Up 50% Over The Past Month Despite Mixed February Deliveries, What Lies Ahead For Li Auto Stock?

Chinese luxury electric vehicle maker Li Auto stock (NASDAQ:LI) posted mixed delivery numbers for February, shipping 20,251 cars, down 35% from January, although it marks an increase of about 22% compared to last year. Automotive sales in China are usually weak in January and February, due to the extended Chinese New Year holiday, which impacts manufacturing and sales. Moreover, Li also faced a shortage of some trims of Li L series models (which combine electric drive trains with a gasoline-powered generator) as the company preps for upcoming refreshes.  That said, Li appears to have fared better than its key rivals, Nio and Xpeng.  Xpeng delivered 4,545 EVs for the month, down 44.9% from January, and down 24% from the year-ago period, while Nio delivered 8,132 cars in February, down 19% from January and down 33% from the year-ago period. Separately, Li Auto also launched its first full-electric model, a van called the MEGA, at 560,000 yuan (around $78,000). The price point was slightly higher than analysts had expected. Li stock declined about 7% in pre-market trading on Monday, but it remains up by about 50% over the past month.

LI stock has seen extremely strong gains of 50% from levels of $30 in early January 2021 to around $43 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in LI stock has been far from consistent. Returns for the stock were 11% in 2021, -36% in 2022, and 83% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that LI underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LI face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

There are concerns about global EV demand, with most mainstream automakers seeing tepid demand and scaling back on their electrification goals. For instance, Mercedes-Benz dialed back on its target of going all-electric by 2030, now estimating that only 50% of total sales would be EVs. We’ve seen similar production scalebacks from the likes of Ford as well. While the Chinese EV market is poised to post double-digit growth this year, competition and price wars are mounting. However, Li’s highly differentiated vehicles appear to be giving it an edge in the market. Unlike rivals who have seen margin compression in 2023, Li’s margins have been improving. Li posted automotive gross margins of 22.7% in Q4 2023, compared to about 20% in the year-ago period. The company also remains positive about its delivery outlook, guiding 50,000 vehicles in March, up almost 2.5x compared to the previous year. The company previously noted that was targeting sales of 800,000 vehicles for 2024, a growth of more than 2x versus 2023. Now, Li stock trades at about $43 per share, about 26x consensus 2024 earnings and 17x 2025 earnings, which is not very expensive considering that the company’s revenues are projected to grow by over 60% this year and by over 30% next year. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Li stock compares with its rivals Nio and Xpeng.

[1] Returns as of 3/4/2024
[2] Cumulative total returns since the end of 2016

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