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Why Li Auto Shares Are Dropping Today

By Howard Smith - Dec 2, 2020 at 10:33AM

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The company reported strong November sales, but a share offering has investors selling anyway.

What happened

Even after reporting strong November sales data, Li Auto ( LI 1.41% ) saw its shares drop more than 10% today before recovering some. The stock was down about 4%, as of 10 a.m. EST Wednesday.

While sales-growth momentum continues for the electric-vehicle (EV) maker, a subsequent announcement that the company is seeking to raise capital with a stock offering is hitting the American depositary shares this morning. 

So what

Li Auto announced it is selling 47 million American depositary shares to raise funds to grow its business through research and development. 

Blue Li Auto One SUV with black sport wheels

The Li Auto One electric SUV. Image source: Li Auto.

Investors are more concerned with the added dilution, as the offering represents more than 7% of diluted shares outstanding based on data by YCharts. It comes after shares have more than doubled in the last four months. 

Li said it will use the proceeds specifically for the advancement of "next-generation electric vehicle technologies ... [and] the next [battery electric vehicle] platform and future car models" as well as work on autonomous driving technologies. 

Now what 

Today's announcements are good news for Li investors as a whole. The company reported record November deliveries of 4,646 of its Li One SUV, and produced more than 5,000 for the first time. Deliveries represented growth of 26% just over the previous month. 

The news follows delivery announcements yesterday from rival Chinese EV makers NIO ( NIO 2.41% ) and XPeng ( XPEV 2.42% ). The latter reported deliveries more than tripled over the prior-year period. 

The Chinese EV makers are growing quickly in the largest auto market in the world. But shares have also soared this year. So investors should realize the strong growth is needed to catch up to the stock valuations. Seeing Li Auto try to capitalize on that valuation also shouldn't be a surprise, and it's a long-term positive if the business growth continues.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Li Auto Inc. Stock Quote
Li Auto Inc.
LI
$30.94 (1.41%) $0.43
NIO Inc. Stock Quote
NIO Inc.
NIO
$33.12 (2.41%) $0.78
XPeng Inc. Stock Quote
XPeng Inc.
XPEV
$47.40 (2.42%) $1.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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