Why Li Auto Stock Plunged Today

Chinese electric vehicle (EV) maker Li Auto (LI -13.58%) reported better-than-expected third-quarter results, but the stock was still down by 12.9% today, as of 1:05 p.m. ET. EV sales in China have been relatively strong recently, and Li’s results reflect that.

Third-quarter deliveries of nearly 153,000 vehicles represented a 45.4% jump versus the prior-year period. And Li reported earnings per share of $0.26, compared to Wall Street expectations of $0.19. Revenue of $6.1 billion also beat estimates for $5.9 billion, according to FactSet Research.

China’s EV market is strong

But Li Auto stock has already jumped 35% in just the last three months. Investors have been eyeing relatively strong demand in China, even as Chinese leadership has announced plans to stimulate the economy even further.

Li’s operating business is in fact profitable. It produced $1.6 billion from operating activities and generated $1.3 billion in free cash flow in the third quarter. And it had a cash position of over $15 billion as of the end of the quarter. But investors likely decided to take some of those gains today, especially with the underwhelming guidance from the company.

Looking ahead, Li said it sees revenue of between $6.2 billion and $6.5 billion in the fourth quarter. But Wall Street was looking for fourth-quarter sales of $6.7 billion. Management thinks EV deliveries in the fourth quarter will show a year-over-year increase of about 25% at the midpoint of its range.

Some investors getting out after earnings report

But even as volumes grow, heavy competition and price wars look to be cutting into revenue. The Chinese economy might see an acceleration in EV sales growth, but until that happens, some investors were happy to take profits from recent gains after the latest quarterly report.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.