Why Li Auto’s Strong Deliveries Aren’t Moving the Stock

Li Auto (NASDAQ:LI), the largest of the emerging EV players in China, delivered a record 53,709 vehicles for September 2024 – an increase of 49% percent year-over-year. Sales also expanded by about 11.6% compared to August.  Li’s total deliveries year to date stand at about 341,812 vehicles, an increase of 40% compared to last year. Li’s performance for the quarter was also better than its rival XPeng which delivered 21,352 EVs in September, a 39% year-over-year growth. Although Li Auto didn’t break down the key drivers of its growth, it’s likely that the Li L6, the most affordable model in the company’s lineup, had a big part to play. The vehicle has gained popularity among younger consumers. The vehicle, which was launched in April, is priced at about RMB 250,000 (about $34,500). Li also lowered prices for several of its models a few months ago and this has also likely helped support sales to an extent.

Now despite the strong growth. Li Auto stock remains down by about 31% year-to-date. There have been a couple of headwinds for Li Auto. While the company’s Q2 2024 results, published a little over a month ago, were better than expected, Li’s profitability and average selling prices per vehicle are seeing some pressure due to mounting competition. The Chinese EV market is crowded, with over 100 brands competing in the space.  Li is also likely seeing a lower mix of premium EV model sales (such as the Li L7, Li L8, and Li L9) and a higher mix of the low-priced L6 model. Li has seen its average selling prices decline by about 13% year-over-year to about RMB 280,000 during the most recent quarter. Li Auto’s gross margin stood at 19.5% in Q2, down from 21.8% in the year-ago quarter. Separately, China’s economic growth has been weak due to a downturn in the real estate market and a slow rebound from stringent Covid-19 lockdowns that ended over a year ago. Consumer spending and domestic consumption also remain weak in China. However, the government recently announced a stimulus plan, which includes lowering interest rates and fiscal support and this could help consumer spending.

Now, the decrease 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 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 recovery?

Despite concerns about the economy and weakness in the global EV market, the Chinese EV space is still showing promise. With China offering incentives to consumers who replace their gasoline cars with electric and low-emission vehicles, the mix of new energy vehicle sales has jumped to about 50% of overall automotive sales. Moreover, there has also been a premiumization trend in the Chinese EV market, with cars costing upward of $30,000 accounting for a growing mix of sales at the expense of lower-end EVs. This could play in Li Auto’s favor, as it competes primarily in the premium end of the electric vehicle market. Overall, Li says that it has about 17% of the market share in the premium EV segment, for vehicles priced over RMB200,000 ($28,500), making it the leader among premium Chinese EV brands.

Li’s valuation is also fair, with the stock trading at just under $26 per share – a little over 15x estimated 2024 earnings and roughly 11x 2025 earnings, which is not very expensive considering that the company’s revenues are projected to grow by over 15% this year and by over 35% next year per consensus estimates. 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 10/1/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates