Chinese smart electric vehicle (EV) maker Li Auto (NASDAQ: LI), (HKEX: 2015), (DE: L87A) has decided to issue additional American depositary shares (ADS) worth $2 billion through an at-the-market offering.
LI stock sank nearly 7.6% in intraday trading before ending the day down 5.3% at $37.07 on June 28, following the news.
Each ADS of Li Auto represents two Class A shares of the company. The company has engaged the services of Goldman Sachs (Asia) L.L.C., UBS Securities LLC, Barclays Capital Inc., and China International Capital Corporation Hong Kong Securities Limited as sales agents.
The ADSs will be issued on the Nasdaq Global Select Market from time to time at the prevailing market prices to both U.S. investors and outsiders.
The net proceeds from the offering will be used for research and development purposes, manufacturing new models, and for general corporate purposes and working capital requirements.
What Differentiates Li Auto from the Rest?
Li Auto manufactures high-end smart SUVs and has two models to date; Li ONE, a six-seater large premium smart electric SUV, and Li L9, a six-seater full-size, flagship smart SUV targeted at families. The L9 was launched on June 21 and has received a massive response from fans. The company reported that within 72 hours, L9’s orders exceeded 30,000 units. L9 is scheduled for delivery by the end of August 2022.
Li’s differentiating factor is its extended-range electric vehicle (EREV) offering which acts as a generator by converting gas into electrical energy on the go. EREVs solve the problem of poor EV infrastructure, especially in rural areas.
Li Auto also boasts of its in-house autonomous driving system (ADS) called Li AD Max which enables drivers to enjoy hands-free driving with utmost safety. Notably, Li’s EREV portfolio coupled with higher range drivability and relatively cheaper prices makes it a preferable EV for the masses.
Since the pandemic cooled off in the latter part of 2021, LI has consistently outperformed expectations and registered outstanding delivery numbers each month. This, with only the Li ONE model in play. Undoubtedly, with the huge attention which the L9 has garnered, LI is sure to grow its customer base even more rapidly and register massive EV deliveries in the months to come.
China is one of the largest EV markets both in terms of manufacturing and consumption. However, the infrastructure for EV charging still remains in a nascent stage, hampering the wider popularity of EVs in the nation. Nonetheless, strict government norms on fuel emission and tax exemptions on EV purchases have enormously propelled the EV market in China.
As per a Mordor Intelligence report, the Chinese EV market stood at $124.2 billion in 2021 and is expected to grow at a compound annual growth rate (CAGR) of over 30.1% to $799 billion by 2027. However, the persistent chip shortage and supply chain constraints, intermittent lockdowns in several parts owing to the resurgence of COVID-19, and lower disposable income may act as headwinds to the growth.
While Li competes primarily with Nio (NIO) and XPeng (XPEV) in the new energy vehicle (NEV) market, China’s topmost EV manufacturer is BYD Co. (BYDDF) which produces both passenger cars and buses in domestic and international markets.
Analysts Weigh In
The launch of Li Auto’s L9 model has impressed analysts on the Streets, resulting in increased price targets on LI stock and model revisions to incorporate the increased unit sales from the L9 model.
Yesterday, HSBC analyst Yuqian Ding lifted the price target on LI to $47 (23.42% upside potential) from $35, while maintaining a Buy rating.
Ding expects Li Auto to register continued volume momentum from the L9 model starting in Q3. Moreover, the analyst expects the company to launch additional NEV models in 2023 and 2024. Thus, Ding has increased the volume growth estimates to 84% (from 72%) for 2023 and to 94% (from 44%) for 2024.
Similarly, UBS analyst Paul Gong increased the price target on LI to $60 (57.56% upside potential) from $52 and maintained a Buy rating.
Gong noted that UBS has added Li Auto to the UBS APAC Key Call list, on successful order generation post its L9 model launch. Moreover, the analyst believes that LI might be able to beat 10,000-unit sales per month making L9 the highest-priced model in China with the potential for the automaker to launch more models. All in all, Gong is extremely optimistic about Li Auto’s high revenue and margin-generating capability amongst the new EV makers.
The other four analysts also echo a bullish sentiment for LI stock with a Strong Buy consensus rating. The average Li Auto price target of $46.50 implies 22.11% upside potential to current levels.
Stock Analysis
Interestingly, according to TipRanks’ Smart Score, Li Auto scores a “Perfect 10,” indicating that the stock is most likely to outperform the market. Bloggers and news articles are bullish on the stock, and hedge funds have increased their holdings of LI stock by 12.0 million shares in the last quarter. And, retail investors have increased their exposure to LI stock by 0.6% over the last seven days.
Ending Thoughts
Undoubtedly, Li Auto is gearing up for a heated race to be the most popular EV maker in China. The company has all the right elements in play at the moment, plus, it has won the support of all analysts and investors. Notably, the EV maker plans to use the additional funds to make more EVs and supporting infrastructure which could strongly position the company for the long haul.
