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LI: Is Li Auto a better stock to invest in for 2023?

Li Auto (NASDAQ: LI) is a Chinese electric vehicle (EV) company that has gained attention from investors due to its strong performance in the first half of 2022. The company has seen its stock price rise sharply in June 2022, driven by above-expectations deliveries and initial orders for the Li L9 SUV. Additionally, Li Auto has announced plans to invest in research and development for next-generation EV technology, indicating the company’s commitment to its long-term growth. In this article, we will discuss Li Auto’s recent earnings and delivery report, analyze investor sentiment towards the company, and compare Li Auto to its Chinese EV peers, NIO Inc. (NYSE:NIO) and XPeng Inc. (XPEV).

Li Auto’s June 2022 Share Price Performance

In June 2022, Li Auto’s share price surged by +48.2%, significantly outperforming the S&P 500’s -6.6% decline and the respective stock price increases of +21.6% and +32.2% for NIO and XPeng respectively. Li Auto’s share price outperformance was largely driven by stronger-than-expected deliveries and the better-than-expected response to the launch of the Li L9. On June 1, 2022, Li Auto reported that the company’s deliveries expanded by +165.9% year-over-year and +175.9% month-over-month to 11,496 units in May 2022. This was significantly better than the respective YoY and MoM growth of +78.0% and +12.5% achieved by XPeng, and the +4.7% YoY and +38.4% MoM growth achieved by NIO. Additionally, Li Auto revealed in a June 24, 2022 press release that “the orders for Li L9” had surpassed “30,000 in 72 hours since the vehicle was available for reservation” on June 21, 2022. This strong performance in the second quarter of 2022 has enabled Li Auto to exceed its own guidance of deliveries between 21,000 units and 24,000 units for the quarter.

Wall Street’s Consensus Target Price for Li Auto

As a result of its share price surge in June, it is worthwhile to review Wall Street’s consensus target price for Li Auto’s stock. The current mean sell-side target price for LI is $43.42, which implies a +15% upside as compared to Li Auto’s last done share price of $37.70 as of July 1, 2022. The median Wall Street price target for Li Auto as per S&P Capital IQ is an even lower $41.60 that translates into a mere +10% upside.

Valuations Comparison

When compared to its Chinese EV peers, Li Auto trades at a premium based on the forward price-to-sales and enterprise value-to-revenue multiples. This is justified by Li Auto’s relatively superior consensus top line expansion and gross profit margins.

Future Prospects

In terms of the company’s future prospects, Li Auto’s sales momentum for the Li ONE is strong, while the initial response to the new Li L9 has been good. Going forward, Li Auto could face some issues if either its EREV technologies or its focus on SUVs fall out of favor with buyers. To mitigate such risks, Li Auto has already announced plans to invest in research and development for next-generation EV technology and the company has also indicated that it intends to introduce BEVs (Battery Electric Vehicles).

Investor Sentiment

Overall, investor sentiment towards Li Auto is positive, as evidenced by the strong share price performance and the above-average consensus target price. Investors are attracted to Li Auto’s strong performance in the EV sector, as well as its commitment to developing new EV technologies and introducing BEVs to its lineup.

Why Nio (NIO) is a better bet on Chinese EVs

When compared to Li Auto, NIO is a better investment for several reasons. Firstly, NIO has a much larger customer base compared to Li Auto, and the company has seen its YoY and MoM deliveries grow by +68.6% and +76.0% in May 2022 respectively. Secondly, NIO has a larger product lineup compared to Li Auto, which includes sedans, SUVs and MPVs (Multi-Purpose Vehicles). This gives NIO a larger addressable market compared to Li Auto, which is currently very much focused on SUVs and EREV products. Finally, NIO has a much lower consensus sell-side price target compared to Li Auto, suggesting that there is more upside potential in NIO’s stock.

In conclusion, Li Auto is a strong investment option due to its strong performance in the first half of 2022 and its plans to invest in next-generation EV.

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