Chinese electric SUV manufacturer Li Auto (NASDAQ:LI) is just one of many entrants into a crowded electric vehicle market in 2020. With so many competitors nowadays, prospective investors have every right to ask about why they should consider LI stock.
Ambitiously, the company claims to be “an innovator in China’s new energy vehicle market.” Li Auto even touts itself as the first company “to successfully commercialize extended-range electric vehicles” in China.
That all sounds very exciting, but not everybody’s on board with the recent renaissance in electric vehicle start-ups. Indeed, one short seller in particular seems to have scared some traders out of this niche.
So, we have to consider that there are two sides of the coin for LI stock. Sure, it’s possible that this stock could post incredible gains like Nio (NYSE:NIO) stock did. But before we jump to conclusions, let’s look back on the history of this hot-button electric vehicle stock.
A Closer Look at LI Stock
In July, the initial public offering (IPO) price range for LI American depositary shares was set between $8 and $10, with the final IPO price soon established at $11.50. As you might expect, however, the vast majority of retail traders wouldn’t be able to get LI stock shares anywhere near that price.
Upon its late-July public debut, LI stock promptly jumped into a range between $16 and $17. Gradually, the share price climbed towards the $20 level that it would reach in October.
Then came the first half of November, which was terrific for LI stock holders. During that time, the share price to $28 and then a 52-week high of $40.80.
Nov. 13 turned out to be a particularly challenging day for LI stock traders. The share price started at around $40 on that day but declined throughout the trading session, eventually closing at $31.20.
Clearly, LI stock isn’t for anyone who can’t tolerate risk. Yet, it’s entirely possible that the heightened risk could carry long-term rewards for patient shareholders.
An Upward Trajectory
Li Auto’s flagship product is known as the Li ONE. This is a roomy six-seat electric SUV equipped with multiple smart-vehicle features.
Volume production of this vehicle model commenced in November 2019, and as of June 30, the company delivered more than 10,400 Li ONE’s. That, however, was just the beginning.
The sales trajectory would continue as Li Auto delivered 3,504 Li ONE’s in September and 3,692 of them in October. These results help to explain why LI stock ascended so quickly in November, when the data for October was released.
In fact, October’s result marked a monthly orders record for Li Auto. Impressively, the company managed to deliver 21,852 vehicles during the first 10 months of 2020. That’s not too bad at all for a company in a crowded field.
A Cautionary Note
Now it’s a good time to tap the brakes and consider the other side of the coin, however. Influential analytic firm and short seller Citron Research recently poured some cold water on the red-hot electric vehicle market, so this is worth investigating.
Not long ago, Citron expressed a robustly bearish stance against Nio (NYSE:NIO). Apparently, Citron believes that high Nio stock price could “never be justified” by the Chinese electric vehicle market.
Citron also cautioned, “It is time for investors to rotate out of NIO,” while setting a comparatively low price target of $25 on Nio stock. With that harsh pronouncement, electric vehicle stocks generally declined.
Should this short seller’s scathing warning about Nio scare prospective investors away from LI stock? I don’t believe so. Keep in mind that Li Auto’s third-quarter revenues increased by 28.4% compared to the previous quarter.
Moreover, Li Auto’s deliveries showed a 31% quarter-over-quarter improvement. It’s evident that this electric vehicle manufacturer is in growth mode, so Citron’s warning about Nio need not apply to every competitor in the sector.
The Bottom Line
The global new energy vehicle market offers exciting prospects for 2021. At the center of this movement is Li Auto and its fast-selling Li ONE electric SUV.
Citron’s cautionary note is well taken and might apply to Nio and some other electric vehicle makers. Still, LI stock could have plenty of room to run as Li Auto’s growth story remains fully intact.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
