What happened

Shares of Li Auto (NASDAQ:LI) declined in April, trading down 21%, according to data provided by S&P Global Market Intelligence. During April, the company announced plans to add to its cash reserves, and investors were worried about the dilution that would cause.

So what

Li is a Chinese electric vehicle start-up that currently has one model, the Li One SUV, on the road. The vehicle has been received well in its home market, and the company has designed it to appeal to a broad number of customers by including a "range extending" onboard gasoline generator to allow it to keep going even if it can't find a charging station.

Engineers circle around an electric vehicle prototype.

Image source: Getty Images.

The company is in its early days and is going to need more money for continued research and development and expansion. Li in mid-April saw its stock drop after it announced a $750 million convertible debt offering. The bonds will mature in 2028, but could be converted into new shares before then under certain circumstances.

The selling pressure continued as the month wore on, with electric vehicle investors focused on comments made by Tesla CEO Elon Musk about the "insane difficulties" his company and the entire auto industry are currently experiencing with supply chains. Li is seen as a growth story, and if the company can't source the computer chips and other components it needs to expand production, that growth at best will take longer than expected to materialize.

Now what

Li's shares peaked last November and have now lost more than 50% of their value since that top. Still, with the stock priced at more than five times sales it is hard to call the stock a bargain.

The hope is Li will grow into that valuation, but that will require capital and components. The capital part of the equation was addressed at least in part via the April notes offering, at the cost of some potential dilution if more shares are eventually added to the float. It's now up to the company to use that capital to fuel growth.

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