Is it too risky to invest in Chinese electric vehicle (EV) stocks? Not necessarily, as Li Auto (NASDAQ:LI) just proved that the company is capable of turning a profit. This doesn’t eliminate 100% of the risk for investors, but I am bullish on LI stock after reviewing Li Auto’s results and forward guidance.
Li Auto is a China-based manufacturer of new energy vehicles (NEVs). The company was recently included in the Hang Seng Index, which adds a sense of legitimacy to it.
It’s going to take more than inclusion in the Hang Seng Index, however, to convince reluctant U.S. stock traders to invest in Li Auto. Yet, Li Auto’s ability to turn a profit and exceed Wall Street’s expectations should convince some skeptics to give this Chinese automotive start-up a chance.
A Milestone Year for Li Auto
I don’t always insist that a company needs to be income-positive before I consider investing in it. However, being profitable is certainly a good sign for a company, and Li Auto recently announced that it has achieved that important milestone.
In the automaker’s still-fresh quarterly and full-year press release, Li Auto CFO Tie Li revealed, “2023 is our first year of profitability, with a healthy full-year net income reaching RMB11.81 billion.” This equates to roughly $1.66 billion. For comparison’s sake, we can observe that Li Auto sustained a RMB2.03 billion net loss in 2022.
That’s an impressive bottom-line turnaround, you must admit. Li Auto had to fend off a number of ambitious NEV-industry rivals last year; as Li Auto CEO Xiang Li put it, there was a “fiercely competitive NEV market in 2023.”
“Undeterred” by this highly competitive market, Li Auto “achieved an outstanding performance with its three Li L series models,” according to the company’s chief executive. We shouldn’t just take his word for it, though. Informed investors always believe the data first and then might consider what corporate executives have to say.
As it turns out, Li Auto’s EV-delivery data backs up the CEO’s claims. In 2023, Li Auto’s vehicle deliveries grew by 182.2% compared to 2022, believe it or not, to 376,030 units. For what it’s worth, this result (according to Li) means that the company is the “best-selling brand among NEVs priced above RMB300,000 in China.”
Li Auto Prepares Wall Street for a Busy Quarter
Continuing with the data, Li Auto beat Wall Street’s expectations for 2023’s fourth quarter. In addition, the company also made it clear that Li Auto will be quite busy delivering vehicles to customers in the current quarter.
This helps explain why LI stock jumped 18.8% today. Li Auto believes that in the first quarter of 2024, it will deliver “between 100,000 and 103,000 vehicles.” This would represent growth of 90.2% to 95.9% when compared to the year-earlier quarter. Of course, this is the company’s projection, and there’s no guarantee that it will actually happen. Still, it’s typically a positive sign when a company’s insiders are confident, which Li Auto’s management seems to be in regard to the current quarter.
At the same time, investors don’t have to rely on the optimism of Li Auto’s management. They can look at the company’s fourth-quarter 2023 results and see that Li Auto is making strides.
Starting with the top-line results, Li Auto generated RMB41.73 billion (US$5.88 billion) in revenue, up 136.4% versus RMB17.65 billion in 2022’s fourth quarter. Moving on to the bottom-line results, Li Auto earned the equivalent of $0.60 per share in Q4 2023, handily beating the consensus estimate of $0.44 per share.
With that, Li Auto now has five consecutive quarterly EPS beats as well as four consecutive profitable quarters. This ought to persuade jittery investors that Li Auto is the real deal — an income-positive business that’s quickly growing its sales.
Is Li Auto Stock a Buy, According to Analysts?
On TipRanks, LI comes in as a Strong Buy based on four unanimous Buy ratings assigned by analysts in the past three months. The average Li Auto stock price target is $52.30, implying 26.5% upside potential.
Conclusion: Should You Consider Li Auto Stock?
Not everyone is eager to buy a stock after it just popped ~19%, and that’s understandable. Yet, there appears to be plenty of overhead room for Li Auto stock to run, especially in the wake of Li Auto’s quarterly results.
Besides, Li Auto’s insiders are apparently quite confident that the automaker can deliver a decent number of units during the current quarter. Therefore, for a small-scale potential allocation, I am currently considering LI stock.
