Chinese luxury electric vehicle maker Li Auto reported strong sales numbers for the month of March, delivering 28,984 vehicles, a 39.2% year-over-year increase. This growth was driven by the popularity of the company’s extended-range electric vehicle models and an expanding retail footprint. In comparison, rivals Xpeng and Nio also saw increases in sales, with Xpeng delivering 9,026 cars and Nio delivering 11,866 vehicles in March. Li’s sales for the first quarter of the year surpassed its guidance range, totaling 80,400 vehicles, representing a 50% increase from the previous year.
Despite strong sales numbers, Li Auto’s stock performance has been relatively stagnant, moving from around $30 in early January 2021 to a similar level currently. The stock has experienced volatile returns, with a 11% increase in 2021, a -36% decrease in 2022, and an 83% increase in 2023. In comparison, the S&P 500 has seen returns of 27% in 2021, -19% in 2022, and 24% in 2023. This underperformance against the index has been a challenge for many individual stocks in recent years, including heavyweights in the Consumer Discretionary sector. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500.
There are concerns about global EV demand, with mainstream automakers such as Mercedes-Benz scaling back on their electrification goals. While the Chinese EV market is expected to see double-digit growth, competition and price wars are intensifying. Despite these challenges, Li Auto’s highly differentiated vehicles have given it an edge in the market. The company has seen improvement in its margins, with automotive gross margins reaching 22.7% in Q4 2023. Li has launched new models, such as the MEGA electric van and the upcoming Li Auto L6 SUV, to defend its position and drive growth.
Li Auto currently trades at around $31 per share, with a valuation of 16x consensus 2024 earnings and 12x 2025 earnings. This valuation is considered reasonable considering the company’s projected revenue growth of over 60% this year and over 30% next year. Li’s focus on expanding its retail footprint and launching new models is expected to drive future growth. Comparisons with rivals Nio and Xpeng show that Li Auto’s performance is competitive in the Chinese EV market.
Overall, Li Auto’s strong sales numbers and strategic initiatives to launch new models and expand its retail presence are positioning the company for continued growth in the competitive Chinese EV market. Despite challenges in the global EV industry, Li’s differentiated offerings and improving margins give it a competitive edge. Investors will be closely watching the company’s performance and market response in the coming months to gauge its potential for future success.
