Stocks to buy

Li Auto: The First Profitable EV Maker in China Revs Up Investor Interest

Li Auto (NASDAQ:LI) has become the first electric vehicle (EV) maker in China to turn a profit, sending its stock price higher in recent weeks. This will undoubtedly have LI stock investors feeling bullish.

LI stock is up nearly 10% year to date, outpacing nearly every other EV maker in China or the rest of the world for that matter. By comparison, the stock of Tesla (NASDAQ:TSLA), the world’s leading electric vehicle manufacturer, has fallen 30% since January. Strong delivery numbers, better-than-expected financial results, and achieving profitability have LI stock rising. In the past 12 months, the automaker’s share price has risen 51% and it is up 137% since going public in July 2020.

Beating Expectations

At the end of February, Li Auto reported fourth quarter 2023 earnings of 60 cents per share on revenue of $5.80 billion. Wall Street had forecast earnings per share (EPS) of 44 cents and $5.50 billion in sales. A year earlier, the automaker posted earnings of only 4 cents on sales of $2.50 billion. Equally impressive was Li Auto’s Q4 operating margin of 7.3%, which was up from break-even results a year ago. Clearly, production, sales and profits are kicking into high gear at the company.

Looking ahead, LI stock forecasts strong delivery numbers that had analysts on Wall Street sit up and take notice. The company said that it expects to deliver 100,000 to 103,000 electric vehicles in this year’s first quarter. That’s up from 53,000 EVs delivered in Q1 2023. It also implies deliveries of about 35,000 a month for February and March. Li Auto delivered 31,165 vehicles in January. China is the world’s largest electric vehicle market, with Tesla generating about a quarter of its sales in the nation of 1.4 billion people.

Hybrid Success

The key to Li Auto’s success has been that it has mostly manufactured gas-electric hybrid vehicles until now. In that way, LI stock has competed as much with Japanese automaker Toyota Motor Co. (NYSE:TM) as with Tesla and domestic rivals such as Nio (NYSE:NIO). Li Auto is only now launching its first fully electric vehicle, the MEGA, which the company expects to become its top seller within the Chinese market. The MEGA can travel 311 miles on a 12-minute charge and is competitively priced at $75,000.

Li Auto has also announced plans to invest nearly $1 billion to build more than 5,000 high-speed EV charging stations within China and has upgraded its bestselling L series of hybrid sport utility vehicles (SUVs). In February, Li Auto’s founder and CEO Li Xiang said that the company is striving to deliver 800,000 EVs in 2024, and the company expects to add $21.1 billion in new revenue over the next two years (2024/2025). These goals, if achieved, would outpace Li Auto’s rivals in the Chinese market.

Buy LI Stock

Risks remain in both China and the broader electric vehicle sector. The infrastructure needed for EVs has not kept pace with production, hurting consumer demand worldwide. Rising competition has led to price wars that have hurt market leader Tesla and other manufacturers, and an economic slowdown within China could hurt Li Auto’s ambitious targets and its shareholders. That said, Li Auto has emerged as the market leader within China and is on pace to rival Tesla in coming years. The company is profitable, growing, and taking market share. For these reasons, LI stock is a buy.

On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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