, a few weeks earlier than anticipated, suggesting operational execution is on track. The new ES6 is expected to begin deliveries toward end of May (NIO's best selling SUV model).

delivered sales of 8,101 vehicles (+22% MoM; +279% YoY). The average order value for 001 shooting break sedan is 336k RMB and 009 luxury MPV is 527k. Zeekr's upcoming X model is expected to garner higher relative volumes with starting price of just 190k (deliver in June, targeting 40,000 units for 2023).

NIO deliveries fall further to 6,658 in Apr as product switch continues

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