Why Li Auto Stock Is Outperforming Nio And Xpeng

Why Li Auto Stock Is Outperforming Nio And Xpeng

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YANTAI, CHINA - MAY 6, 2023 - An Li Auto electric car is displayed at a shopping mall in Yantai, ... [+] East China's Shandong province, May 6, 2023. According to the data released by China Association of Automobile Manufacturers, from January to March of 2023, the production and sales of new energy vehicles in China reached 1.65 million and 1.586 million, respectively, with year-on-year growth of 27.7% and 26.2%, accounting for 26.1% of the market share. (Photo credit should read CFOTO/Future Publishing via Getty Images)

Future Publishing via Getty Images

Chinese electric vehicle maker Li Auto stock has outperformed its rivals, rising about 3% over the last 12 months. In comparison, Tesla stock is down by about 8% while Nio has lost about 60% of its value and Xpeng remains down by over 65%. Li’s delivery performance has been exceedingly strong. For the month of May, the company delivered 28,277 cars, up by about 146% versus last year. This compares with Nio which delivered about 6,155 vehicles and Xpeng which delivered 7,506 vehicles for the month. This also marks the third consecutive month that Li’s deliveries have topped the 20,000 mark. Li has been benefiting from a strong uptake of its vehicles, which sport electric drivetrains along with a gasoline-powered range extender generator that reduces range anxiety. While the company had only one vehicle model until 2022, it has since launched three vehicles including Li L9, a luxury full-size crossover SUV, the Li L8, a luxury mid-size crossover, and the newer L7 vehicle. These new vehicles are helping to drive up demand and cater to a larger customer base. The company is also looking pretty strong financially. Over Q1 2023, Li turned a net profit of about $136 million, compared to a loss in the year-ago period. The company also has a cash position of $9.5 billion, compared to about $1.7 billion in debt. Li’s outlook is also robust, targeting Q2 deliveries of about 78,500 units, marking a sequential increase of 48% over Q1.

Expert Analysis: Why Is Li Outperforming its Competitors?

Li Auto's outstanding performance can be attributed to a combination of factors that differentiate it from its competitors, Nio and Xpeng.

Product Range and Innovativeness

Li Auto has taken strategic steps in launching innovative vehicle models that resonate well with the market. Unlike its peers, Li combines electric drivetrains with gasoline-powered range extenders to address consumer concerns about range anxiety. This hybrid approach has proven to be highly successful.

Financial Stability

Li Auto’s financial health further sets it apart. The company's profitability over Q1 2023, recording a net profit of about $136 million, alongside a robust cash position of $9.5 billion versus a relatively low debt level of $1.7 billion, puts it in a favorable position to invest in growth and innovation.

Investors also find confidence in Li’s robust delivery targets and actual performance. For instance, the targeted Q2 deliveries of about 78,500 units, marking a sequential increase of 48% over Q1, is reflective of its growing market demand.

So, is Li Auto stock poised to rally from here or is it looking overvalued versus its peers? Li currently trades at just about $30 per share, about 25% off its all-time highs seen in June 2022. In relative terms, the stock presently trades at just about 2x estimated 2023 revenues. Although this is well ahead of Chinese rivals such as Nio and Xpeng which trade at under 1.5x forward revenues, we think that this is justified by Li’s superior growth and profitability. See our analysis of Nio, Xpeng & Li Auto: How Do Chinese EV Stocks Compare? for a detailed look at how Li Auto stock compares with its rivals Nio and Xpeng.

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