Li Auto Prepares to Make EV Investing Cool Again as New Innovations Bring Investor Optimism

Published on
11-01-2024
Author
Aisys
Category
Makers
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Recent months have posed a challenge for EV stocks as the generative AI boom has seen more investor interest funneled into artificial intelligence. But this may be about to change as Chinese EV manufacturer Li Auto prepares to launch one of the industry’s most advanced vehicles.


Li Auto’s market movements have won over many admirers, one of which is Goldman Sachs, with the investment bank forecasting an astonishing 52.9% potential upside for the firm’s stock [NASDAQ: LI/HK: 2015] over the year ahead.


Goldman’s ‘Buy’ rating for Li Auto comes with a price target of $52.90 and signifies exponential growth for a stock that had momentarily sunk below $15 as recently as October 2022.

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Li Auto’s stock has struggled for momentum in recent years, but with the recent announcement that the manufacturer expects to launch and begin deliveries of its first fully electric car, the MEGA, in March, investor optimism has grown surrounding the stock.


The MEGA multi-purpose vehicle (MPV) will be available for an estimated price of under 600,000 yuan, which equates to around $84,533.24 at the time of writing.


Furthermore, Li Auto has confirmed that the MEGA will be the first model produced at the firm’s Beijing facility, which has a design capacity of 100,000 units per year.


While EV stocks and the credentials of ESG firms have struggled to impress on global markets throughout 2023 amidst wider investor interest in the burgeoning generative AI landscape, the launch of the MEGA may stand as a watershed moment for the industry.

Could the MEGA Galvanize EV Investing?

On Wall Street, EV stocks have struggled to find momentum for some time. This can be seen in the underperformance of clean energy ETFs throughout different US markets.


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The First Trust NASDAQ Clean Edge Green Energy Index [NASDAQ: QCLN] suffered severe pullbacks in Q3 2023, representing a widespread lack of buoyancy that has been punctuated by fierce economic headwinds emerging from historically high inflation, consecutive base rate hikes, and geopolitical conflict.


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Similarly to QCLN, the VanEck Low Carbon Energy ETF [NYSEARCA: SMOG], in which Li Auto makes up 5.79% of its weight, has struggled following a sharp Q3 downturn last year.


It’s for this reason that a great emphasis has been placed on the successful launch of Li Auto’s MEGA EV, owing to its next-generation specifications and underlying technology.


“Li Auto commenced serial production and delivery of its first electric vehicle, the MEGA, equipped with cutting-edge CATL Qilin batteries providing a 500 km range on a 12-minute charge,” explained Maxim Manturov, head of investment research at Freedom Finance Europe. “With over 10,000 pre-orders, Li Auto aims to surpass sales of BMW, Mercedes-Benz, and Audi in China by 2024.”


“As a major competitor to Tesla in China, Li Auto's foray into fully electric vehicles, particularly the family-oriented Li Mega, targets the growing Chinese automotive sector.”


The key hope for the electric vehicle industry is that Li Auto’s MPV sparks fresh life in a Chinese EV market that’s suffered from an underwhelming year, where some manufacturers have been forced into price cuts to sustain sales growth.


Despite this, EV sales in mainland China are expected to grow 20% year on year in 2024, according to a recent Fitch Ratings report, albeit this would represent a slowdown from the 30% increase that was projected in 2023.

Fundamentals Point to Strong Potential

Li Auto’s impressive fundamentals certainly underline the firm’s potential in driving an EV revolution with its new vehicles and industry-leading batteries.


Crucially, Li’s past five years' average earnings growth stands at 57.6%, signifying exceptional levels of momentum that are more than double the average industry growth over the same time frame, which stands at 23.9%.


Average earnings growth is a strong metric when it comes to determining the value of a stock, and given that LI’s stock market growth stands at around 122% over the past five years, it’s worth considering whether the firm’s impressive growth is yet to be factored into its overall stock value.


Another key consideration when exploring Li Auto’s fundamentals is that the firm pays no dividends to its shareholders. While dividends-paying companies make for attractive stocks, it means that Li has been in a position to reinvest all of its profits back into the business.


Theoretically, this reinvestment could help to leverage stronger commitments to innovation and the potential to grow at a stronger and more sustainable rate.

Reasons to be Wary

At this stage, it’s important to highlight that the performance of Li Auto in 2024 is likely to hinge on the successful launch of its flagship MEGA EV and for there to be no complications in the vehicle or its technology that could undermine the stock.


Given that the MEGA was initially due for a December 2023 launch, the postponement of the MEGA’s launch to March 2024 may offer a hint of a snag in the production process of the EV. Furthermore, Li Auto gave no reasons for the delay.


Although delays are relatively common when it comes to next-generation technology launches, any further setbacks may adversely affect the performance of Li Auto’s stock and undermine investor confidence.


However, Li’s impressive fundamentals suggest that the company is generally reliable when it comes to meeting consumer and client expectations.

Will Li Revive the EV Market?

The beauty of the EV market is that it’s an industry that’s continually providing more powerful and sustainable solutions to fossil fuel usage that’s set to become more pertinent in years to come.


The introduction of Li’s CATL Qilin batteries, offering a 500km range from a 12-minute charge, is a major innovation that’s likely to provide a major boost to the industry’s issues with EV battery life.


However, with China’s economy weakening and global consumer spending power continuing to struggle amid high inflation and lingering interest rates, the successful launch of the MEGA may be more dependent on a more widespread global economic recovery.


Whether or not Li Auto has the power to galvanize the EV market remains to be seen, but the successful launch of the MEGA is likely to be a watershed moment for a constantly growing industry and a firm that has plenty to offer consumers and investors alike over the long term.

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