Li Auto (NASDAQ:LI) recently announced its first-quarter financial results and EV deliveries for 2022. Revenue broadly met the expectation of the company and this was driven mainly by new vehicle deliveries rather than price hikes, as some observers had forecast.

Li Auto delivered 31,716 Li ONEs in the first quarter, which was consistent with the company's previous forecast of 30,000-32,000. However, due to Covid-19-induced lockdowns and disruption, deliveries for April 2022 were limited to 4,176, representing the lowest volume in recent months, and contributing to a negative year-over-year growth rate. The rise in battery prices may have led to Li Auto raising the price of its vehicles during this period, which also may have contributed to lower sales in April.

The company has forecast 21,000-24,000 deliveries in the second quarter. Covid-19 induced disruption is likely to continue throughout May, but Li Auto appears to be betting that the epidemic will ease in June.

With regards to costs, the company's R&D expenses were 1.37 billion yuan during Q1, accounting for 14.4% of revenue. This is much higher than most analysts expected. The consensus among analyst was for R&D costs to come in around 1.2 billion yuan, which would have accounted for 12% of revenue. Li Auto's R&D budget for the whole year is around 3.3 billion yuan, meaning 42.4% of the budget has been spent in the first quarter alone.

Why might R&D expense exceed the budget? We think it is because Li Auto is planning to deliver the L9 SUV in the third quarter of 2022. The premium PHEV SUV is likely taking up more resources than planned as the company looks to ensure it is delivered on time. In addition, the brand also needs to ensure the continuous investment in the "whale" and "shark" platforms to maintain long-term competitiveness.

Why would Li Auto be so eager to accelerate research and development? In recent years, Li Auto's main competitors were Xiaopeng (NYSE:XPEV) and NIO (NYSE:NIO). However, Xiaopeng’s offerings have now surpassed Li Auto, while NIO remains a major competitor. According to reports, NIO will launch several new models this year. The ET7 has been delivered, while the ES7 and ES5 will be delivered in the third quarter. Therefore, to remain competitive, Li Auto must increase its investment in R&D and bring forward the launch of new products.

In conclusion, Li Auto's trading report is broadly in line with the market's expectations. However, amid rising R&D costs and production challenges, investors will be looking to launch of the L9 to provide some good news and deliver growth.