The U.S. car market has changed direction in 2023 and the reason is Li Auto stock (NASDAQ:LI).
Li’s success in China told Detroit it needs to slow its roll on big electrics. Ford Motor (NYSE:F) is selling so many hybrids it’s doubling production, while grappling with slower-than-expected sales of its all-electric trucks. Sales of hybrids are now expected to triple over the next 5 years.
Thank Li, whose hybrids broke sales records for the sixth straight month in September. This is in the world’s most competitive electric car market, China.
So here are some reasons for why Li stock is changing the industry.
Detroit is Toast
When the electric transition began with Tesla (NASDAQ:TSLA) five years ago, Detroit responded by ramping up its own plans for all-electric cars.
In the process, they ignored the trade-offs among range, price, and weight that Chinese car companies have been dealing with since 2010. They built almost nothing for the mid-market save the Chevy Bolt, which General Motors (NYSE:GM) nearly killed. Instead, they put electric motors in the overweight SUVs and pick-ups that were already selling.
This has been a failure, threatening the future of the U.S. Electric Vehicle industry. With nothing available for middle class families, and gas profits being siphoned off into making luxury EVs, this was inevitable.
Li and CATL
Li’s biggest market advantage may be its close relationship with CATL.
CATL is the most important company in the EV market. Electric cars are just batteries on wheels, and CATL dominates that market. Ford’s coming battery factory in Michigan is a CATL factory. Yes, they even supply Tesla.
CATL’s latest mass market battery is based on lithium-ion technology, which doesn’t have the energy density or safety LI believes it needs. A battery introduced in August uses Lithium Iron Sulphate. It’s safer and charges faster.
This is the kind of battery Li will put into its first all-electric vehicle. But it’s not abandoning hybrids. The two product lines will operate on parallel tracks until the market moves decisively to electric models.
The latest CATL batteries are semi-solid. It’s fully solid batteries that will be the “kiss of death” for gas-powered cars. The U.S. isn’t dead in this market. Quantumscape (NYSE:QS) has been working on a solid battery, based on sodium, for years.
The 2024 Market
What Li learned in 2023 will drive both it and the EV market in 2024.
First, upscale buyers want no compromises. They want range, an attractive weight, an affordable price, and ample room. They want it all. Li is prepared to serve that market.
Second, mid-market buyers require new battery technologies, to lower weight, increase range, and deliver affordable prices. Some are already stretching their budgets to buy Teslas. Most will continue to buy hybrids until their demands are met.
This isn’t all bad. My hybrid gets twice the mileage of my late, lamented Scion XB. The move toward hybrids is cutting gasoline demand, making it more elastic, as the Saudis are learning to their chagrin.
The Bottom Line
The outlook for Li Auto stock is brightening.
The company is well-run and has the right relationships to keep succeeding.
I remain uncertain about China. A country of 1.4 billion that runs like a black box, it is governed by an unstable dictator and an elite devoted to authoritarianism. That’s not a recipe for growth, and that’s what Li needs in its home market.
But how bad are China’s troubles, really? Is what’s happening to their housing market any worse than what’s about to happen to our office market?
I still prefer Toyota (NYSE:TM) but Li stock might outdo it, thanks to its smaller size and ability to grow, for some months to come.
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.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter https://danafblankenhorn.substack.com/.
