With Deliveries Doubling Year-Over-Year, Is Li Auto Stock A Buy At $28?

LI: Li Auto logo
LI
Li Auto

Chinese luxury electric vehicle maker Li Auto stock (NASDAQ:LI) delivered 31,165 vehicles in January 2024, marking an increase of 105.8% versus the last year although it was down from the 50,353 units the company delivered in December. Li is seeing robust demand for its three SUVs, namely the Li L9, Li L7, and Li L8 which all combine gasoline generators with batteries to extend the range of EVs and reduce range anxiety. All three vehicles are relatively premium offerings, priced at above RMB 300,000 ($42,000). However, the decline versus December was due to seasonality, which impacts the broader Chinese automotive space. China celebrates close to a full week of the Lunar New Year holidays during January, making it a lean period for the car industry. That said, Li’s year-over-year growth rate was also well ahead of its primary rivals. For example, Xpeng delivered 8,250 vehicles in January, up 58% year-on-year but down 59% from December. Nio delivered 10,055 vehicles for January, marking an 18% increase from 8,506 units a year ago although it was down almost 44% from 18,012 units delivered in December.

LI stock has seen little change, moving slightly from levels of $30 in early January 2021 to around $30 now, vs. an increase of about 30% for the S&P 500 over this roughly 3-year period. Overall, the performance of LI stock with respect to the index has been quite volatile. Returns for the stock were 11% in 2021, -36% in 2022, and 83% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that LI underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LI face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

There are concerns about global EV demand, with most mainstream automakers, including Tesla, Volkswagen, Mercedes, Ford, and GM indicating a softer-than-expected uptake. While things have remained positive in China, competition is mounting and this has resulted in considerable price wars. But, Li’s highly differentiated vehicles appear to be giving it an edge in the market. Unlike rivals who have seen margin compression in recent quarters, Li’s margins have been improving. For Q3, Li posted gross margins of 22%, compared with 12.7% in Q3 of 2022. In contrast, Nio posted a gross margin of 8% in Q3, down from 13.3% in the year-ago period. Li is also optimistic about its outlook, with the company indicating that was targeting sales of 800,000 vehicles for 2024, a growth of more than 2x versus 2023. Li trades at about $28 per share, almost 40% off all-time highs seen recently. In relative terms, the stock presently trades at 2x 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 valuation.  See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Nio stock compares with its rivals Li Auto and Xpeng.

 Returns Feb 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 LI Return 2% 39% -2%
 S&P 500 Return 2% 29% 121%
 Trefis Reinforced Value Portfolio 1% 39% 614%
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[1] Returns as of 2/5/2024
[2] Cumulative total returns since the end of 2016

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