Li Auto: Business Performing Better than Stock Price

Li Auto (LI) is a powerful contender in the Chinese Electric Vehicle (EV) market. The company’s revenue from vehicle sales has increased significantly over the last year, and demand for its Li One EV SUV remains high.

Li Auto is expanding its current operations and looking towards the future of autonomous driving. I rate the company as bullish and expect the company’s valuation to grow.

The Li One SUV

The company’s Li One is a smart electric six-seater SUV. It is one of the top selling and performing in its class. The vehicle has the second-longest EV range of all plug-in hybrid electric vehicles (PHEV). The Li One is an extended-range electric vehicle (EREV), and the company plans to release a line of battery electric vehicles (BEV) in the future.

The current model has Level Two autonomous driving equipped with hardware to support Level Four. The current model can travel 497 miles on one charge with help from its gasoline-powered battery charging engine.

The company manufactures the Li One SUVs at a manufacturing plant in Changzhou. Li Auto recently bought the company which controlled its lease in Changzhou, giving it greater control of the factory site.

LI is in the process of building another manufacturing site in Beijing to be completed in 2023. It plans to produce its second model at this site. Li Auto has 153 retail stores covering 85 cities throughout China and 223 service centers. The company has authorized paint and body shops in 165 cities.

Q3 2021 Financial Performance

The company’s Q3 2021 report shows high demand for its Li One SUVs, and this demand is expected to increase. Li Auto reported total revenues of $1.21 billion, representing a 209.7% increase from the previous year’s quarter and a 54.3% increase from last quarter. Q3 2021 vehicle deliveries amounted to 25,116, a 190% year-over-year increase. Vehicle sales made up $1.15 billion for the quarter.

Gross profit was $281.1 million, representing a 264.8% increase year-over-year and a 90.2% increase sequentially. Net loss was $3.3 million, decreasing 79.9% year-over-year. The loss was attributed to rental/leasing fees associated with vehicle deliveries. The company’s current free cash flow is $180.8 million.

The company announced that it delivered 13,485 Li One SUVs during November, significantly higher than its October deliveries of 7,649 vehicles. The company estimates that Q4 2021 vehicle deliveries will be between 30,000 and 32,000, and it is on track to hit these numbers. The Q4 2021 revenue estimate is $1.37 billion.

Wall Street’s Take

According to Wall Street, Li Auto has a Strong Buy consensus rating, based on eight Buys assigned in the past three months. The average Li Auto price target is $49.99, which implies 68.9% upside potential.

Conclusion

Li Auto is profiting from high demand for its Li One EV smart SUV. The company has experienced an over 200% increase in revenue compared to last year’s quarter.

Li Auto plans to deliver around 30,000 vehicles during Q4 2021, and it is on track to hit the estimate. The company’s Li One smart SUV is a best seller and top performer in its class. Li Auto has plans to make additional models and expand its manufacturing base.

The company foresees a BEV line in the future as well as the normalization of Level Four autonomous driving. EV stocks such as Li Auto, NIO Inc. (NIO), and others have not performed too well over the last twelve months. However, I expect LI’s performance to continue to meet expectations. Therefore, I rate the company as bullish.

Disclosure: At the time of publication, Alan Sumler was long Li Auto.