Down 17% This Year What’s Happening With Li Auto Stock?

LI: Li Auto logo
LI
Li Auto

Chinese luxury electric vehicle maker Li Auto stock (NASDAQ:LI) delivered 28,984 vehicles in March, up 39.2% year-over-year, driven by strong uptake of the company’s extended-range electric vehicle models including the Li L7, Li L8, and Li L9, and an expanding retail footprint. In comparison, rivals Xpeng delivered 9,026 cars in March, up 28.9% from a year ago, while Nio delivered 11,866 vehicles, up 14.3% year-over-year. While Li’s sales also jumped 43% month over month compared to February, this was due to a favorable comparison when sales were weighed down by the Chinese New Year holiday, which impacted manufacturing and sales. Li delivered a total of 80,400 vehicles for Q1, surpassing its guidance range of 76,000 to 78,000 units, and rising by about 50% versus last year.

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 40% 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; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the mega-cap stars GOOG, MSFT, and AAPL. 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 seeing tepid demand and scaling back on their electrification goals. For instance, Mercedes-Benz dialed back on its target of going all-electric by 2030, now estimating that only 50% of total sales would be EVs. We’ve seen similar production scale backs from the likes of Ford as well. While the Chinese EV market is poised to post double-digit growth this year, competition and price wars are mounting. However, Li’s highly differentiated vehicles appear to be giving it an edge in the market. Unlike rivals who have seen margin compression in 2023, Li’s margins have been improving. Li posted automotive gross margins of 22.7% in Q4 2023, compared to about 20% in the year-ago period. The company is looking to defend its position via multiple new model launches.  Li recently launched its first full-electric model, a van called the MEGA, at 560,000 yuan (around $78,000). The company will also be launching its Li Auto L6 vehicle shortly. The SUV will be the most mass-market model in Li’s line-up, with prices expected to start at under $30,000. The company also launched redesigned versions of its Li L7, L8, and L9 models earlier this month. The company has 474 retail stores across 142 cities presently and aims to nearly double this number to 800 stores by the end of the year.

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Now, Li stock trades at about $31 per share, about 16x consensus 2024 earnings and 12x 2025 earnings, which is not very expensive considering that the company’s revenues are projected to grow by over 60% this year and by over 30% next year. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Li stock compares with its rivals Nio and Xpeng.

 Returns Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 LI Return 3% -17% 8%
 S&P 500 Return -1% 9% 133%
 Trefis Reinforced Value Portfolio -2% 4% 640%

[1] Returns as of 4/3/2024
[2] Cumulative total returns since the end of 2016

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