Li Auto (NYSE:LI) is one of the leading manufacturers of new energy vehicles (NEVs) in China. It delivered a record 40,422 NEVs in October, quadruple the number it did last year. It is also the first time it delivered over 40,000 vehicles in one month. NEVs, of course, are what everyone else refers to as electric vehicles (EVs).
As one of the biggest EV manufacturers in the world’s largest EV market, it is a stock investors ought to notice. Even so, I’ll admit upfront I’m always leery of Chinese stocks because there’s no telling what Beijing will do next. A couple of years ago, the tech stock crackdown sent the likes of Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) careening lower.
Yet investors still ought to pay attention to Li Auto even while exhibiting sufficient due caution. Opening your eyes wide open is the best way to approach LI stock.
A Battle for Supremacy
Li makes plug-in hybrid electrics (PHEV). It has three main models in its L-series of SUVs: the five-seat L7 and the six-seat L8 currently rank No. 1 and No. 2 in sales, respectively, and the full-size L9, which has dominated its category for 13 consecutive months.
The EV maker just unveiled the Li MEGA, its first battery EV (BEV), or what Li calls its “super flagship” EV. It intends to make the MEGA the top-selling SUV for multi-generational households in China. It will go on sale in December.
The Chinese EV market is rapidly expanding, and Li is targeting the premium end of the market. It’s led the sales charts for six straight months for SUVs priced above 300,000 renminbi (RMB), or about $42,000 at current exchange rates. The MEGA will be priced under RMB600,000 (approximately $84,000).
It intrigues investors that premium vehicles like Li’s tend to have better profit margins than their lower-priced rivals. Li sports gross, operating, and net margins significantly ahead of XPeng (NASDAQ:XPEV) or Nio(NYSE:NIO).
A Big Fish in a Big Pond
According to the China Passenger Car Association, NEV retail sales totaled almost 6.4 million units in the first 19 days of November, a 35% increase from the year-ago period. NEV wholesale sales soared 40% year over year to 439,000 units. That accounts for 45% of all passenger vehicle sales for the two-week-plus period.
Although BYD (OTCMKTS:BYDDF) is the largest vehicle maker in China, Li Auto is holding its own against the competition. That includes Tesla (NASDAQ:TSLA), which has recently raised vehicle prices. It had 39,300 new vehicle insurance registrations for the week ending on November 19, compared to 25,400 for Li Auto.
Li’s ability to keep pace has Wall Street excited. Analysts forecast sales will more than double in the last quarter of 2023 to $5.43 billion, a 112% increase from last year, with full-year gains of 163%, or $17.5 billion. The pace will ease up a bit in 2024, with sales growing just 59% to $27.5 billion. Profits are expected to widen 56% to $1.50 per share.
LI Stock: Why You Should Get Behind the Wheel
In the burgeoning and still-growing Chinese EV market, there is plenty of room for numerous EV makers to succeed. Li Auto staked out its position at the premium end of the market. It is running away from the competition within the space.
LI stock has doubled so far this year, but unlike its cars, it doesn’t trade at much of a premium. It goes for 23 times next year’s earnings and twice sales. That seems a fair value for what it is achieving. Investors should look for any dips to take a stake in this top EV company. Just be mindful that Beijing is mercurial and can alter objectives on a whim.
On the date of publication, Rich Duprey 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.
