All summer long I have been writing about the rise of Li Auto (NASDAQ:LI) stock.
It started in May, when I called Li stock “the only Chinese EV stock you should buy.” At the time, Li stock was trading at under $30 per share. At the end of August, it was at $41.53.
The gain is especially impressive when compared against the competition. Giants like Alibaba Group Holding (NASDAQ:BABA) are down during that period.
Nio (NYSE:NIO), the first and most-hyped of the Chinese EV makers to list in New York, is up just 30%. Li stock is even keeping up with that of Tesla (NASDAQ:TSLA).
It’s not just doing this from a standing start, either. Even in May Li’s market cap was nearly $30 billion. The stock had doubled just since January.
A Closer Look at Li Stock
Li may still be unappreciated because, as our David Moadel has written, its future looks even better than its present.
Li was founded by Li Xiang, an adept manager who founded his first company at age 18. He has served on the Nio board, and is noted for his flexibility, switching strategies ahead of the market.
Right now, Li is sitting in the Chinese EV market’s sweet spot. The company makes plug-in hybrids, SUVs that require no compromise because a gas engine supports the battery, giving them a range of up to 800 miles.
Li knows that gasoline still offers more density than any battery can. Li became the biggest luxury Chinese EV maker by not selling EVs.
Risks Endemic to Li Stock
When you buy Li stock, you’re buying China. You’re buying the Chinese Yuan, which has been weakening against the U.S. dollar.
That’s why I suggested in July it might be time to pump the brakes on Li. I warned that China’s economy was rolling over, and that confrontation with the U.S. was increasing. Since then, those trends have continued.
Another risk I warned of is China’s demographic cliff. Their median age is just like that of the U.S., but China doesn’t import young people like we do.
This means it’s aging faster. The market Li caters to may soon start to decline, especially if good jobs can’t be found for younger workers.
Li’s Plans
Li Xiang is now ready to pivot. Li plans to launch five all-electric cars in 2025, and there’s a self-driving roadmap Elon Musk might envy.
Li’s all-electric cars will feature a new “semi-solid” battery offering longer range than current Lithium-ion batteries. The company will also build 800 charging stations across China, offering even-faster electric fill-ups than those of Tesla.
The pivot led to profit-taking in Li stock last month.
The Bottom Line
I still like Li stock better than any other Chinese EV company traded in New York.
I like the company’s products. I like the company’s management, Xi Jiang’s vision and flexibility. I’d much rather own Li than Xpeng (NASDAQ:XPEV), for instance, whose recent moves have lifted the stock but smack to me of desperation.
Still, a full summer of boosting Li has the stock selling at 3 times revenue and 30 times next year’s earnings. Given the risks inherent in Chinese investment, that’s fully valued.
If you got into Li at the start of the summer, you’re still sitting on a tidy profit. If you didn’t, you still have time to wait for clarity and a better chance to get in.
As of this writing, Dana Blankenhorn did not hold (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.
