Li Auto Reports Growth Amidst Tough Competition in EV Market

Li Auto (NASDAQ:LI), China’s leading electric vehicle (EV) manufacturer, announced a total of 51,443 vehicle deliveries in October 2024, marking a 27.3% increase compared to the same month last year. Despite this growth, sales dipped slightly from the 53,709 units delivered in September 2024. Year-to-date, Li Auto has delivered approximately 393,255 vehicles, which is a 38% rise compared to last year. While Li Auto’s performance in this quarter showed growth, competitors also posted significant numbers. Nio saw deliveries of 20,976 units in October, reflecting a 30% year-over-year increase, though its monthly numbers were stable. XPeng delivered a record 23,917 vehicles, up about 19% from last year. The Li L6, the company’s most affordable model launched in April at around RMB 250,000 (about $34,500), likely contributed to this positive sales trend, especially among younger buyers. Additionally, Li Auto’s decision to reduce prices on several models a few months back may have further supported sales. The company has maintained its position as the leader in China’s premium EV segment, focusing on vehicles priced at RMB 200,000 and above ($28,000) for seven consecutive months.

Even with steady growth, Li Auto stock is down approximately 28% year-to-date. Several factors have hindered its progress. The fierce competition in the Chinese EV market has pressured the company’s average selling prices and profit margins. With over 100 brands in the market, Li Auto is likely experiencing a lower proportion of premium vehicle sales, as consumers gravitate towards the more affordable L6 model. In the most recent quarter, the average selling prices fell 15% year-over-year to RMB 270,000.

Li Auto did manage to exceed earnings and revenue expectations for Q3 2024, but its vehicle margin fell to 20.9%, a decrease of 0.3% from the previous year. Looking ahead to Q4, Li Auto’s revenue guidance is somewhat conservative, projected to be around $6.35 billion, which is about a 9% increase from the fourth quarter of 2023 but below Wall Street’s anticipation of $6.7 billion. The broader Chinese economy remains shaky due to a struggling real estate market and slow recovery from past Covid-19 restrictions. Consumer spending shows mixed signals, although a recently announced government stimulus plan could boost consumer confidence through lower interest rates and fiscal support.

Li Auto’s stock performance has been quite variable. It saw a return of 11% in 2021, but this changed dramatically with -36% in 2022 and a remarkable 83% rebound in 2023. In comparison, the S&P 500’s returns were 27% in 2021, -19% in 2022, and 24% in 2023. This suggests that Li Auto underperformed relative to the S&P during 2021 and 2022. Interestingly, the Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, outperformed the S&P 500 annually during this period, indicating that it provided steadier returns with reduced risks. Given the current climate of high oil prices and rising interest rates, there are lingering questions about whether Li Auto will replicate its earlier struggles in 2021 and 2022 or if it will successfully navigate toward recovery in the upcoming year.

Despite current economic challenges and a cooling global EV market, the Chinese EV segment continues to exhibit growth potential. A trend towards premium vehicles is emerging, with models priced over $30,000 capturing an increasing market share, which may benefit Li Auto, as it primarily operates at the higher end of the sector. Currently, Li Auto shares trade at about $26 each, reflecting a price-to-revenue ratio of approximately 1.3x based on 2024 consensus estimates. This is relatively modest compared to Tesla’s 7x forward revenue, especially when Tesla’s revenue is forecasted to remain flat this year. Should Li Auto command a more favorable valuation of around 2x forward revenues, buoyed by its promising growth and potential margin improvements, its stock might experience significant upside. View our detailed comparison of Nio, Xpeng & Li Auto for a comprehensive understanding of how Li Auto stacks up against its competitors.

[1] Returns as of 11/3/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.