Li Auto's Strategic Pivot: From Setbacks To Solutions

seekingalpha05-16

Li Auto's stock declined after hitting a 52-week-high due to concerns about competition in the new energy vehicle industry and negative consumer reaction to its new electric vehicle model.LI has taken...

Source Link

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap

Leave a comment

{"i18n":{"language":"en_US"},"isChannel":false,"data":{"share":"https://ttm.financial/m/news/2435642488?lang=en_US&edition=fundamental","thumbnail":"https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1504203878/image_1504203878.jpg","is_english":true,"pubTime":"2024-05-16 14:46","share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","id":"2435642488","market":"us","top_or_hot":-1,"title":"Li Auto's Strategic Pivot: From Setbacks To Solutions","media":"seekingalpha","content":"<div>\n<p>Li Auto's stock declined after hitting a 52-week-high due to concerns about competition in the new energy vehicle industry and negative consumer reaction to its new electric vehicle model.LI has taken...</p>\n\n<a href=\"https://seekingalpha.com/article/4693760-li-auto-stock-strategic-pivot-from-setbacks-to-solutions\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Li Auto's Strategic Pivot: From Setbacks To Solutions</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nLi Auto's Strategic Pivot: From Setbacks To Solutions\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-05-16 14:46 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4693760-li-auto-stock-strategic-pivot-from-setbacks-to-solutions><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Li Auto's stock declined after hitting a 52-week-high due to concerns about competition in the new energy vehicle industry and negative consumer reaction to its new electric vehicle model.LI has taken...</p>\n\n<a href=\"https://seekingalpha.com/article/4693760-li-auto-stock-strategic-pivot-from-setbacks-to-solutions\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE00BSNM7G36.USD","symbol_name":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4693760-li-auto-stock-strategic-pivot-from-setbacks-to-solutions","article_id":"2435642488","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1504203878/image_1504203878.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2435642488","pubTimestamp":1715842010,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Li Auto's stock declined after hitting a 52-week-high due to concerns about competition in the new energy vehicle industry and negative consumer reaction to its new electric vehicle model.LI has taken steps to address these issues, and investors should consider buying additional shares at the current price.The Company's REEVs outperform BEVs and PHEVs, with lower structural costs and higher profits per unit, giving the company a competitive edge.Li's REEV benefits from reduced reliance on costly batteries and partnerships with suppliers like CATL, leading to lower maintenance costs for customers and bolstering its appeal in the upscale Chinese.With growth potential and favorable risk assessment, current price levels present an attractive opportunity for investors, supported by both DCF and comparable analysis.Editor's note: Seeking Alpha is proud to welcome Twenty Alpha as a new contributing analyst. You can become one too!","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IE00BSNM7G36.USD":"NEUBERGER BERMAN SYSTEMATIC GLOBAL SUSTAINABLE VALUE \"A\" (USD) ACC","LU0820561909.HKD":"ALLIANZ INCOME AND GROWTH \"AM\" (HKD) INC","LU2249611893.SGD":"BNP PARIBAS ENERGY TRANSITION \"CRH\" (SGD) ACC","LU1914381329.SGD":"Allianz Best Styles Global Equity Cl ET Acc H2-SGD","LU2063271972.USD":"富兰克林创新领域基金","LU2756315664.SGD":"ALLIANZ INCOME AND GROWTH \"AMI\" (SGDHDG) INC","LI":"理想汽车","BK4527":"明星科技股","BK4588":"碎股","BK4550":"红杉资本持仓","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","LU0823414478.USD":"法巴经典能源转换基金","LU0097036916.USD":"贝莱德美国增长A2 USD","LU0466842654.USD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"A\" (USD) ACC","BK4503":"景林资产持仓","LU1852331112.SGD":"Blackrock World Technology Fund A2 SGD-H","LU0198837287.USD":"UBS (LUX) EQUITY SICAV - USA GROWTH \"P\" (USD) ACC","LU1720051017.SGD":"Allianz Global Artificial Intelligence AT Acc H2-SGD","BK4551":"寇图资本持仓","BK4574":"无人驾驶","LU0316494557.USD":"FRANKLIN GLOBAL FUNDAMENTAL STRATEGIES \"A\" ACC","USD.AU":"BETASHARES US DOLLAR ETF","LU1861220033.SGD":"Blackrock Next Generation Technology A2 SGD-H","BK4581":"高盛持仓","LU2602419157.SGD":"HSBC ISLAMIC GLOBAL EQUITY INDEX \"AC\" (SGD) ACC","EVS.SI":"MSCI China Electric Vehicles and Future Mobility ETF-NikkoAM","BYDDF":"BYD Co., Ltd.","LU2756315318.SGD":"ALLIANZ INCOME AND GROWTH \"AMG\" (SGDHDG) INC A","BK4099":"汽车制造商","BK4511":"特斯拉概念","BK4563":"昨日强势股","LU0348723411.USD":"ALLIANZ GLOBAL HI-TECH GROWTH \"A\" (USD) INC","LU1720051108.HKD":"ALLIANZ GLOBAL ARTIFICIAL INTELLIGENCE \"AT\" (HKD) ACC","LU0943347566.SGD":"安联收益及增长平衡基金AM H2-SGD","LU0234570918.USD":"高盛全球核心股票组合Acc Close","LU2357305700.SGD":"Allianz Global Artificial Intelligence ET H2-SGD","LU1429558221.USD":"Natixis Loomis Sayles US Growth Equity RA USD","LU1861559042.SGD":"日兴方舟颠覆性创新基金B SGD","LU1839511570.USD":"WELLS FARGO GLOBAL FACTOR ENHANCED EQUITY \"I\" (USD) ACC","LU0053666078.USD":"摩根大通基金-美国股票A（离岸）美元","LU0823411888.USD":"法巴消费创新基金 Cap","BK4592":"伊斯兰概念","LU1551013342.USD":"Allianz Income and Growth Cl AMg2 DIS USD","LU0719512351.SGD":"JPMorgan Funds - US Technology A (acc) SGD","LU0056508442.USD":"贝莱德世界科技基金A2","IE00B1XK9C88.USD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A\" (USD) ACC","BK4534":"瑞士信贷持仓","USD":"ProShares Ultra Semiconductors","BK4555":"新能源车","BK4533":"AQR资本管理(全球第二大对冲基金)"},"translate_title":"理想汽车的战略支点：从挫折到解决方案","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"USD.AU":1,"USD":1,"LI":1,"BYDDF":1,"EVS.SI":0.6},"content_text":"Li Auto's stock declined after hitting a 52-week-high due to concerns about competition in the new energy vehicle industry and negative consumer reaction to its new electric vehicle model.LI has taken steps to address these issues, and investors should consider buying additional shares at the current price.The Company's REEVs outperform BEVs and PHEVs, with lower structural costs and higher profits per unit, giving the company a competitive edge.Li's REEV benefits from reduced reliance on costly batteries and partnerships with suppliers like CATL, leading to lower maintenance costs for customers and bolstering its appeal in the upscale Chinese.With growth potential and favorable risk assessment, current price levels present an attractive opportunity for investors, supported by both DCF and comparable analysis.Editor's note: Seeking Alpha is proud to welcome Twenty Alpha as a new contributing analyst. You can become one too! Share your best investment idea by submitting your article for review to our editors. Get published, earn money, and unlock exclusive SA Premium access. Click here to find out more » Robert Way Investment Thesis Li Auto's (NASDAQ:LI) stock had a sharp decline a few days after hitting a 52-week high because of solid earnings. On the other hand, the market was worried about the intensifying competition in the new energy vehicle industry. Furthermore, Li's error with the Mega model also contributed to the selloff. However, in my opinion, Li has, nevertheless, made the necessary steps to ensure that it gets back on course. I believe that Li really has the ability to compete with bigger rivals like BYD (OTCPK:BYDDF) and Tesla (TSLA), given the competitive advantage of REEV over BEV and PHEV. Its stronger unit economics provide it further competitiveness. Additionally, considering the growth potential and risk concerns, the current price level is attractive, according to both DCF and comparable analysis. I predicted that the stock will probably reach its bottom in the second half following the announcement of Q3 guidance, based on the current delivery growth cadence and analyst yearly estimation. Investors should thus use the opportunity to purchase additional shares at the current price. Recap Li Auto's shares reached a 52-week high on February 26 as a result of outstanding results. However, since it reduced its estimate for March delivery, its shares have fallen by 42%. The main reason is the unfavorable response Chinese buyers have had to the company's new electric vehicle model, Mega. YCharts Product Focus And Competitive Landscape In order to set itself apart from gas-powered cars and battery-electric vehicles, Li Auto first concentrated on producing range-extended electric vehicles (or \"REEVs\"). Compared to battery electric vehicles, the range-extended electric car has a greater range (1000 km+) and is more energy-efficient than a gas-powered vehicle. Li quickly rose to the top of China's best-selling luxury SUVs that run on non-gas. It is also one of the few Chinese manufacturers of electrically powered vehicles that is profitable. Seeking Alpha Li's latest pure BEV play, Mega, demonstrates its intention to join this market, even if the competitive landscape makes it an extremely challenging moment to launch. The market is clearly wary of the new approach at the moment due to China's challenging competitive landscape. Li's delivery growth trend validated the concerning findings. The growth rate of Li's delivery decreased from 39% in March 2024 to 0.4% in April 2024. Therefore, the selloff indicates that the market believes Mega's fall may reduce its profitability. As a result, Li's CEO acknowledged the error in public and made the decision to concentrate on what customers actually wanted and what Li was truly excellent at: REEV. Product Launch And Future Outlook In my opinion, China's