Li Auto: Sharply Reduced EV Growth Stock (NASDAQ: LI)

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Shares of Chinese electric vehicle startup Li Auto (NASDAQ: LI) fell into a downward trend in 2021. Li Auto became one of the fastest growing Chinese electric vehicle companies and the company overtook XPeng (XPEV) in February in delivery volume . Stock has become too cheap given the revenue opportunities in the EV space and Li Auto still offers exceptional value in the EV space!

Li Auto: one step ahead of its rivals

Delivery volumes in the first two months of the new year fell due to the fall of the Chinese New Year into the sales period. February also has fewer trading days than other months, which explains the sharp drop in shipments for the entire Chinese electric vehicle industry last month. However, Li Auto still performs very well, considering the circumstances.

Li Auto delivered 8,414 Li ONEs in February, showing a 265.8% year-on-year growth. Compared to XPeng (XPEV) and NIO (NIO), Li Auto generated the fastest sales growth. XPeng increased shipments by 180% year over year, while NIO’s growth rate fell to just 9.9%.

Due to Chinese holidays and a shorter trading month (and some COVID-19 related shutdowns in Suzhou), deliveries fell for Li Auto, but not as much as rivals: Li Auto deliveries fell by 31% month-on-month while XPeng saw a drop in shipments of 52% and NIO of 36% over the same period. Li Auto is now the fastest growing electric vehicle company in the industry group and deliveries are likely to resume in March as business returns to normal for China’s electric vehicle industry.

Deliveries

December

Dec growth Y/Y

January

January annual growth

February

February annual growth

LI

14,087

130.0%

12,268

128.1%

8,414

265.8%

XPEV

16,000

181.0%

12,922

115.0%

6,225

180.0%

NIO

10,489

49.7%

9,652

33.6%

6,131

9.9%

(Source: Author)

Prepare for increased deliveries

I expect a significant rebound in deliveries across the board in March, so all three Chinese EV companies should benefit from a recovery in delivery volumes. XPeng will likely resume delivering over 10,000 EVs in the near term, and NIO should also see a rebound towards 10,000 deliveries per month. Li Auto has the best prospects for recovery, however, partly because the company has much simpler production lines as it only produces the Li One sport utility vehicle. Li Auto could deliver 15-20,000 electric vehicles per month in fiscal 2022, and total deliveries could approach 150,000 for the whole year.

Sales growth has become too cheap

I like Li Auto not only because of its impressive delivery ramp, but also because the company is expected to be profitable in 2022, which also puts it ahead of its rivals. Li Auto is expected to post its first-ever profit in fiscal 2022, while NIO and XPeng must wait, based on consensus expectations, at least a year before shareholders can expect to see their first profits.

Additionally, Li Auto continues to deliver cheap sales growth…given the significant market opportunity and high adoption rates of electric vehicles in China. Li Auto is expected to generate revenues of $8.2 billion in fiscal 2022 and $13.6 billion in fiscal 2023, implying revenue growth rates of year-over-year by 91% and 67%. Over the next five years, Li Auto is expected to increase its revenue to $25.0 billion.

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Due to the price decline that EV startups have been subjected to recently, Li Auto’s market cap-to-sales ratio has fallen to just 2.1X…and is down significantly from the realized valuation. months ago.

Graphic
Data by YCharts

Risks with Li Auto

The extent to which Li Auto can increase production in fiscal 2022 depends on the availability of computer chips and other auto parts. Recent Covid-19 outbreaks in China are affecting the supply situation of Li Auto and other electric vehicle makers. For March, I still expect a significant rebound in revenue and shipments, but factory closures and the risk of additional Covid-19 outbreaks pose challenges for the industry. In the longer term, Li Auto is likely to be one of the fastest growing electric vehicle companies in the industry due to its one-product manufacturing approach. What would change my mind about Li Auto is if the company experiences a significant slowdown in revenue growth and deliveries in fiscal 2022 or beyond.

Final Thoughts

Li Auto is a fast-growing electric vehicle company that has outpaced its competitors in recent months. The delivery growth rate of 265.8% in February was fantastic, and Li Auto achieved this rate despite the holiday season, which usually coincides with the drop in sales. For fiscal year 2022, I expect a massive increase in production, assuming the computer chips circulate steadily, and I can see Li Auto delivering nearly 150,000 EVs this year. Due to this massive ramp ahead, I think Li Auto’s sales growth has become too cheap!

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