Uncertainty over the future growth of China’s EV sector is keeping top plays in the space at low prices. Li Auto (NASDAQ:LI) is no exception. Although LI stock has yet to tumble back to its 52-week low, shares in the electric vehicle manufacturer have declined by over 35% over the past six months.
Although these declines are relatively modest compared to big tumbles that two of Li’s key China-based peers have experienced, don’t assume either name has become oversold/fallen into deep value territory.
Both Nio (NYSE:NIO) and Xpeng (NYSE:XPEV), down 60.5% and 55%, respectively, during this time frame are hardly bargains, given their current high level of unprofitability. Li, on the other hand, is not only profitable, but trades at a more-than-reasonable valuation (25 times forward earnings).
Best of all, this good value is coupled with the potential for high growth.
LI Stock: Charging Ahead While the Competition Runs on Low Battery
Li Auto’s performance in 2023, and prospects for 2024, stand in stark contrast to the performance and prospects of Nio and Xpeng. Last year, Li delivered 376,030 vehicles, representing an 182.2% increase compared to 2022.
This year-over-year growth also came in leaps and bounds ahead of the year-over-year growth experienced by the aforementioned competitors. Nio’s deliveries in 2023 (160,038 vehicles) came in at just 30.7% above 2022 levels. Xpeng’s deliveries growth last year was even more relatively modest, with its full-year deliveries (141,601 vehicles) increasing by only 17%.
For 2024, Li has set an ambitious annual delivery goal of 800,000 vehicles. The market may currently have a “show me” stance regarding LI stock, which makes sense given the month-over-month decline in deliveries Li reported for January, yet given how both Nio and Xpeng experienced even greater sequential drops in delivery volume, this EV maker is arguably weathering the current China EV market slowdown much better than the competition.
More importantly, while Li’s 800,000 deliveries target may be a stretch goal at best, the company may have what it takes to deliver growth that exceeds the sell-side’s current expectations.
Looking Beyond the ‘Doom and Gloom’ About China EV Industry Growth
Between the recent spate of “doom and gloom” headlines about China’s “shaky” economy, plus last month’s deliveries decline, again it’s not surprising that the market has shifted fully back into bullish mode regarding LI stock.
But while the China EV sales growth slowdown may carry on this year, don’t assume that there’s disappointment ahead with Li’s results in the quarters ahead. Note that Li’s vehicles are not fully electric. Instead, Li’s SUV models for the mass affluent market are plug-in hybrids, which enables them to count as “new energy vehicles,” while at the same time have a range advantage over battery electric vehicles.
Until range catches up, Li could keep having a leg up on the competition, including competition from established brands like Tesla (NASDAQ:TSLA). Although the market bemoaned that China EV sales declined on a sequential basis, they were up on a year-over-year basis. January is also typically a slow month for EV sales.
While not certain, given how sales last month in context weren’t as horrendous as they may seem on the surface, EV deliveries growth for the industry, and for Li in particular, could end up coming in much stronger than expected.
Bottom Line: Snap Up a Position While Uncertainty Persists
A near-term competitive advantage, plus the silver lining with last month’s numbers, leads me to one clear takeaway. There’s more than just hope backing up the argument that Li will not disappoint with its 2024 fiscal performance.
Analysts consensus currently calls for the company’s sales to grow 60.3% this year, and its earnings to grow by 43.8% (to $1.74 per share). The top end of forecasts call for Li’s top line to nearly double, and for earnings to more than double (from $1.21 to $2.44 per share).
Meeting expectations could easily drive LI back up to its 52-week high ($47.33 per share). Beating them would undoubtedly send it to levels well north of this high-water mark.
Market uncertainty has made LI a relative bargain. As this may not last for long, consider it time to snap up a position.
On the date of publication, Thomas Niel 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.
