To The Moon

U.S. listed Chinese electric vehicle majorLi Auto stock$Li Auto(LI)$ is faring much better than the broader electric vehicle space this year. While Li stock hasn’t been immune to the broader sell-off in growth stocks, with its stock declining by about 15% year-to-date, roughly in line with the broader Nasdaq-100, Tesla stock is down by over 21% while rival Nio remains down by over 40%. In fact, the stock remained roughly flat year-to-date, as of early last week, before disappointing commentary from EV upstarts Rivian and Lucid resulted in a sell-off. So what are some of the recent developments that are driving Li Auto stock, and will it continue to outperform its EV peers?

Li Auto’s delivery growth remains quite strong as the company took the top spot in the Chinese EV market for February 2022, with deliveries growing by about 265% year-over-year to 8,414, although this marks a month-over-month decline, due to the Chinese lunar new year holiday. In comparison, rivals Nio and Xpeng delivered 6,131 and 6,225 vehicles, respectively. Growth is likely to remain strong for the full year as well, with consensus estimates pegging the company’s revenue growth at over 85% for 2022.

Li’s focus on a single, highly differentiated model- namely the Li-One SUV is also viewed as an advantage for the company. The Li-One is an electric vehicle that has a small gasoline engine that generates additional electric power and extends range, making it a popular option for customers who are apprehensive about the transition to EVs. Li Auto also has thicker margins compared to rivals, likely due to higher economies of scale from the single model. For example, over Q4 2021, the company’s vehicle gross margin stood at a little over 22%, up from 21% in Q3. In comparison, rival Nio posted margins of about 18% in Q3 2021 (Nio has yet to report Q4 numbers), likely due to the fact that it has three models on sale currently and has been delivering fewer vehicles recently compared to Li Auto. In fact, Li turned an adjusted net profit of about $107 million for Q4 2021, with its free cash flows standing at over $250 million, compared to its other two U.S.-listed rivals which remained loss-making as of their most recent quarterly reports. Although Li has new vehicles in the pipeline, it’s possible that its simple lineup could help the company in the interim, as inflation has been surging with component supply issues remaining a concern.

So will the company continue to outperform the broader EV group? It’s not clear. While Li auto traded at a discount compared to Nio and Xpeng in 2020 and through parts of 2021, the stock is now valued at about 4x projected sales, compared to Nio which trades at just about 3x. While Li’s recent profitability and high growth partly justify this premium, the current market volatility and pivot from growth stocks could present a risk for the company.

Source: Nasdaq