Even after reporting strong November sales data, Li Auto (LI 1.73%) 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.
Li Auto announced it is selling 47 million American depositary shares to raise funds to grow its business through research and development.
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.
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 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.