In 4Q24, Li Auto’s revenue ticked up 3.3% QoQ to RMB44.3bn whereas the vehicle margin of 19.7% slightly missed original guidance on the purchase commitment losses for suppliers. Despite weaker vehicle margin, 4Q24 non-GAAP net income continued its sequential expansion to RMB4.0bn with earnings per unit staying steady at c.RMB25k, helped by disciplined OPEX controls. In spite of weaker 1Q25 deliveries guidance amid the model switchover, management stated that the upgraded smart-driving edition on existing models in May would drive the monthly deliveries back to c.50k+ units. We anticipate the sales volume of L-series EREV models for 2025 may stay on par with that in 2024, and hence overall volume growth this year will largely count on the coming two BEV models in 2H25. Regardless of its near-term growth slowdown amid the EREV switchover and invisibility of BEV, we still favour Li Auto for its proven premium NEV market leadership and huge potential to win the coming AI race with bolder AI vision and faster deployment of next-gen AI techs on vehicles. Maintain BUY with unchanged TP of US$36.00/HK$140.00.
　　Key Factors for Rating
　　Revenue in line whereas vehicle margin slightly missed on extra purchase commitment losses. In 4Q24, total revenue ticked up 3.3% QoQ to RMB44.3bn, roughly in line with the volume increase of 3.8% QoQ. 4Q24 vehicle margin declined by 1.2ppts QoQ to 19.7%, lower than anticipation and the company’s original guidance of 20%+ mostly on the purchase commitment losses, which dragged 4Q24 vehicle margin by nearly 1ppt. For 1Q25, given the cash promotions on top of the interest subsidies before the launch of smart- driving-edition updates in May and weaker scale effect amid shrinking sales volume, the mgmt. expected vehicle margin to pull back moderately QoQ to c.19%, which seems softer than the street feared in the pessimistic scenarios.
　　Non-GAAP net income per unit stayed steady at above RMB25k supported by stronger OPEX disciplines. In 4Q24, the operating profit rose by 7.9% QoQ to RMB3.7bn, smashing our prior estimate on stronger OPEX control. In spite of larger revenue scale, the overall OPEX dropped 7.7% QoQ to RMB5.5bn with both R&D/SG&A expenses dropping. The R&D expense declined by 6.9% QoQ to RMB2.4bn, the lowest single-quarter level other than 2Q23 due to the slower pace of new model launches, while the SG&A expense fell 8.4% QoQ to RMB3.1bn on high comparative base. The stringent OPEX control helped non-GAAP net income continue its sequential expansion to RMB4.0bn in 4Q24, with non-GAAP earnings per unit staying steady at above c.RMB25k. For 2025, the company is set to hold up R&D spending relevant to AI techs and new products, but claimed to optimise the R&D efficiency and expected full-year R&D expenditure to be no more than RMB14bn.
　　Weak 1Q25 guidance amid the switchover of existing L-series EREV lineups. The company guided 1Q25 deliveries of 88k-93k units and total revenue of RMB23.4bn-24.7bn, which implies a single-month delivery of 32k- 37k units for March. The smart-driving-edition updates on existing models (L series and MEGA) will be launched in May in a bid to drive the monthly deliveries back to c.50k+ units. Given the relatively minor product feature changes on upgraded smart driving editions, we deem the full-year sales performance of L-series EREV models may stay on par with that in 2024. In other words, the company’s overall volume growth in 2025 will largely count on the coming two BEV models (i8/i6) in 2H25. During the earnings call, the mgmt. indicated that the release pace of i8 and i6 would be similar to that of prior L9 and L8 in 2022. Hence, we render i8 BEV will be launched in July, ensued by i6 BEV’s debut in Sep/Oct. Regarding the BEV sales outlook, the management did not provide any specific sales volume goals for coming BEV SUVs in a cautious manner, but expressed ambition to become top-tier players in premium BEV market with prices above RMB200k in three years.
　　Valuation
　　To reflect weaker demand for L-series EREV models towards the end of life cycles before the rollouts of redesigned editions in 2026, we nudge down our sales volume forecasts for 2025-26E to 580k/750k units, respectively. Accordingly, we nudged down our revenue forecast by 5-14% to RMB157.4bn/201bn, which translates into our lower non-GAAP net income projection of RMB11.1bn/14.7bn.
　　Considering the switchover of EREV models and invisible outlook for upcoming BEV models, we anticipate Li Auto likely to continue relatively lower volume/earnings growth within the NEV space this year. But this seems already priced in given its YTD share price underperformance (+15%) against OEM peers including XPeng, Xiaomi, BYD whose share prices surged around 50-100% YTD.
　　Over the mid-to-long run, CEO Li Xiang has repeated for several times the company’s vision to become one of the leading AI and robotics companies by 2030, introducing AI application to family users through multiple AGI devices beyond standalone vehicle intelligence connections (i.e. LiXiang Tongxue AI chatbot, smart driving system AD Max). In fact, Li Auto has proved its tech leadership and visionaries in China’s smart vehicle industry with the leapfrog development of in-house smart driving technologies and stronger audience acceptance for more expensive smart driving editions. Moving forward, the company plans to release next-gen VLA (vision-language-action) model- powered smart driving architecture with the debut of i8 BEV SUV in July. This will further widen the tech leadership and enhance brand recognition for Li Auto to secure a sustainable and promising growth in future.
　　Currently, its ADR shares are trading at 1.3x 2025E P/S and 1.0x 2026E P/S, which looks undemanding given the valuation discounts vs. NEV counterparts (XPeng’s 1.9x 2025E P/S and 1.4x 2026E P/S). For the mid-to-long horizon, we favour the company’s proven premium NEV leadership with enhanced brand awareness and effective product campaign via on-going upgrades of competitive end-to-end AD functions. In addition, we see huge potential for Li Auto to widen the tech leadership in coming AI race for its bolder and dedicated AI vision, continuing tech innovations and faster deployment of next-gen VLA architecture on vehicles.
　　Maintain BUY with unchanged TP of US$36.00/HK$140.00, equivalent to 25x 2025E P/E and 19x 2026E P/E. The upcoming focus and catalysts contain: i) the release of upgraded smart driving editions for current lineups in May and subsequent deliveries recovery trend, and ii) the rollout of i8 BEV SUV featured with next-gen VLA architecture-powered smart driving system in July.