Li Auto Stock Falls Despite Robust Q2. What’s Next?

LI: Li Auto logo
Li Auto

Chinese electric vehicle maker Li Auto stock (NASDAQ:LI) posted a stronger-than-expected set of results for Q2 as deliveries surged. While revenue rose by 228% year-over-year to $3.95 billion, earnings per American depository share stood at $0.38, compared to a loss in the year-ago period. Both metrics came in ahead of Wall Street estimates. Li’s deliveries for the second quarter stood at 86,533 units, roughly 3x last year’s figure. Li has seen a strong uptake of its vehicles, which sport electric drivetrains along with a gasoline-powered range extender generator that reduces range anxiety. While the company had only one vehicle model until 2022, it has since launched three vehicles including Li L9, a luxury full-size crossover SUV, the Li L8, a luxury mid-size crossover, and the newer L7 vehicle. These new vehicles are helping to drive up demand and cater to a larger customer base. The improving scale is also helping Li increase its margins. Gross margins for the quarter improved to 21.8%, which is now actually ahead of Tesla, which reported gross margins of just 18.2% in its most recent quarterly report. Li’s outlook also remains strong, with the company looking to deliver 100,000 to 103,000 vehicles for Q3, up from about 26,524 units in the year-ago quarter. Li appears to have sufficient bandwidth to scale up, with monthly production capacity standing at 50,000 a month.

Now, Li Auto stock actually sold off following the results, declining by about 9% in Tuesday’s trading on the Nasdaq, likely as investors were booking profit on good news. So does the stock still look like a buy? Li currently trades at just about $43 per share, just slightly off all-time highs seen recently. In relative terms, the stock presently trades at almost 3x estimated 2023 revenues. Although this is ahead of Chinese rival Nio, it is below the likes of Tesla and Xpeng. Considering Li’s superior growth and profitability, this is a reasonable multiple. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Li Auto stock compares with its rivals Nio and Xpeng.

What if you’re looking for a portfolio that aims for long-term growth? Here’s a value portfolio that’s done much better than the market since 2016.

 Returns Aug 2023
MTD [1]
YTD [1]
Total [2]
 LI Return 0% 109% 48%
 S&P 500 Return -2% 17% 101%
 Trefis Multi-Strategy Portfolio -4% 23% 297%

[1] Month-to-date and year-to-date as of 8/9/2023
[2] Cumulative total returns since the end of 2016

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