Li Auto: High Risk, High Reward Speculative Chinese EV Player

seekingalpha2021-04-25

Summary Li Auto's delivery and revenue are growing exponentially. The company might not be able to sustain its growth with an EREV vehicle. Despite risks, LI is an attractive company for risk-...

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Comments

kC247
2021-05-03
kC247
They need more than 1 model.
- Shininglight:
  ok
lingling19
2021-04-26
lingling19
Like please
V K
2021-04-26
V K
Nice
Lizx
2021-04-26
Lizx
Do help to comment pls thanks :)
- DukeAlan:
  help comment on my comment pls
Derrick3388
2021-04-26
Derrick3388
Rebound play
ponyinvestor
2021-04-26
ponyinvestor
Cool!
- grrrr_nt:
  c00l
- 林癸源:
  [微笑]

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The company, unlike its rivals Nio  and XPeng , focuses on EREV vehicles, or a combination of BEV  and an ICE  vehicles. The concept behind an EREV is that a vehicle runs on a battery until it runs out of energy, then a small engine","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LI":"理想汽车"},"translate_title":"利汽车：高风险、高回报的中国电动汽车投机者","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"LI":0.9},"content_text":"Summary\n\nLi Auto's delivery and revenue are growing exponentially.\nThe company might not be able to sustain its growth with an EREV vehicle.\nDespite risks, LI is an attractive company for risk-tolerant investors.\n\nPhoto by jonathanfilskov-photography/iStock via Getty Images\nLi Auto (NASDAQ:LI) is a Chinese automobile company that was founded in 2015. The company, unlike its rivals Nio (NYSE:NIO) and XPeng (NYSE:XPEV), focuses on EREV vehicles, or a combination of BEV (Battery Electric Vehicle) and an ICE (Internal Combustion Engine) vehicles. The concept behind an EREV is that a vehicle runs on a battery until it runs out of energy, then a small engine creates energy for the electric motors using fossil fuels to significantly increase the vehicles' driving range. In other words, EREV is a vehicle that takes the best of BEV and ICE.\nBull Thesis\nThe world is in a transitory phase away from ICE vehicles to cleaner forms of transportation, and Li Auto is in a potential position to benefit from this movement. Here are reasons why:\n\nLi Auto's EREV vehicle is showing strong sales growth\nLi Auto's revenue growth and profitability potential is attractive\nLi Auto has a healthy balance sheet and attractive valuation compared to its competitors\n\nBear Thesis\nAll companies with exponential growth and amazing stories come at a risk, and Li Auto is no exception.\n\nThe world will eventually move to complete electric vehicles or BEV, but Li Auto's transition from EREV to BEV might not be successful. Also, will customers continue to seek EREV vehicles if BEV vehicles' range significantly improves?\n\nSales Growth\nLi Auto's vehicle, Li One's, sales data is growing at an unimaginable speed. Li Auto delivered 32,624 vehicles in 2020. Surprisingly, about 44% of the sales came from Q4 alone, which means that Li Auto's delivery is increasing significantly quarter over quarter. In 2021, Li Auto delivered 5379 vehicles in January,2300 vehicles in February, and 4900 vehicles in March. In total, the company delivered 12579 vehicles for the quarter ending in March, which is about a 344% increase year over year. Also. because the management team estimated sales between 10500 to 1150 0vehicle deliveries in the first quarter, Li Auto proved that their EREV vehicle is still in high demand. Thus, Li Auto will most likely report great earnings and show strong revenue growth in 2021 as well.\nLi Auto's Growth\nLi Auto started selling its vehicle Li-One in late 2019, and Li Auto's revenue has been growing at an exponential rate since then.Li Auto had a revenue of 40.9 million dollars in December 2019 quarter. In the September 2020 quarter, Li Auto had revenue of 369.8 million dollars, and in December 2020 quarter, Li Auto had revenue of 635.3 million dollars.\n\nLi Auto's quarter-over-quarter revenue growth from the quarter ending in September to December in 2020 was 72%. On top of this,According to Yahoo Finance, Li Auto's 2021 full-year revenue estimate is about 2.9 billion dollars, which is up over 100% from 1.4 billion dollars in 2020 revenue. Li Auto's exponential growth cannot be denied. Revenues show that Li Auto is growing faster than XPeng and Nio at the moment, and if this trend can continue, Li Auto will be one of the best investments for investors.