Why Li Auto Stock Crashed Today

A Chinese electric vehicle (EV) maker has stood out from the crowd. It developed through the sale of electric extended range vehicles (EREVs) that use a small on-board gasoline engine to increase the vehicle’s range. But Li Auto (LI -16.45%) It also just came out with its first all-electric model earlier this year.

Investors were hoping the all-electric Li Mega would help boost sales from the second quarter. But Li’s second-quarter earnings report showed it only grew vehicle revenue by 8.4 percent year-over-year. That, along with other factors, has the stock in its quarterly report. Shares of Li Auto were down 15.9% as of 12:45 a.m. ET Wednesday.

Li Auto is a profitable manufacturer of electric vehicles

The electric vehicle maker reported better-than-expected second-quarter results. It earned about $0.10 per share, slightly above analysts’ expectations. Sales of about $4.4 billion met estimates, according to the report FactSet Research. This makes Li one of the world’s few profitable electric vehicle manufacturers.

But today’s investors are reacting to the headwinds that still exist. Vehicle margin declined both year-over-year and sequentially. This is a result of lower vehicle prices. In its press release, both CEO Xiang Li and CFO Tie Li noted “intense” competition in the market.

The company recently branched out beyond its EREV range with its first all-electric vehicle. Mega, a seven-seater multi-purpose vehicle, was launched in March. But in the current environment of strong competition amid a slower-growing market than many anticipated, the launch somewhat disappoints investors.

Management expects vehicle deliveries and revenue to increase in the third quarter. But for now investors are shying away from Li Auto shares probably until the landscape improves.