The Chinese luxury electric vehicle market is showing signs of growth, with Li Auto delivering 47,774 vehicles in June 2024, marking a 46.7% increase compared to the previous year. The company attributes this growth to strong demand for its lower-priced Li L6 model, which accounted for 40% of total unit sales in June. Li also reduced prices for several models earlier in the quarter, potentially contributing to the increase in volumes. However, other models such as the Li L7, Li L8, and Li L9 may have seen a slight slowdown in growth. In comparison, rival Nio delivered 21,209 vehicles, while Xpeng delivered 10,668 EVs, both showing year-over-year growth.
Despite the recent growth in deliveries, Li Auto’s stock has experienced a sharp decline of 35% from early January 2021 to around $20 currently. The stock underperformed the S&P 500 in 2021 and 2022, but outperformed in 2023. Consistently beating the S&P 500 has been challenging for individual stocks in recent years, even for major players in the Consumer Discretionary sector. In contrast, the Trefis High Quality Portfolio has outperformed the S&P 500 each year over the same period, providing better returns with less risk.
There are concerns about global EV demand, with mainstream automakers scaling back on their EV investment plans due to cooling demand. However, the Chinese EV market continues to show promise. China recently introduced new incentives for consumers to trade in older gasoline cars for electric and low-emission vehicles, and there is a trend of premiumization in the market with cars costing over $30,000 accounting for a growing share of sales. Li Auto competes exclusively in the premium segment, which could work in its favor. Additionally, the company’s differentiated products, featuring a range-extending generator, give it a competitive edge in the crowded EV space.
Li Auto’s stock currently trades at around $18 per share, with a valuation of 14x consensus 2024 earnings and 10x 2025 earnings. This valuation is considered reasonable, considering the projected revenue growth of over 15% this year and over 35% next year. The company’s unique product offerings and positioning in the premium end of the market could help it continue to perform well in the evolving Chinese EV market. For a more detailed comparison with rivals Nio and Xpeng, investors can refer to the analysis on how Chinese EV stocks stack up against each other.
