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Why Li Auto Stock Is Surging This Week

By John Rosevear – Aug 26, 2020 at 12:54PM

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Wall Street is taking a closer look at this recently public electric-vehicle specialist. So far, analysts like what they see.

What happened

Shares of Chinese electric-vehicle maker Li Auto (LI -2.54%) were up for the third consecutive session on Wednesday, after two Wall Street banks initiated coverage with bullish ratings. 

As of 12:15 p.m. EDT, Li's American depositary shares were up about 11.7% from Tuesday's closing price, and 35% higher since the end of last week. 

So what

Since Li Auto's first day of trading on July 30, shares of the maker of premium electric SUVs have so far followed the upward path blazed in recent months by domestic rival NIO's stock. Now, Wall Street is taking notice.

Last weekend, Goldman Sachs analyst Fei Fang declared Li Auto a "conviction buy," initiating coverage with a buy rating and assigning a price target of $20.60.

Fang told auto investors that Li is differentiating itself from its Chinese rivals with "compelling" consumer experiences. Its Li One SUV, introduced in November 2019, is "the first step in a larger innovation plan" that could drive its shares significantly higher over time, he wrote. 

A blue Li One, an upscale electric crossover SUV.

The Li One includes an on-board gasoline-fueled generator to recharge its battery on the fly, extending the vehicle's range. That's a useful differentiator in parts of China where high-speed EV chargers are relatively scarce. Image source: Li Auto.

Fang has high expectations for Li Auto's growth: He sees its sales rising sharply, from about 30,000 vehicles this year to 445,000 vehicles in 2025. 

Now what

Fang isn't the only big-bank analyst to see great potential in Li Auto's business. On Monday, Morgan Stanley analyst Tim Hsaio initiated coverage with an overweight rating and a $20 price target. 

Hsaio wrote that the Li One hits "the sweet spot" of China's vehicle market (upscale SUVs) and that its extended-range platform -- which includes an on-board gasoline-fueled generator to recharge the battery, similar to General Motors' original Chevrolet Volt -- will help it differentiate itself, particularly in parts of China where high-speed electric-vehicle chargers aren't yet common.

John Rosevear owns shares of General Motors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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