lack of charging infrastructure is one of the reasons for the new energy sector's slowness. Because these models allay Chinese consumers' range anxiety, plug-in hybrid and extended-range electric vehicles have been stealthily overtaking battery-electric vehicles in market share. ResearchChina In China, 30% of new energy passenger cars are plug-in/extended-range hybrid electric vehicles. Sales of plug-in/extended-range hybrid electric passenger cars in China reached 2.754 million in 2023, marking a year-over-year increase of 85.5%. Li unveiled the most recent REEV model, L6, on April 18. Since the L6 is the most affordable SUV model the company has ever produced, management has great expectations for it. It is substantially less expensive than its previous models, which were priced around RMB 250k. With a 1360 km range, L6 is geared toward family users. Because this model was at the initial phase of the mass production, management anticipated that there would be some margin compression at first. However, after production scales up, management anticipated that there will be long-term margin expansion. L6 targets for a larger addressable market given its relatively low price range compared to existing ones. Therefore, it might be viewed as a growth driver for Li going forward. Furthermore, Li's L6 garnered favorable feedback from customers and, within 72 hours of its launch, had surpassed 10,000 orders. This shows that Li's refocus method might be arriving at the ideal moment to counteract the detrimental effects of the Mega model's error. Competitive Advantage Over BEV And PHEV With its excellent unit economics, Li Auto leads this category. Compared to Toyota, Tesla and BYD, it had an even better gross auto margin and gross profits per unit. This lays down a strong base for the company to be competitive in the industry.          LI BYD TSLA TM   Revenues (USD in million) 17,444 84,324 96,773 297,953   Gross Profits (USD in million) 3,872 17,046 17,660 61,898   Unit Sale 376,030 3,024,400 1,845,985 11,200,000   Gross Profits 22.2% 20.2% 18.2% 20.8%   Gross Profits/Unit (USD) 10,297 5,636 9,567 5,527   Click to enlarge Source: Companies websites, Author Because range-extended electric vehicles meet consumer needs and are structurally more cost-effective, they have larger gross profits per unit and margins. Typically, batteries make up between 40% and 60% of the entire cost of a battery-electric car. Comparing Li's REEV to BEV, the former only needs half as much battery capacity. Furthermore, powerful giant supplier CATL has significant negotiating power over car manufactures because it held 44.5% market share. Li reduces its reliance on the battery provider to gain its leverage over the supplier. Further, customers also like this because it reduces the expense of battery maintenance and replacement. In addition to having lower replacement costs than BEVs, REEVs also outperform the well-liked plug-in hybrid (PHEV) variant. In a PHEV, the internal combustion engine and battery are tightly integrated, whereas in a REEV, they are relatively separated. The advantage of plug-in hybrids over REEVs is their superior gas efficiency while using gas engines. But this also means that replacing the whole system will be expensive. The difference in gas savings between PHEVs and REEVs is negligible when compared to replacement costs. As a result, Li's salvage value on a vehicle that is three years old is higher than BYD's at 57.7%. Li's REEV has a higher salvage value, making it more enticing to buyers who are considering the long-term costs associated with owning a car, even though BYD's PHEV actually has superior production and technological capabilities. China Automobile Dealers Association Following the debut of L6, Li offers the entire product line to customers willing to spend more than RMB 250k. According to AutoHome, cars costing more than RMB 250k make up 35% of all purchases made between May 2023 and April 2024. AutoHome Li's CEO claims that 89% of customers who spend more than RMB 200k on a car are motivated by family. Additionally, he thinks that range-extended technology gives them 5-10 years lead over other models, like MPVs and SUVs. I see that Li thus has a strong position in this market due to its high-end positioning and cheaper replacement costs for its REEV technology. Li currently focuses on the Chinese domestic market, holding a meager 1% of the market. This implies that Li still has a huge room to grow domestically. Strong Track Record The management has consistently shown its competence. Li Auto fulfilled their projection above the high end (78,000) with 80,400 vehicles delivered in Q1. Over the previous few years, management has also been incredibly consistent in fulfilling its guidance commitment. Seeking AlphaSeeking Alpha Upcoming Earnings Li is anticipated to release its Q1 financial