Li Auto Inc. annual report, Q4 FY2021

Li Auto Inc. Form 20-F Summary

Reporting period: Fiscal year ended December 31, 2021, filed April 19, 2022. The filing provides annual results; it does not provide a clear standalone 2021 fourth-quarter income statement or cash flow statement.

Business Context

Li Auto is a Cayman Islands holding company whose operations are conducted primarily through PRC subsidiaries and variable interest entities. The company designs, develops, manufactures and sells premium smart new energy vehicles in China. In 2021, its principal production model was the six-seat Li ONE extended-range electric SUV. Volume production began in November 2019, and cumulative Li ONE deliveries exceeded 124,000 by December 31, 2021.

2021 Li ONE launched in May 2021.
206 retail stores, 84 delivery centers and 48 servicing centers were operating at year-end.
Employees increased to 11,901 from 4,181 in 2020.
Planned product expansion included a full-size extended-range SUV in 2022 and high-power-charging battery electric vehicles beginning in 2023.

Financial Metrics

RMB in thousands, except percentages	2021	2020	Change
Total revenue	27,009,779	9,456,609	+185.6%
Vehicle sales revenue	26,128,469	9,282,703	+181.5%
Other sales and services	881,310	173,906	+406.8%
Gross profit	5,761,454	1,549,339	+271.9%
Gross margin	21.3%	16.4%	+4.9 percentage points
Operating loss	(1,017,320)	(669,337)	Loss increased
Operating margin	(3.8%)	(7.1%)	Improved
Net loss	(321,455)	(151,657)	Loss increased
Net margin	(1.2%)	(1.6%)	Improved
Research and development expense	3,286,389	1,099,857	+198.8%
SG&A expense	3,492,385	1,118,819	+212.1%

U.S. dollar translations use RMB6.3726 per US$1.00. Reported 2021 revenue was approximately US$4.24 billion, gross profit was US$904.1 million and net loss was US$50.4 million.

Cash Flow, Liquidity and Debt

Net cash provided by operating activities was RMB8.34 billion, compared with RMB3.14 billion in 2020.
Net cash used in investing activities was RMB4.26 billion, including RMB3.44 billion for property, plant and equipment and intangible assets and RMB563.1 million for the Changzhou manufacturing base.
Net cash provided by financing activities was RMB16.71 billion, primarily from the Hong Kong offering and convertible debt issuance.
Cash, cash equivalents and restricted cash totaled RMB30.49 billion at year-end. Including time deposits and short-term investments, reported liquidity was RMB50.16 billion.
Total assets were RMB61.85 billion and shareholders’ equity was RMB41.06 billion.
Total borrowings were approximately RMB6.00 billion, consisting primarily of the US$862.5 million 0.25% convertible senior notes due 2028 and a RMB600 million secured bank loan.
The convertible notes are subject to holder repurchase rights on May 1, 2024 and May 1, 2026, or upon certain fundamental changes.
Capital commitments were RMB2.92 billion, with RMB2.80 billion due within one year. Purchase obligations were RMB11.80 billion, all due within one year.
Management stated that existing liquidity and expected operating cash flows should cover working capital, capital expenditures and debt obligations for at least the next 12 months.

Material Changes Versus 2020

Revenue growth reflected substantially higher vehicle deliveries and a larger installed base supporting services and accessories.
Gross margin improved from 16.4% to 21.3%, but operating expenses grew faster than revenue as the company expanded research, product development, marketing, retail and service infrastructure.
R&D expense nearly tripled to RMB3.29 billion, reflecting increased personnel and development of new extended-range, battery electric, autonomous-driving and charging technologies.
SG&A more than tripled to RMB3.49 billion, driven by headcount, marketing and promotional activity, and the expanded sales network.
Operating cash flow improved materially, aided by higher trade and notes payable, which increased RMB6.21 billion during the year, and other operating liabilities.
Capital expenditures increased from RMB675.2 million to approximately RMB4.0 billion, including manufacturing expansion.
The company acquired the Changzhou manufacturing base in November 2021, terminating the related lease arrangements.
Li Auto completed its Hong Kong listing in August 2021, raising approximately US$1.7 billion net, and issued US$862.5 million principal amount of convertible senior notes in April 2021.
Share-based compensation increased from RMB142.8 million to RMB1.10 billion, contributing to operating expenses and dilution risk.

