Shares of Li Auto (LI -2.41%) have been under pressure following a string of weaker-than-expected updates from the Chinese electric vehicle maker.
Deliveries in recent months have disappointed and the company has also moved to cut prices across its lineup following the steps of EV rivals in China. These headlines highlight a challenging industry backdrop with many moving parts.
That being said, there are reasons for investors to look up. Company fundamentals are positive with optimism that the launch of Li Auto's Li L6 model may drive a new wave of growth.
Could this EV leader be a good addition to your portfolio? Here's what you need to know.
Why is Li Auto down 30% year to date?
Li Auto stands with a focus on the premium and luxury segment of electric vehicles, integrating the latest technology and even autonomous driving systems.
For Q1, deliveries totaled 80,400, up 52.9% year over year. While an impressive figure, the result fell short of the company's original guidance, closer to 100k vehicles.
The company has cited "lower-than-expected order intake" for the company's first all-battery electric vehicle (BEV) MEGA model. This new platform marked a departure from the core extended-range electric vehicle (EREV) hybrid technology utilized in the company's other models.
That trend has continued into Q2 with the company reporting 25,787 deliveries in April up just 0.4% from a year ago and down 12% from 28,984 in March.
Li Auto CEO Li Xiang has acknowledged expectations for the BEV opportunity were too high and now wants to refocus the strategy on sustainable growth.
That effort has also included price cuts of around 5% amid an ongoing industry "price war". Companies like Tesla, BYD Auto, NIO, and XPeng have all announced similar pricing adjustments in China as a response to what is seen as a supply glut and intense competition.
Overall, these developments help explain the poor performance of the stock this year.
Li Auto fundamentals remain positive
Despite the series of setbacks this year, investors should consider the big picture.
Li Auto is coming off a record year that has left a high benchmark for comparison. The company delivered 376k vehicles in 2023, up a very strong 182% from 2022.
The initial rollout of the MEGA model may have disappointed, but that doesn't diminish the success of the company's other models including the L7, L8, and L9 which together are the best-selling EREVs in China.
2023 revenue reached RMB 123.9 billion ($17.4 billion), increasing by 173% year over year, benefiting from an integrated business model that includes 467 retail stores and 360 service centers across the country.
Keep in mind that Li Auto is profitable, posting a net income of RMB 11.8 billion ($1.7 billion) over the past year. With a net cash position of more than RMB 79 billion ($11 billion), the balance sheet also represents a strong point in the company's investment profile.
Image source: Getty Images.
Can Li Auto stage a comeback?
The first step for Li Auto to get back on track in 2024 will be to demonstrate that sales have stabilized and can climb again.
The good news is that the latest Li L6 model is seen as a game changer. This five-seat premium SUV is positioned as a more economical option with a base trim starting price of RMB 249,800 (~$34,500) appealing to more buyers. Indications suggest initial orders have been strong with deliveries ramping up this month.
It's also encouraging that macro data out of China has been improving. A recovery in consumer demand could be a tailwind for the broader EV market Li Auto is well-positioned to benefit from.
Is Li Auto a buy today?
Li Auto's upcoming first-quarter earnings report is set to be released on May 20. A strong report with positive guidance could set the stage for shares to rally.
In terms of valuation, Li Auto is trading at approximately 19.5 times forward earnings according to an average of Wall Street estimates. That level is compelling for an industry leader with a growth runway ahead.
Considering the sharp sell-off in recent weeks, the opportunity now is to pick up shares at a discount. It likely won't be a straight line higher, but I expect Li Auto to deliver positive returns over a long-term time horizon.
