Li Auto Inc. Form 20-F Summary
Business context and reporting period
This is Li Auto Inc.’s annual report on Form 20-F for the fiscal year ended December 31, 2022, prepared under U.S. GAAP. It is not a standalone quarterly filing for Q4 2022, although the filing includes annual results and discusses fourth-quarter product launches and deliveries.
Li Auto is a Cayman Islands holding company whose operations are conducted primarily through PRC subsidiaries and consolidated variable interest entities. The company designs, develops, manufactures and sells premium smart electric vehicles in China, with a focus on extended-range electric vehicles and planned high-power-charging battery electric vehicles.
Li Auto delivered 133,246 vehicles in 2022, up from 90,491 in 2021, and cumulative deliveries reached 257,334 at December 31, 2022. Li L9 deliveries began in August 2022 and Li L8 deliveries began in November 2022. Li ONE production was phased out by the end of October 2022.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | RMB45.3 billion | RMB27.0 billion | +67.7% |
| Vehicle sales revenue | RMB44.1 billion | RMB26.1 billion | +68.8% |
| Gross profit | RMB8.8 billion | RMB5.8 billion | +52.6% |
| Gross margin | 19.4% | 21.3% | Down approximately 1.9 percentage points |
| Operating loss | RMB3.7 billion | RMB1.0 billion | Loss increased |
| Operating margin | (8.1%) | (3.8%) | Weakened |
| Net loss attributable to Li Auto shareholders | RMB2.0 billion | RMB321.5 million | Loss increased materially |
| Net loss per share | RMB1.04 | RMB0.17 | Loss per share increased |
| Operating cash flow | RMB7.4 billion | RMB8.3 billion | Down 11.5% |
| Capital expenditures | RMB5.1 billion | RMB4.0 billion | Increased |
| Cash, restricted cash, time deposits and short-term investments | RMB58.5 billion | RMB50.2 billion | Increased |
| Total borrowings | RMB9.6 billion | RMB6.0 billion | Increased |
Gross profit benefited from higher deliveries and the introduction of higher-priced L-series vehicles, but gross margin declined because of higher average vehicle costs and other cost pressures. Research and development expense increased to RMB6.8 billion, or approximately 15.0% of revenue, from RMB3.3 billion in 2021. Selling, general and administrative expense increased to RMB5.7 billion from RMB3.5 billion.
Net loss included significant non-cash and unusual items. Share-based compensation increased to RMB2.1 billion from RMB1.1 billion. Inventory write-downs and losses on inventory purchase commitments totaled RMB1.1 billion, primarily related to the Li ONE phase-out. Depreciation expense also increased, including a RMB357.5 million acceleration related to Li ONE-specific production facilities and tooling.
Material changes versus the prior comparable period
- Vehicle deliveries increased 47.2%, while revenue increased 67.7%, reflecting higher volume and a higher average selling price from L-series deliveries.
- Li Auto transitioned from dependence on Li ONE to the L-series. Li L9 launched in 2022, Li L8 launched in September 2022, and Li L7 was announced in February 2023 with deliveries beginning in March 2023.
- Gross margin declined despite higher gross profit, while operating expenses grew faster than revenue and operating losses widened.
- Research and development investment increased substantially for new EREV and planned BEV platforms, autonomous driving, intelligent cockpit systems and high-power charging.
- Property, plant and equipment increased to RMB11.2 billion from RMB4.5 billion, reflecting manufacturing capacity expansion and investment in production facilities.
- Trade and notes payable increased to RMB20.0 billion from RMB9.4 billion, contributing to positive operating cash flow despite the net loss.
- The company raised approximately US$360.5 million of net proceeds through its at-the-market offering during 2022, issuing 9,431,282 ADSs representing 18,862,564 Class A ordinary shares.
- Revenue previously generated by VIE subsidiaries shifted to equity-owned or controlled subsidiaries after the 2021 reorganization; VIEs contributed no third-party revenue in 2022.
