Investors looking to participate in the booming Chinese electric vehicle market have a lot of choices. But there’s only one right choice. That’s Li Auto (NASDAQ:LI) stock.
No, not Nio (NYSE:NIO). Not Xpeng (NYSE:XPEV). Not Polestar (NASDAQ:PSNY). It’s not even BYD (OTCMKTS:BYDDF), although that company has made sizable profits for Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B).
You want Li Auto, which is based in Beijing and makes its cars 600 miles to the south of there, in Changzhou.
The LI Stock Story
Li Auto is the creation of Li Xiang, a former Nio director who launched his fortune with Autohome (NYSE:ATHM), an online car market and information site. He left Autohome and founded Li Auto in 2015. He began production in November 2019, then brought the company to the U.S. market in 2020. Unlike his rivals, Li Xiang has made serious money for shareholders.
Shares are up 80% since their U.S. launch. Most of that gain has come in just the last few months, as investors learned that the company is fulfilling its promises.
Li Auto makes good electric cars. It’s making a lot of them. And it’s making a profit doing that. Li made over 133,000 cars last year. It plans to make 2 million in 2025, putting it even with Tesla’s (NASDAQ:TSLA) current production.
You may not have heard of Li Auto because it is focused on the Chinese market, which is ferociously competitive. China’s government gave big subsidies to its EV companies but, as the industry has scaled, it has pulled those incentives back. Chinese buyers now compare EVs directly with gas-powered cars and, thanks to scaled battery production, electrics are winning.
Li Has Many Advantages
Like most electric car companies, Li Auto sources batteries from CATL, which has one-third of the global market. But CATL isn’t its sole source, This helps Li get the best prices from CATL.
Li’s latest model, the L7, carries a price that’s equivalent to about $47,000. That puts it on a par with the Tesla Model Y. The car is also similar to the Model Y.
It’s Li’s first-quarter numbers that lit a fire under the stock, as I reported recently. Li delivered Tesla-like growth and Tesla-like profits. The company nearly doubled last year’s sales and delivered $976 million in free cash flow.
Industry analysts like to say that Tesla’s success has made life tougher for Chinese EV makers. Most are desperate to export their vehicles, many to Europe. It’s a sign of weakness, not strength. Li doesn’t have to. It’s growing as fast as BYD, albeit from a smaller base, and it’s making money.
Li has been talking of building a plant in Europe or elsewhere overseas since 2021, but for now. it’s staying put, in order to maintain its supply chain.
The Bottom Line on Li Auto
Li Auto is the real Chinese Tesla.
It’s doing precisely what Tesla did. It’s focusing on the high end of the market, scaling production to cut costs, then passing those savings along to win market share.
The difference is that Li is doing all of this from China, where such infrastructure is most advanced. It’s not having to build what it needs from scratch, as Tesla must.
This means Li Auto can maintain profitability as it scales, as it proved in the first-quarter report. It doesn’t have to export because it doesn’t have to escape its home market. Since it’s worth just $28 billion now, its growth over the next two years should generate a bigger return for shareholders than Tesla’s growth.
It’s just a no-brainer. Li Auto is the only Chinese auto stock your portfolio needs.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.