Li Auto Inc. (NASDAQ:LI) recently reported a 39% year-over-year increase in March 2024 deliveries, solidifying its standing as a key player in the electric vehicle (EV) sector. The company’s production momentum could pave the way for substantial stock gains amid the promising growth trajectory of the EV market. However, while delivery numbers have seen a significant uptick, Li has revised its delivery forecast downwards, introducing a note of caution for investors.
Market experts are closely eyeing Li as a rising star in China’s rapidly expanding EV market. I concur with their positive outlook, especially considering the stock is currently trading over a third below its February peak of more than $46 per share. My sentiment remains bullish on Li Auto. Yet, before making a move on LI stock, prudent consideration of both favorable and unfavorable factors is advised. Let’s delve deeper into the analysis.
The Profitability Edge of Li
One of the defining factors that sets Li apart from its competitors in the cutthroat EV landscape is its profitability. In the last quarter of 2023, the company recorded an income from operations of nearly $428 million, securing an impressive operating margin of 7.3%. Net income for the same period exceeded $810 million.
Unlike many automakers grappling with losses on every electric vehicle sold due to high production costs, Li operates profitably, solely focused on EVs. Even established players like Ford (NYSE:F) and Tesla (NASDAQ:TSLA) confront challenges in offsetting EV losses with other revenue streams, unlike Li.
Li Auto: Thriving Growth and Strategic Market Position
Scaling up production in the EV sector poses a significant challenge for new entrants post-achieving profitability. Li, however, has demonstrated remarkable growth metrics. The company witnessed a staggering 2,068% surge in net income in the past year, with Q1-2024 vehicle deliveries showing a robust 53% year-over-year increase. By March 2024, Li had expanded its retail footprint to 474 stores in 142 cities, up from 299 outlets in 123 cities the previous year.
Furthermore, Li strategically occupies a favorable position in the burgeoning Chinese EV market, which witnessed a near-doubling of new EV sales in 2022, outpacing growth rates in established EV markets like the U.S. and Europe. With over half of global EVs on Chinese roads and a significant share of EV exports originating from China, Li stands to benefit from both domestic and international demand surges.
Challenges in Li Auto’s Delivery Estimates
Despite the notable surge in Li’s recent deliveries, the company’s revised delivery figures fell short of initial forecasts. Consequently, Li downgraded its current-quarter delivery projection from a high of 103,000 vehicles to an estimated 78,000. This adjustment triggered a sell-off in LI shares.
The company attributed this reduction to operational missteps in the launch of the Li MEGA minivan, cited as the largest passenger EV in the market. While investors may exhibit caution due to the revised forecast, it is essential to note that even a lowered delivery outlook represents a substantial year-over-year increase. Li’s anticipated first-quarter deliveries in the high 70,000s would mark a nearly 50% improvement over the same period last year, indicating a positive growth trajectory.
Analysts’ Outlook on LI Stock
Despite the recent setback in share prices, keen investors may view the current dip as an opportune moment to invest in LI. While LI stock witnessed a 20% decline in the past month, it boasts a remarkable 26% year-over-year surge. Unanimously backed by Wall Street analysts with ten Buy ratings and no Holds or Sells, LI carries an average price target of $53.83, reflecting an enticing 80.5% upside potential.
In Conclusion: Li’s Growth Trajectory Amidst Challenges
Despite the recent hiccups in delivery estimates and operational strategy, Li remains well-positioned for growth, buoyed by its profitability, strategic presence in the Chinese EV market, and a successful track record in scaling operations.
Disclosure
The views and opinions expressed herein are the author’s own and do not necessarily reflect those of Nasdaq, Inc.