\nHowever, there is a problem. Li Auto's revenue growth was solely based on a single EREV vehicle while the world is transitioning to BEV vehicles. EREV vehicles do have advantages with longer range than BEV vehicles, but regulators and consumers will eventually move toward BEV vehicles. Also, in my opinion, Li Auto's most significant competitive advantage is the fact that its vehicle is an EREV, which means that customers are favoring Li One's long-range compared to its competitors. For example, according to Li Auto,Li-One has a range of 500 miles while Nio's ET7 has a range of 310 miles and up to 435 miles. This is a significant risk. BEV vehicles' ranges are increasing significantly fast, which means that Li Auto's competitive advantage is decreasing. New batteries such as solid-state batteries will increase the range even further for BEV vehicles. This has the potential to dent Li Auto's sales. Also, once the company transitions to BEV vehicles, customers might migrate to Li Auto's competitors since the competitive advantage of being EREV disappeared. After all, the BEV vehicle market in China is ultra-competitive with multiple start-ups and traditional automakers. I believe this risk is going to be a problem for Li Auto until the company can prove that its BEV vehicles can retain similar sales as its EREV vehicles.\nSource - The picture shows a layout of an EREV vehicle\nOn the bright side, Li Auto is closest to profitability among Nio and XPeng. Li Auto had a net income of 16.5 million dollars in the quarter ending in December 2020 while Nio and XPeng lost 228.6 and 418.5 million dollars, respectively. Although Li Auto posted positive net income during the December quarter, the company is still expected to report a small amount of loss at about -0.06 per share before reaching profitability in 2022. All in all, Li Auto seems to be managing its cost better than its competitors, while growing at a faster pace.\nLi Auto's ability to grow exponentially while being close to profitability is showing strong bullish signs for the company; however, questions of Li Auto's sustainability with EREV vehicles remain.\nBalance Sheet and Valuation\nLi Auto, in my opinion, has a very healthy balance sheet, and when considering that the company is growing at an exponential rate, the balance sheet seems even better. Li Auto has 4.3 billion dollars in cash and short-term investments with only 78 million dollars in long-term debt. Furthermore, the company's total liability to total asset ratio (L/S) is at only 18%. Considering that Li Auto is barely losing money, I think it's more than reasonable to say that Li Auto has a healthy balance sheet. If I were to address any concern in the balance sheet, it would be 213.3 million dollars in capital lease, but this will not be a significant problem for the company with its current growth.\nLi Auto also has a very attractive valuation compared to Nio and XPeng at 12.5 p/s ratios compared to Nio's 18.45 and XPeng's 13.63. Li Auto is trading cheaper than these companies with healthier balance sheets and stronger growth. However, Li Auto's cheaper valuation might be from the fact that the company is not selling BEV vehicles.\nI cannot deny that Li Auto's valuation in terms of p/s and its balance sheet is great; however, I think the EV industry as a whole is slightly overvalued. For example, Li Auto is expected to report 0.18 eps in 2022, which means that Li Auto is trading at about 111 times its 2022 earnings. Also, Nio and XPeng are not even expected to be profitable by 2022. I understand that earnings do not matter for these high-growth companies, but eventually, I think, earnings will matter, eventually.\nConclusion\nAlthough I have more reasons to be bullish for Li Auto than being bearish, I am still doubtful. The revenue is indeed growing at an unimaginable pace, and it is also true that Li Auto has an attractive valuation compared to its competitors while having a healthier balance sheet. But, the uncertainty of sustainability of an EREV vehicle, and the demand for EREV as BEVs get better is troubling. Also, Li Auto's transition from EREV to BEV might not be as smooth as many investors are expecting. I will be cheering for Li Auto and wait until the company's management team provides clearer guidelines for BEV vehicles. Therefore, I believe that this company is perfect for risk-tolerant investors or investors seeking extremely high risk and high reward ratios. I would advise investors to be careful even when being optimistic about Li Auto's success.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":108486221,"gmtCreate":1620049421963,"gmtModify":1704337874440,"author":{"id":"3556687184992627","authorId":"3556687184992627","name":"kC247","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"They need more than 1 model.