Li Auto’s Strong Delivery Streak Continues. What’s Next For The Stock?

LI: Li Auto logo
Li Auto

Chinese luxury electric vehicle maker Li Auto stock (NASDAQ:LI) reported a strong set of delivery numbers for September, driven by demand for its vehicles which include gasoline generators to extend the EVs driving range. Overall deliveries stood at a record 36,000 units for the month, marking an increase of 213% year-over-year and a 3% rise over the previous month. These numbers are also well ahead of rivals such as Nio (NYSE:NIO) and Xpeng (NYSE:XPEV). Nio delivered 15,641 vehicles for the month, an increase of 43% year-over-year, while XPeng saw deliveries grow by 81% year-over-year for the month to 15,310 units. While Li Auto offered only one vehicle model until 2022, it has since launched three vehicles including the Li L9, a luxury full-size crossover SUV, the Li L8, a luxury mid-size crossover, and the L7. These new vehicles are helping  Li cater to a larger customer base, with each of its Li L7, Li L8, and Li L9 models surpassing 10,000 unit sales in September.

Interestingly, Li has had a Sharpe Ratio of 0.5 since early 2017, lower than 0.6 for the S&P 500 Index over the same period. This also falls short of the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

So does the stock still look like a buy? The near-term outlook also looks strong. Li has previously guided that overall monthly sales could top 40,000 units in Q4. Li also appears to have sufficient bandwidth to scale up, with monthly production capacity reportedly standing at 50,000 a month. The company is also expected to launch its first pure-battery EV model called MEGA by the end of this year, with a range of about 500 miles. While demand for Li’s new models is very strong, the company’s fundamentals are also improving. Surging volumes are helping Li increase its margins. Gross margins for the quarter ended June improved to 21.8%, ahead of Tesla, which reported gross margins of just 18.2% in its most recent quarterly report. This is well ahead of rivals Nio and Xpeng, who have seen margins slip to single-digits or negative levels, partly due to price cuts. Li trades at just about $35 per share, just slightly off all-time highs seen recently. In relative terms, the stock presently trades at 2.7x 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 recent profitability, this is not an expensive 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.

 Returns Oct 2023
MTD [1]
YTD [1]
Total [2]
 LI Return 0% 75% 24%
 S&P 500 Return 0% 12% 92%
 Trefis Reinforced Value Portfolio 0% 23% 533%
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[1] Month-to-date and year-to-date as of 10/3/2023
[2] Cumulative total returns since the end of 2016

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