Guidance, Outlook and Management Commentary

Management expects continued investment in R&D, production capacity, manufacturing facilities, retail stores, delivery centers and servicing infrastructure.
The Changzhou factory was expected to support production expansion toward approximately 200,000 vehicles annually with improved efficiency and technology.
A Beijing manufacturing facility commenced construction in October 2021 and was scheduled to become operational in 2023, primarily supporting premium battery electric vehicles.
The filing does not provide formal 2022 revenue, delivery, margin or earnings guidance.
Management identified semiconductor shortages, COVID-19 disruptions and supply-chain constraints as affecting 2021 production and deliveries. The filing states that production and deliveries gradually resumed toward normal levels after December 2021.

Key Risks and Unusual Items

The company remains unprofitable and has limited operating history as a vehicle manufacturer. Future profitability depends on delivery growth, pricing, manufacturing efficiency and cost control.
Revenue remains highly concentrated in a limited product lineup, principally Li ONE, while future models and high-power-charging battery electric vehicles remain under development.
Battery, semiconductor and other component shortages, including reliance on certain single-source suppliers, could disrupt production or compress margins.
EREV market acceptance, technology performance, vehicle quality, warranty claims, recalls and autonomous-driving incidents could adversely affect the brand and results.
Government subsidies for NEVs are being phased out. Li ONE was no longer eligible for the national subsidy after July 2020 because its selling price exceeded the applicable threshold.
Li Auto relies on contractual arrangements with VIEs rather than direct equity ownership in certain restricted businesses. Changes in PRC regulation or enforcement could impair control, consolidation or access to economic benefits.
PRC cybersecurity, data privacy, automobile-data and overseas-listing regulations are evolving and may impose additional compliance requirements or restrict capital-market access.
The company’s auditor was identified in the PCAOB’s December 2021 HFCAA determination report as not fully inspectable. The filing warned of potential U.S. trading restrictions or delisting under the HFCAA if inspection limitations continued.
A voluntary recall covered 10,469 Li ONE vehicles produced on or before June 1, 2020. Accrued warranty liabilities were RMB842.3 million at year-end, including recall-related costs.
Several putative shareholder class actions named certain directors as defendants. The company stated it could not estimate potential losses, if any.
The company’s 2020 material weakness in internal control over financial reporting was reported as remediated as of December 31, 2021, and both management and the independent auditor concluded controls were effective.
Founder Xiang Li held all Class B shares and approximately 69.3% of voting power under the filing’s stated assumptions, limiting minority shareholder influence.

Most Important Facts to Verify

Whether operating cash flow remains positive after adjusting for the large increase in trade and notes payable and other accrued liabilities.
Actual 2022 and subsequent vehicle deliveries, product launches, production ramp-up and utilization of the Changzhou and Beijing facilities.
Gross margin durability after subsidy reductions, commodity and battery-cost changes, pricing actions and model transitions.
Warranty claims, recall completion and adequacy of the RMB842.3 million warranty reserve.
Liquidity available at the Cayman parent versus cash held by PRC subsidiaries and VIEs, including restrictions totaling RMB11.42 billion at year-end.
Ability to meet the 2024 and 2026 repurchase rights under the convertible notes if exercised by holders.
Developments regarding PCAOB auditor inspections, HFCAA status and continued Nasdaq eligibility.
Changes to PRC VIE, cybersecurity, data privacy, foreign-exchange and overseas-listing regulations.
Potential dilution from the 2028 convertible notes, outstanding employee awards and the CEO Award Shares.