Li Auto (NASDAQ:LI) is a strong EV player in the industry that has certainly made its presence felt in the crowded market. LI stock has enjoyed a great ride over the last year.
After going public in July 2020, LI stock hit $47 in November and showed volatility thereafter. This was due to the semiconductor chip shortage that affected the entire industry. However, the stock has gained 16% after the company announced robust Q1 results. It is currently exchanging hands at $24.
Electric vehicles have become a hot topic in the market. As countries move towards cleaner energy, there is a massive rush towards electric cars and the market is proof that consumers are keen on joining the EV rush. With new players entering the market, EV stocks are a hot buy.
I am bullish on Li Auto and believe that the company can give stiff competition to rivals including Nio (NYSE:NIO) and Xpeng (NYSE:XPEV). With that in mind, let’s take a look at the investment case for LI stock.
Blowout Q1 Results
Li Auto reported Q1 earnings that included a massive increase in revenue while beating analysts’ expectations. Revenue increased 320% to $545.7 million as vehicle sales grew by 311%. Gross profit reached $94.1 million, representing an 802% increase from last year, while the vehicle margin was 17% in the quarter as compared to 8.4% the previous year.
Vehicle sales accounted for 97% of the total sales of the company. As the company continues to reduce the cost of operations and labor, it can report higher gross margins in the coming quarters.
It also reported a narrow net loss for the quarter of $54.9 million. Interestingly, the company generated free positive free cash flow amounting to $87 million as compared to a negative cash flow in the first quarter of 2020. Going from cash burn to a positive free cash flow is no small feat and Li Auto has managed it very well. It is also one EV company that is really close to turning profitable.
Impressive Delivery Numbers
Li has grown with each quarter and its vehicle deliveries are proof. It delivered 12,579 vehicles in the quarter, which is a four-fold increase from the 2,896 vehicles delivered in the first quarter of 2020. The record deliveries represent the growing interest of consumers in the car and highlight the company’s potential to scale.
The company expects Q2 revenue between $609 million and $651 million with a 104% to 119% growth from a year ago. Looking at the current pace of the company’s growth, the Q2 numbers look easily achievable. It expects deliveries between 14,500 and 15,500 vehicles in Q2.
Li Auto mentioned that it has officially released the 2021 Li One in March. It is the first vehicle with navigation on the advanced driver assistance systems as a standard feature and costs about $51,600.
Despite the semiconductor chip shortage faced by the EV industry, Li has managed to hold ground in the market. As the EV industry continues to grow, there is a lot working in favor of Li. With another strong quarter and robust deliveries, LI stock could see a rise.
The Bottom Line on LI Stock
All in all, the fundamentals of the company are stable and the balance sheet looks great. Li has a chance to reach profitability at the earliest and it is moving in the right direction.
The positive cash flow and strong revenue numbers are proof that their EVs are moving the market. Li stock has the potential to double and it is a must add to your portfolio.
The company has a market cap of $20.7 billion and despite the recent gains of LI stock, it is a great choice for investors.
On the date of publication, Vandita Jadeja did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
