Tuesday is shaping up to be a good day to own electric vehicle (EV) stocks, as good news for China's Li Auto (LI +1.72%) helped to lift shares of heavily shorted American EV stocks Fisker (FSR +0.00%) and Lucid Group (LCID 0.56%).
Despite falling vehicle prices and well-publicized problems with EV demand around the world, Deutsche Bank announced it is upgrading Li Auto stock to a buy today, assigning a $41 price target that implies the shares could rise 34% this year.
Li Auto stock was up 9.3% at 11:15 a.m. today; Fisker was gaining 5.6% and Lucid, 3.9%.
NASDAQ: LI
Key Data Points
What Deutsche Bank said about Li Auto
Li Auto's January delivery numbers showed that sales more than doubled to 31,165 EVs for the month, and CEO Xiang Li predicted 2024 will be a year of "unprecedented" growth as the company grows its stable of models to four extended-range electric vehicles (what we call hybrids in the U.S.) and four pure battery-electric vehicles.
The company said it's also building out both its sales and service networks, with 800 retail stores and more than 500 authorized body and paint shops in China by the end of this year. Its charging network, with 330 supercharging stations already, is also growing.
In today's note, covered on StreetInsider.com, Deutsche Bank said that Li Auto is distinguishing itself with its "best in class" management team and by beating "ambitious targets on volume and costs." The German bank predicts that volumes and profit margins will exceed expectations in the second quarter.
Is good news for Li Auto good news for Fisker and Lucid, too?
If the bank is right, this would seem to run counter to the idea that business looks universally bad for EV companies around the globe. And just the potential that this negative narrative might change could be why heavily shorted stocks Lucid (short interest: 11%) and Fisker (short interest: 49.5%) could be moving today. Investors could be covering their bets to avoid a coming short squeeze.
Another possible reason: Fisker announced today that it has started a series of three over-the-air software updates to improve the performance of its Fisker Ocean electric SUVs.
That being said, investors need to be aware that not all EV companies are created equal, and there's a good reason Deutsche Bank is recommending Li Auto in particular today while saying nothing specific about either Fisker or Lucid.
With nearly $880 million in trailing earnings and nearly $4.5 billion in trailing free cash flow, Li Auto is clearly well ahead of Fisker and Lucid, both of which are unprofitable and burning cash. And neither are expected to produce even adjusted profits before 2027 at the earliest, according to S&P Global Market Intelligence estimates.
At a valuation of barely 6 times free cash flow today, and with earnings under generally accepted accounting principles (GAAP) expected to nearly triple over the next two years, there's good reason to be optimistic about Li Auto stock. But for Fisker and Lucid, not so much.
