Electric vehicle pioneer Tesla's (NASDAQ: TSLA) rocky first-quarter earnings report has some investors looking for other places to put their money in the EV space. Despite some recent challenges, Li Auto (LI -1.69%) offers a compelling alternative.
Li's stock was flying high after great earnings report in February, but then its Mega model tanked and the stock plummeted after the company slashed Q1 2024 delivery guidance.
With aggressive internal goals of 8,000 units per month, the Mega was intended to be Li's first attempt at an EV play to draw in new customers. However, consumers weren't buying and orders were far below expectations. CEO Li Xiang sent out an internal memo in March admitting the company misjudged the market. He acknowledged that the new EV strategy was a misstep and that Li needs to refocus on delivering value and a quality user experience.
Investor confidence isn't very bullish either. Even Wang Xing, the Meituan founder who was a major Li Auto investor, recently sold off more shares for over $500 million HKD. Moves like that are frightening investors.
What the market is missing
There are still reasons to be bullish on the company for the long term. Its unit economics are impressive -- 23% gross margin and higher profits per vehicle than giants like Tesla and BYD Auto. Despite the Mega flop, Li Auto also excels when it comes to precision product design and positioning. Its extended-range electric vehicle (EREV) tech is a game-changer. The firm has been focused on nailing the family vehicle category, from the Li ONE to the L7, L8, and L9. For example, its L7 can reach 821 miles on a single charge. These EREVs are hitting the sweet spot for Chinese buyers who can't install home chargers or don't want the hassle of constantly plugging in.
Today, the company announced that it delivered 25,787 vehicles in April, up 0.4% from the prior year. The cumulative deliveries of Li Auto vehicles reached 739,551 as of the end of April.
Li recently unveiled the L6, its least expensive EREV. Investors who were skeptical of the Mega may feel more confident in Li's positioning in the market as a result of this action. This model gets up to 864 miles of range, but it's a bit smaller and more affordable at just 250,000 RMB ($34,000). The model is aimed at undercutting mainstream SUV models in China, and it's already a hit with over 10,000 bookings just 72 hours after launch.
Hybrids taking over China
Chinese consumers are embracing plug-in hybrid and extended-range electric vehicles. These nifty rides, which combine gas engines and electric motors., now make up 30.6% of all new energy passenger cars sold in the country, according to ResearchChina.
Li Auto is just getting started. With just a 2% market share at the moment, it has plenty of space to develop in China. Just look at its 2023 numbers -- record deliveries of 376,030 units (up 182% year-over-year), revenue of $17.5 billion (up 173.5% year-over-year), and net profit of $1.7 billion.
In addition, it boasted more than $14.6 billion in cash reserves as of late 2023. The profitable business model and sound balance sheet should help it thrive. If there's a big EV shake-up in China, Li Auto should be one of the last ones standing. Li Auto should be considered by investors who are interested in investing in the electric car sector.
