Rising COVID-19 cases in China have concerned investors across the world. China is a key market for electric vehicles, accounting for more than half of global EV sales.
However, alleviating the concerns, Chinese EV makers posted strong delivery numbers for December. Li Auto (LI -10.06%) delivered 21,233 vehicles in December, in line with its expectations. Li's deliveries for the month grew 50.7% year over year.
The EV maker looks set to establish itself as a leading player in the EV market. Let's discuss the top three reasons why its stock looks a buy in 2023.
1. Growing deliveries
Li Auto, which started volume production in November 2019, has delivered 257,334 vehicles so far. That's an impressive ramp-up for a young EV company. In 2022, Li Auto's annual deliveries grew by 47%. Sales of Li's two top models -- the Li L9 (six-seat flagship SUV) and Li L8 (six-seat premium SUV) -- each exceeded 10,000 units in December.
Data source: Li Auto. Chart by author.
Li Auto's revenue grew in line with the growth in the company's deliveries. The company still incurs bottom-line losses, but that's expected from a young EV maker.
LI Revenue (TTM) data by YCharts
Li Auto could turn profitable once it ramps up its deliveries and initial capital and R&D investments are largely over.
2. A massive market, with favorable government policies
Global EV sales are expected to cross the 10 million mark in 2022. In 2021, China accounted for more than half of global EV sales. So China is the largest, fast-growing market for electric vehicles. The Chinese government aims to have CO2 emissions peak by 2030 and achieve carbon neutrality by 2060. Electrification of transportation will help achieve this goal. However, the bigger reasons for the rapid growth and governmental support for EVs in China are high pollution levels, higher oil and gas prices, and cost-competitiveness of EVs as compared to ICEs.
The government provides subsidies on EV purchases under its New Electric Vehicle (NEV) subsidy program. Introduced in 2017, the NEV credit mandate has been a key driver of EV sales growth in China.
The country has extended exemptions from 5% purchase tax on EVs to the end of 2023. Additionally, there are policies to incentivize the development of EV charging infrastructure.
3. A focus on products and technology
Li Auto successfully commercialized range-extended EVs in China. The company's range-extended vehicle can be recharged using slow charging, fast charging, and refueling, thus completely eliminating range anxiety.
Li invests significantly in vehicle design and engineering, intelligent systems, and autonomous driving technology. It targets the premium SUV segment of the Chinese market and aims to invest in products and technology to differentiate its offerings and make them attractive for the premium market. Additionally, Li Auto plans to launch its first fully battery-electric model in 2023.
Overall, there is a lot to look forward to from Li Auto in the coming years.