Liquidity, debt and cash requirements
At December 31, 2022, Li Auto held RMB38.5 billion of cash and cash equivalents, RMB1.9 billion of restricted cash and RMB18.0 billion of time deposits and short-term investments. Management stated that existing liquidity and anticipated operating cash flow should be sufficient for working capital, capital expenditures and debt repayment obligations for at least the next 12 months.
Total borrowings were RMB9.6 billion, including approximately US$862.5 million of 0.25% convertible senior notes due 2028. Holders may require repurchase of the notes on May 1, 2024 and May 1, 2026, or upon certain fundamental changes. The filing states that Li Auto was in compliance with applicable borrowing covenants at December 31, 2022.
Contracted capital commitments totaled RMB4.3 billion, primarily due within one year. Purchase obligations totaled RMB10.2 billion, also due within one year. Operating lease liabilities totaled RMB2.6 billion, with undiscounted operating lease payments of RMB3.2 billion.
Guidance, outlook, management commentary and risks
- Management expects continued investment in research and development, new-model production ramp-up, manufacturing bases, retail stores, delivery centers and servicing infrastructure.
- The company planned to launch high-power-charging BEV models beginning in late 2023 and continue developing both EREV and BEV platforms.
- Key operational risks include intense competition and price pressure in China’s NEV market, reliance on a limited number of vehicle models, supply-chain constraints, semiconductor and battery availability, raw-material costs, inventory management and product quality.
- Li Auto recognized substantial inventory write-downs and purchase-commitment losses following the Li ONE phase-out; further model transitions could create additional margin or inventory risk.
- COVID-19-related disruptions affected production and deliveries in 2022, particularly during the spring resurgence in the Yangtze Delta region. Conditions improved after May 2022 and most travel restrictions were lifted in December 2022, but future disruption remains uncertain.
- EREV demand may be affected by consumer preferences, BEV technology improvements, charging infrastructure, government incentives and local license-plate policies. EREVs were not eligible for certain license-plate benefits in Beijing and Shanghai.
- The company relies on a PRC VIE structure for certain restricted businesses. Investors own shares in the Cayman Islands holding company, not direct equity in the VIEs. PRC authorities could challenge the structure or restrict its use, potentially affecting consolidation and access to operating assets and cash.
- Cash transfers from PRC entities are subject to statutory reserves, retained-earnings requirements, foreign-exchange controls and other restrictions. Restricted net assets totaled approximately RMB9.5 billion at December 31, 2022.
- The company had previously been identified under the Holding Foreign Companies Accountable Act, but the PCAOB vacated its determination regarding mainland China and Hong Kong in December 2022. Future loss of PCAOB inspection access could again create trading and delisting risk.
- The filing discloses several shareholder class action lawsuits involving certain directors; the company could not estimate any potential loss. It also states that Li Auto itself was not a party to any material legal or administrative proceeding at the filing date.
- Management and the auditor concluded that internal control over financial reporting was effective as of December 31, 2022. Product warranty accruals were identified as a critical audit matter; the warranty liability was RMB1.6 billion at year-end.
Most important facts an investor should verify
- Whether L-series and future BEV launches can sustain delivery growth without further gross-margin deterioration.
- The effect of the Li ONE phase-out, inventory write-downs and production-facility depreciation on future cost of sales.
- Whether operating cash flow remains positive as inventory, capital expenditures, manufacturing capacity and research and development spending expand.
- The maturity, repurchase rights, covenants and potential dilution associated with the 2028 convertible notes and other borrowings.
- The quality and liquidity of cash and investments held within PRC subsidiaries, including restrictions on transferring funds to the Cayman Islands parent.
- The enforceability and continuing regulatory acceptability of the VIE contractual arrangements.
- Warranty claims, recalls, battery or autonomous-driving incidents and the adequacy of the RMB1.6 billion warranty reserve.
- Exposure to battery materials, semiconductors, single-source suppliers, geopolitical export controls and raw-material price volatility.
- Future dilution from the ATM program, share-based awards and potential conversion of the 2028 notes.
- Future PCAOB inspection determinations and any related HFCAA trading restrictions.