results on May 20. Seeking Alpha reports that opinions among analysts over Li's yearly estimate vary. In the last three months, for example, Li's 2024 revenues have had 14 up adjustments and 17 down revisions, respectively. Seeking Alpha I think that Li's lower Q1 delivery guidance will probably have an effect on its Q1 profitability, and the early ramp up of L6 will also likely have a negative effect on its annual earnings. Analysts currently predict that Li will see a 52% increase in revenues and 10% growth in earnings by 2024. This results in a forward PE of 14.96x in 2024, which is not too expensive. This could also imply that, despite a delivery slowdown in April, Li is probably going to pick up the pace in the second half of its delivery. As a result, I anticipated that its Q2 guidance would be even more muted than Q1. Because of this, the stock might reach a stable bottom if the firm releases its Q3 guidance and starts growing again. Seeking AlphaSeeking Alpha Valuation Starting the valuation process with multiple analyses is simpler. Nonetheless, for a more comprehensive examination, particularly for companies in the growth stage, I will also employ DCF analysis, as detailed in the following paragraph. Comparative Analysis The P/S of Li Auto's stock is 1.6x, higher than that of its Chinese competitor BYD but lower than that of Tesla. YCharts In my opinion, Li's stock is reasonably valued in the mid-teen area based on earnings forecast. Considering the overseas expansion risks, especially as BYD experienced greater challenges abroad due to import taxes and Tesla also had localization issues in Europe and as well as Li's superior margin profile in comparison to peers, this valuation appeared appealing. Seeking Alpha DCF Analysis Author I arrived at an 11% required return on equity by using the 10-year China Treasury yield of 2.3%, beta of 1.09x, and the nation risk premium of 8%. I then weighted the average with the cost of debt to obtain a WACC of 10.6%. Li now has a free cash flow margin of more than 20%. It is still unclear, though, if the company can continue to maintain its high level of free cash flow margin. I made the long-term free cash flow margin assumption of 10% as a result. With a 1% market share in the Chinese auto industry, the company is concentrating on customers who spend more than RMB250k, or around 35% of the total market. Therefore, I made the assumption that the company might expand in this high-end sector and reach 10% market share, or around 3.5% of the entire Chinese vehicle market, with an average selling price of RMB 250k during a ten-year period. Given that Li's other models, aside Mega, are still quite popular and that Li's revenues are expected to expand by 52% and 37% in 2024 and 2025, this is not a very aggressive CAGR of 7.7%. As of December 2023, the company had -13.3 billion in net debt and 1.05 billion shares outstanding. I also estimate a terminal growth rate of 3% to account for inflation. This results in 49.2 per share, which is 88% more than the current price. Sensitivity Analysis Author Sensitivity analysis also suggests there are great margins of safety, even if we used more conservative assumptions. The DCF valuation lowered to 38.6 per share, or 47% over the current price, even with a higher WACC of 14%. Or with a 5% free cash flow margin assumption, the DCF valuation of 37.7 per share is still 44% above the current market level. Hence, from the multiple analysis and DCF analysis above, Li's valuation appeared to be reasonable after taking into account the growth potential. Risk Economic And Market Challenges Due to the real estate sector's continued drag on the economy, China's economy continues to face challenges. In Q1 2024, foreign direct investment into China fell by 56 percent. Investors still remained pessimistic. However, the most recent CPI statistics indicated that Chinese consumers' purchasing power is improving. April saw increases in the China CPI of 0.1% mom and 0.3% yoy. In April, sales of auto units increased by 9% overall and 16% for SUVs. It implies that SUV segmentation might not have plateaued yet. As a result, investors may have underestimated how competitive the new energy segment is. Therefore, the timing of Li's launch of the L6 might not be too bad. Conclusion  Investors were concerned about the slowdown in China's new energy vehicle market. This caused a massive selloff in the industry. Li's selloff was also influenced by its Mega's misstep. Li, in my opinion, still has a competitive advantage and a moat that will allow it to compete in the market over time. Clearly, the company still has room to expand in China. A wise investor would add to their holdings in this name.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.27.0","shortVersion":"4.27.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2435642488"}