Chinese electric-car maker Li Auto (LI) skyrocketed by triple digits just months after its July 2020 Nasdaq debut, as Wall Street placed big bets on EV stocks and the future of mobility. Many of last year’s highflying stocks experienced huge declines in the first several months of 2021 as money rotated into economic recovery plays. But Li and its China EV peers are looking to make a comeback. Is Li Auto stock a buy now?
Founded in 2015, the Beijing-based company competes directly with Tesla (TSLA) and Nio (NIO) in the high-end EV market. The company debuted its first and only model, an electric hybrid SUV called the Li ONE, in December 2019. That vehicle carries a price tag ranging from $29,000 to $76,000 and was one of China’s top-10 sellers across all fuel types in 2020.
However, Li Auto stock has yet to show investors it can be consistently profitable. And even though Li is seeing strong vehicle deliveries, it’s competing not only against Tesla and China EV peers, but established U.S. automakers like Ford (F), General Motors (GM) and Volkswagen (VW) as they enter the China market.
Despite the stiff competition, Li Auto stock is on the move. If you’re thinking about buying shares of Li Auto, it’s key to analyze the fundamental and technical picture first.
EV Deliveries Surge In June
Li Auto deliveries in June set a new monthly record. The automaker on July 2 said it dispatched 7,713 Li ONE models in June, representing a 321% year-over-year increase. That’s more than rival Xpeng (XPEV), which reported 6,565 vehicles in June. Nio led the China EV market with 8,803 car deliveries.
Li Auto stock fell 5.8% the day of the announcement, despite the strong delivery numbers.
Overall, Li Auto more than quadrupled sales in June. Total Q2 deliveries increased a robust 166% year-over-year to an all-time high of 17,575. This pace exceeded the company’s own targets, weighed down by the global chip shortage.
Li Auto Earnings
Li Auto earnings results for Q1 were mixed. The Chinese automaker on May 26 reported a loss of 3 cents per share. Total revenue surged 320% to $547.7 million. Wall Street expected the EV maker to report a loss of 2 cents per share on revenue of $521.5 million. Li Auto stock rose on the report.
Li Auto has 73 retail stores covering 53 cities along with 143 servicing centers. The company has 50 more locations in the works. “We are on track to reach our year-end target of 200 retail stores,” said Yanan Shen, Li Auto president and co-founder, on the company’s quarterly earnings call in May.
Li Unveils 2021 SUV Model
Li Auto also rolled out the 2021 version of the Li ONE on May 25. The latest model includes upgrades to its advanced driver-assistance system (ADAS) and powertrain systems.
These improvements will extend the range capacity of the Li ONE to 1,080 kilometers, or 671 miles. Deliveries of the vehicle began in June.
Li Auto’s focus on cost-effective SUVs is the heart of its business strategy. The company was one of the first to successfully commercialize Extended Range Electric Vehicles (EREVs), which require a smaller battery pack. A smaller battery means lower production costs. And multiple power sources provide consumers with a practical solution to China’s notorious lack of battery charging infrastructure.
Electric Cars In China: Competition Heats Up
Competition for Chinese EV sales is heating up as more legacy automakers eye the market. Li Auto primarily competes against Tesla’s Model Y in the high-end SUV space. But that segment is beginning to get crowded as automakers look to cash in on growing demand and claw back Tesla’s market share.
China EV sales growth is expected to hit 50% in 2021, according to research group Canalys. A record 1.3 million electric cars were sold in China last year. That number represented about 41% of global EV sales in 2020.
Volkswagen and Ford are two legacy names jumping into the China market. The automakers unveiled new SUV brands at the Shanghai Auto Show in April: the Ford EVOS and Volkswagen ID.6. The Li Auto ONE also will compete with Ford’s Mustang Mach-E and the Volkswagen ID.4.
Chinese brands are stepping up their offerings, too. Nio revealed plans for a new line of luxury electric cars, called Gemini, in June. And startup BYD (BYDFF), who won the backing of Berkshire Hathaway (BKRB) CEO Warren Buffett, is making a push into the luxury market with the Han sedan.
Li Auto Fundamental Analysis
To determine whether Li Auto stock is a buy now, it’s key to conduct fundamental and technical analysis.
The IBD Stock Checkup tool shows Li Auto stock has an IBD Composite Rating of 68 out of a best-possible 99. The rating measures a stock based on the most important fundamental and technical stock-picking criteria. IBD research shows some of the greatest stock winners of all time often have a Composite Rating of at least 95 near the start of big runs.
The Composite Rating looks at earnings and sales growth, profit margins, return on equity and relative stock price performance, among other metrics.
LI stock has an EPS Rating of 52 out of 99. That rating compares quarterly and annual earnings-per-share growth with all other stocks. Relatively recent IPOs typically don’t have a long track record of profitability. But the automaker boasts strong sales and is seeing increased mutual fund ownership. Li expects to achieve profitability in 2022.
The proprietary IBD rankings place the Chinese maker of electric cars in the No. 3 spot vs. its automotive industry peers. IBD’s automaker group is ranked a dismal No. 194 out of the 197 industry groups tracked by IBD. It’s ideal to focus on top stocks in the top quartile of IBD’s groups.
Li Auto Stock Technical Analysis
Li Auto was a hot new IPO in 2020. The company made its Nasdaq debut on July 31 at 11.50 per share. Over the next few months, Li Auto stock skyrocketed 315% from that IPO price and topped out at a Nov. 27 high of 47.70. Then, amid a rotation into cyclical stocks and a global chip shortage, shares were brought back to earth.
Li Auto plunged below the 16 price level by May 2021. But shares are breaking their downtrend and moving back above key resistance levels. In late May, Li Auto stock closed above its 10-week line for the first time since February and powered above its 40-week moving average in early June. Shares jumped more than 45% in the month of June as EV stocks roared back.
Though Li stock is well above its May lows, Li has given back some gains this month. Shares are down 14% so far in July. A 7% loss on July 14 brought Li Auto stock below its 21-day line. A close below that level is typically a sell signal for position traders looking to trim their positions.
Additionally, Li stock has yet to pause long enough to form a proper chart pattern. But with the current pullback, perhaps now the stock will build a base.
Another positive signal? Li Auto stock’s relative strength line also has improved as more investors returned to speculative growth stocks in May and June.
LI Stock: A Buy Right Now?
On a monthly stock chart, Li Auto stock has broken a downtrend. Looking at a weekly chart, the stock is now back above the 10-week line, a key technical level. As for fundamentals, Li Auto sales have seen exceptionally strong growth over the last two quarters. Electric cars remain a compelling growth story.
Bottom line: Li Auto stock is not a buy right now. While aggressive traders may have used trend lines or short consolidations to pinpoint entries in late May and June, shares have yet to build a proper chart pattern after rebounding from May 2021 lows. Recent moves above the 10-week and 40-week lines are positive developments for Li Auto stock. Shares are pulling back and could form a base from here.
Those interested in Li Auto could add the stock to their watchlists and see if it a proper buying opportunity emerges.
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