&nbsp;","listText":"They need more than 1 model.&nbsp;","text":"They need more than 1 model.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/108486221","repostId":1132391349,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4213787,"gmtCreate":1620086101848,"gmtModify":1680786851558,"authorId":3563607262597606,"author":{"id":3563607262597606,"authorId":3563607262597606,"name":"Shininglight","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":108486221,"type":1,"supId":0,"prevId":0,"content":"<u>ok</u>","text":"<u>ok</u>","html":"<u>ok</u>"}],"langContent":"EN"},{"id":374342990,"gmtCreate":1619424153010,"gmtModify":1704723607086,"author":{"id":"3576530038344823","authorId":"3576530038344823","name":"lingling19","avatar":"https://static.tigerbbs.com/b420073cd5b25c775f94911987dfbd89","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Like please&nbsp;","listText":"Like please&nbsp;","text":"Like please","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/374342990","repostId":1132391349,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":374081276,"gmtCreate":1619402102295,"gmtModify":1704723267264,"author":{"id":"3577323914202336","authorId":"3577323914202336","name":"V K","avatar":"https://static.tigerbbs.com/536d624e5750dcffec704eeed9bc003b","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":5,"crmLevelSwitch":1},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/374081276","repostId":1132391349,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":375720012,"gmtCreate":1619397916536,"gmtModify":1704723150604,"author":{"id":"3575276351507925","authorId":"3575276351507925","name":"Lizx","avatar":"https://static.tigerbbs.com/9e0f3a3ae51dc0bf7237f2106d21e4db","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Do help to comment pls thanks :)&nbsp;","listText":"Do help to comment pls thanks :)&nbsp;","text":"Do help to comment pls thanks :)","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/375720012","repostId":1132391349,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4161585,"gmtCreate":1619618485932,"gmtModify":1680786030002,"authorId":3578446470950082,"author":{"id":3578446470950082,"authorId":3578446470950082,"name":"DukeAlan","avatar":"https://static.tigerbbs.com/5d8e6962022e3365333d669221455dd6","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":375720012,"type":1,"supId":0,"prevId":0,"content":"help comment on my comment pls","text":"help comment on my comment pls","html":"help comment on my comment pls"}],"langContent":"EN"},{"id":375785448,"gmtCreate":1619397372084,"gmtModify":1704723136049,"author":{"id":"3571122265542784","authorId":"3571122265542784","name":"Derrick3388","avatar":"https://static.tigerbbs.com/fdb5ce05320a1a446ab0d788b0368648","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":7,"crmLevelSwitch":1},"htmlText":"Rebound play","listText":"Rebound play","text":"Rebound play","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/375785448","repostId":1132391349,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":375780551,"gmtCreate":1619396896373,"gmtModify":1704723126660,"author":{"id":"3575443999456708","authorId":"3575443999456708","name":"ponyinvestor","avatar":"https://static.tigerbbs.com/138d1ebc8820019726a687f0ffe45994","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Cool!","listText":"Cool!","text":"Cool!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/375780551","repostId":1132391349,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":4133048,"gmtCreate":1619397783876,"gmtModify":1680785584914,"authorId":3578111596572453,"author":{"id":3578111596572453,"authorId":3578111596572453,"name":"grrrr_nt","avatar":"https://static.tigerbbs.com/6a2c25086cfc9041f98ee91fb15859a4","vip":1,"crmLevel":4,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":375780551,"type":1,"supId":0,"prevId":0,"content":"<u>c00l</u>","text":"<u>c00l</u>","html":"<u>c00l</u>"},{"id":4132967,"gmtCreate":1619397432776,"gmtModify":1680785580905,"authorId":3581608528633395,"author":{"id":3581608528633395,"authorId":3581608528633395,"name":"林癸源","avatar":"https://community-static.tradeup.com/news/64ab6cd5db62119f730277b3a65da70c","vip":1,"crmLevel":1,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":375780551,"type":1,"supId":0,"prevId":0,"content":"[微笑]","text":"[微笑]","html":"[微笑]"}],"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":353,"commentSize":132,"repostSize":0,"favoriteSize":1,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 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