When discussing Chinese electric vehicle (EV) stocks, NIO (NYSE:NIO) has traditionally captured the attention of U.S. investors, consistently boasting the highest average trading volumes. However, Xpeng Motors (NYSE:XPEV) has recently garnered considerable interest due to its impressive rally in July. On the other hand, Li Auto (NASDAQ:LI), which was often overshadowed, has gradually gained prominence, drawing the market’s focus through its notable price surge and commendable financial and operational achievements.
While NIO and Xpeng Motors are currently trading well below their historical peak values, Li Auto has managed to hit a new all-time high. Among the rare EV stocks achieving this feat in 2023, even Tesla (NASDAQ:TSLA)—often regarded as the EV industry’s benchmark—has struggled to reclaim its 2021 highs, despite nearly doubling its value this year.
Li Auto’s Remarkable Delivery Performance Outshines Competitors
Li Auto’s substantial upward price momentum, highlighted by a remarkable 98% surge in 2023 alone, has not occurred by chance. The company’s noteworthy delivery figures stand out, surpassing both NIO and Xpeng Motors. Li Auto managed to deliver over 30,000 vehicles in both June and July, bringing its total deliveries for the first seven months of 2023 to more than 173,000 units. For perspective, this figure is 36% higher than the combined deliveries of NIO and Xpeng Motors during the same period.
Until recently, Li Auto’s cumulative deliveries trailed behind those of NIO and Xpeng Motors. However, the tables have turned, with Li Auto surpassing 400,000 cumulative deliveries in July, compared to 364,579 for NIO and 303,521 for Xpeng Motors.
Notably, Li Auto has projected deliveries between 100,000 and 103,000 vehicles for the third quarter, aiming to achieve a monthly milestone of 40,000 deliveries by year’s end.
Li Auto’s Strong Financial Performance
Beyond its delivery success, Li Auto has made a strong impression with its financial performance. In Q2 2023, the company reported a net income of $319 million and gross margins of 21.8%. This stands in contrast to Tesla’s Q2 gross margin of 18.2%, considerably lower than the 25% posted in the same quarter the previous year.
While Li Auto’s standalone financials are commendable, they become even more striking when compared to other emerging EV companies that are grappling with negative or single-digit gross margins. Particularly impressive is Li Auto’s Q2 free cash flow of $1.33 billion. Amidst a landscape where many startup EV companies struggle with continuous cash burn, Li Auto’s robust financial performance shines. With over $10 billion in liquidity at the end of June, the company appears financially sound.
Li Auto’s Focus on Hybrid Vehicles Sets it Apart
A notable distinction of Li Auto is its focus on plug-in hybrid vehicles (PHEVs), in contrast to Tesla and other EV manufacturers that mainly produce battery electric vehicles (BEVs). This strategic choice aligns with China’s perspective on the EV industry as a pivotal economic segment, further supported by the extension of EV tax breaks until 2027.
Considering the company’s expansion into new markets and its introduction of new models like the Li MEGA, a BEV model, alongside a strong balance sheet and a track record of effective execution, Li Auto’s growth potential remains considerable.
Evaluating the Investment Potential of Li Auto Stock
From a valuation standpoint, Li Auto’s next-12-month price-to-sales ratio of 1.67x and next-12-month price-to-earnings ratio of 31.46x compare favorably with Tesla’s multiples of 6.91x and 62.8x, respectively. While Tesla’s premium valuation is anticipated due to its advanced self-driving technology and the evolving valuation landscape of Chinese stocks, Li Auto’s valuation multiples appear reasonable.
Wall Street analysts express a positive outlook on Li Auto, rating it as a Strong Buy. Among the four analysts covering the stock, three designate it as a Strong Buy, while one rates it as a Buy. The mean target price is $43.45, with the highest target price reaching $53—an impressive 31% premium over current levels. Although Li Auto’s stock has gained traction, particularly in terms of price movement, it remains relatively undercovered by Wall Street analysts.
Analysts are taking note of Li Auto’s potential, as demonstrated by Bernstein analyst Eunice Lee’s decision to raise the target price from $38 to $40. Lee attributes this adjustment to increased confidence in Li Auto’s earnings growth prospects and management’s effective execution. She highlights Li Auto’s strong track record and optimistic anticipation of the company’s expanding market share.
Conclusion
In conclusion, while Li Auto has already displayed significant growth, there appears to be room for further advancement in the long term. With China’s commitment to the EV sector, Li Auto’s expansion plans, robust financial position, and strong execution track record, it remains an appealing prospect for investors seeking lasting returns, especially amidst the current dip in short-term momentum within the EV market.
Featured Image: Freepik @ monthirayo
Author Faith Yakubu 
