Electric-vehicle stocks put pedal to the metal to start the week on Monday, encouraged by a single powerful earnings report out of Li Auto (NASDAQ: LI) in China. This morning, the company reported a $0.60-per-share non-GAAP profit for its Q4 2023 — more than twice the $0.29 per share that analysts had predicted — and said its sales in the fourth quarter approached $5.9 billion, well ahead of the expected $5.5 billion.
Shares of both Lucid Group (NASDAQ: LCID) and Fisker (NYSE: FSR) are reacting positively to the news, up 6% and 10%, respectively, through 10 a.m. ET. Li Auto stock is performing even better — up 15.5%.
Li Auto earnings
There’s been a lot of talk in recent months about how EV sales are slowing down and a price war in China was hurting sales and profits. To an extent, this story is true. But it doesn’t seem to be slowing down Li Auto — and investors in Lucid and Fisker may be hoping that means good things for their stocks, as well.
In Q4, Li reported that it grew EV-unit sales 185% year over year, to 131,805 EVs shipped. Revenue didn’t grow quite as fast (indicative of the price war described), but still rose 136% year over year, which isn’t too shabby. Price war or not, the greater scale of operations appears to have given rise to expanding profit margins for Li, with gross profit margin up 330 basis points to 23.5% in Q4.
Operating costs rose, as well, but not nearly as fast as sales are growing — up only 82% year over year. This flipped the company from an operating loss a year ago to an operating profit in Q4 2023. On the bottom line, Li earned $0.60 per share, non-GAAP — and $0.75 per share, as calculated according to generally accepted accounting principles (GAAP).
Best of all, Li Auto generated a whopping $2.1 billion in positive free cash flow (FCF) in the quarter, nearly a 350% increase. FCF for the year thus reached $6.2 billion, up more than 18x from 2022 FCF.
Is good news for Li Auto good news for Fisker and Lucid?
You can see why investors in Li Auto are excited. But here’s where the good news gets a bit uncertain.
Q4 was a fantastic quarter for the Chinese EV company, and it capped an amazing year. Looking ahead to Q1 of 2024, however, Li management is forecasting it will deliver only somewhere between 100,000 and 103,000 EVs.
On one hand, that’s still a lot more EVs than the company cranked out in Q1 2023 — at least 90% year-over-year growth. On the other hand, though, it would represent a sequential slowdown of about 24% against Q4.
Contrary to all the good Q4 news, therefore, this forecast appears to foreshadow a sharp slowdown in EV demand as the EV industry rolls into 2024. Seeing as we’re nearly two full months into 2024 already, I suspect Li has good insight at this point into how the quarter — and the year — are shaping up.
This actually doesn’t bode so well for Li — and especially for Lucid and Fisker, which, unlike the Chinese car giant, are still producing cars in just the single-digit thousands per quarter, still losing money, and still burning cash.
Li Auto may have achieved sufficient scale to survive a slowdown in EV demand and remain intact on the other side of this downturn. Lucid and Fisker, on the other hand, may be in much dire straits.
Should you invest $1,000 in Li Auto right now?
Before you buy stock in Li Auto, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Li Auto wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 26, 2024
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Li Auto, Lucid Group, and Fisker Stocks Popped Today was originally published by The Motley Fool