Li Auto: Strong Value Proposition Amid Mixed Q1’24 Results

Overview

Li Auto (NASDAQ: LI), a prominent Chinese electric vehicle (EV) manufacturer, delivered mixed results for the first fiscal quarter of 2024. Despite missing consensus top and bottom-line estimates, the company demonstrated strong delivery growth and maintained profitability. This analysis examines Li Auto’s recent performance, competitive positioning, and valuation, arguing that it remains a compelling investment for long-term EV investors.

Q1’24 Performance

• Revenue and Earnings: Li Auto reported adjusted earnings of $0.17 per share on revenues of $3.54 billion, both below consensus estimates. However, vehicle sales reached 24.3 billion Chinese Yuan ($3.4 billion), marking a 32.3% year-over-year increase.
• Vehicle Margins: The company experienced a sequential decline in vehicle margins, dropping 3.4 percentage points to 19.3%. Despite this decline, Li Auto’s margins remain significantly higher than its competitors, with XPeng reporting a vehicle margin of only 5.5%.
• Profitability: Li Auto is notable for being profitable, a distinction that sets it apart from other Chinese EV manufacturers like XPeng and NIO.

Competitive Positioning

Li Auto continues to outclass its competition in several key areas:

• Delivery Growth: The company leads in delivery volume, significantly outpacing XPeng and NIO. For Q2’24, Li Auto has guided for 105,000 to 110,000 EV deliveries, representing a potential year-over-year growth rate of up to 27.1%.
• Production Efficiency: Li Auto’s efficient production and high factory output contribute to its superior vehicle margins and overall financial performance.
• Market Leadership: With a robust gross profit and leading gross margins, Li Auto is positioned as the market leader among Chinese EV startups.

Valuation

From a valuation perspective, Li Auto offers attractive metrics:

• Price-to-Revenue Ratio: The company is currently valued at a price-to-revenue ratio of 0.63x, which is lower than NIO’s 0.75x and XPeng’s 0.78x. This suggests that Li Auto is undervalued relative to its peers.
• Potential Revaluation: Given its profitability, delivery growth, and efficient production, Li Auto could justify a higher price-to-sales ratio. The analysis suggests a fair value P/S ratio of 2.0x, implying a potential share price of $65.

Risks

The primary risk for Li Auto is the potential deterioration of its vehicle margins. Given that the company leads its sector in this metric, any negative trend could significantly impact investor sentiment. Additionally, falling behind competitors in terms of delivery growth could alter the bullish thesis.

Conclusion

Despite a mixed earnings report for Q1’24, Li Auto remains a strong contender in the Chinese EV market. The company’s impressive delivery growth, profitability, and efficient production processes make it a valuable investment. With a promising outlook for Q2’24 and a compelling valuation, Li Auto represents the best value among Chinese EV startups for long-term investors.