Li Auto (NASDAQ:LI) is one of several Chinese electric vehicle startups with a U.S. stock market listing on a major exchange. Alongside LI stock are Nio (NYSE:NIO) and Xpeng (NYSE:XPEV). U.S. investors follow all three.
Yet while some looking to capitalize on EV adoption in China may want to spread their bets around, by buying all three, it may be best to make LI your sole source for exposure to this trend.
There are several reasons for this. For one, despite the current challenges in what is the world’s largest EV market, this company has continued reporting solid delivery numbers. In addition, executing at a high level today, it appears poised to live up to expectations for the rest of 2023.
With this, let’s take a closer look, and see why this is the strongest opportunity in the space.
| LI | Li Auto | $24.58 |
Thriving Despite the Challenges
With the end of China’s EV subsidies at the end of 2022, the emergence of a price war initiated by Tesla (NASDAQ:TSLA), and the Chinese post-Covid economic recovery taking longer than expected, it’s clear that there are plenty of challenges for locally based Chinese EV companies.
That’s a clear takeaway, from the latest delivery numbers from both Nio (NYSE:NIO) and Xpeng (XPEV). As I discussed recently, Nio’s monthly delivery numbers have been underwhelming. Xpeng has also reported poor numbers and has been candid about the impact of weak consumer demand on near-term results.
But despite this challenging environment, Li Auto has kept thriving. Last month, the company delivered 20,823 vehicles, representing an 88.7% increase compared to the prior year’s month. Deliveries for the full quarter ending March 31, 2023 came in at 52,584, representing 65.8% year-over-year growth.
The launch of the Li L7 luxury electric SUV was a successful one, playing a key role in these strong delivery numbers. Li is now gearing up to launch two new models. That bodes well for LI stock, even as the market appears to not be too excited about the latest numbers.
What Could Drive a Sentiment Shift
Pulling back slightly following the Q1 2023/March 2023 delivery numbers release, you may think that there was a negative aspect to Li Auto’s deliveries report. To some extent, there was. Li’s results were stronger compared to the numbers comparable names have reported lately,
However, the company’s Q1 sales came at the low end of its own forecast for the quarter (between 52,000 and 55,000 vehicles). Also, another factor that is perhaps eliciting a less positive reaction among investors with LI stock may be the high levels of uncertainty surrounding the space.
Although Li may be seemingly “crushing it,” industry forecasts still call for EV sales growth in China to decelerate this year. Even if consumer demand remains challenged, the company’s launch this month of the L7 Air and the L8 Air could end up being as similarly-successful as the L7 launch in February.
Targeting a larger potential pool of buyers, with lower starting prices, Li may have an easier time finding sufficient demand. If this pans out, Li could continue delivering strong delivery numbers throughout the year. This could increase investor confidence that the company will meet/beat earnings expectations.
Bottom Line
Assuming that the company lives up to growth expectations, sell-side analysts forecast Li Auto will report positive earnings for the full year 2023. Although LI shares trade at a high multiple (66.1) to these estimates, there is also the expectation that earnings will rise exponentially, as a high level of growth continues in the years ahead.
In contrast, Nio and Xpeng are both expected to lose money in 2023 and 2024. While Nio has been talking up its potential to more than double sales this year, its history of over-promising and under-delivering calls this into question.
Li, on the other hand, has demonstrated that it can deliver, giving more credence to future estimates.
While the story could always change, for now, skip out on NIO and XPEV, and make LI stock your only China EV wager.
LI stock earns a B rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.