Li Auto stock (NASDAQ:LI) has declined by over 30% year-to-date, although it has fared better than rivals such as Nio (down 56% year-to-date) and Xpeng (down 55%). While growth stocks have been out of favor with the markets as investors brace for higher interest rates and tighter monetary policy, there are some specific factors weighing on Li Auto and other Chinese EV players. For one, there are concerns about a slowdown in the Chinese economy, with Covid-19 lockdowns in several provinces also hurting demand and production. For perspective, Li Auto has guided deliveries of between 21,000 and 24,000 vehicles for Q2, marking a decline of over 20% from Q1 levels, due to Covid-19 related disruptions. Moreover, there are concerns regarding the potential delisting of Chinese American depositary receipts (ADRs), given the dispute between the U.S. SEC and China relating to the auditing compliance of Chinese companies listed on U.S. exchanges. However, we think that Li Auto has a couple of things going for it.
Now, despite the plummeting stock price and listing concerns, the outlook for Li Auto’s core business actually appears quite strong. The company published its Q1 2022 in early May, reporting better than expected revenues while turning in a small adjusted profit, versus an expected loss. Moreover, the company’s gross margins also improved meaningfully, rising to 22.6% up from 17.3% in the year-ago period, despite the inflationary environment and ongoing supply chain issues, indicating that the core economics of the company’s business remains solid. Li’s focus on a single, highly differentiated model- namely the Li-One SUV is also viewed as an advantage for the company. The Li-One is an electric vehicle that has a small gasoline engine that generates additional electric power and extends range, making it a popular option for customers who are apprehensive about the transition to EVs. Overall EV demand and favorable regulation in China are a big tailwind for Li Auto. While passenger car sales in China declined 35.5% year-on-year in April, new energy vehicles, which include electric vehicles, saw volumes rise by 78%, per the China Passenger Car Association. This should partially alleviate concerns that a broader economic slowdown will hit Li Auto’s business. Moreover, consensus estimates for Li Auto’s revenue project a healthy 75% plus revenue growth this year.
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Check out our analysis on Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for more details on how Li Auto stock stacks up versus its peers Nio and Xpeng.
|S&P 500 Return||-4%||-17%||78%|
|Trefis Multi-Strategy Portfolio||-5%||-21%||209%|
 Month-to-date and year-to-date as of 5/26/2022
 Cumulative total returns since the end of 2016