Li Auto (NASDAQ:LI) stock, like its peers, has struggled lately. The market has become increasingly pessimistic about the near-term prospects for China-based electric vehicle (or EV) manufacturers.
This could have you thinking the sector has been oversold. After all, this big decline only came about on the initial signs of a slowdown in Chinese EV sales, not on news of this industry going from boom times to tough times.
Still, many of the China EV stocks popular among U.S. investors could continue to move in the wrong direction, as market conditions worsen.
Even Li Auto, which has less of the issues plaguing comparable names, may not be a screaming buy at present levels. However, at the right price, it could become a great opportunity.
| LI | Li Auto | $19.15 |
A Closer Look at LI Stock
As recently as a few months ago, it seemed as if China EV stocks had the potential to make a comeback in the closing months of 2022.
Despite issues like pandemic lockdowns (which disrupted vehicle production), and the initial signs of a Chinese economic slowdown, the market was bullish that factors like government incentives would keep the industry in high-growth mode.
Now, however, signs of softening demand in China for EVs are starting to emerge. The latest monthly vehicle delivery numbers among the most heavily-followed Chinese EV makers also indicate growth challenges ahead. Investors are now less hopeful that the industry will report stronger results this quarter than it has in the preceding quarters.
With this sharp turn in market sentiment, it’s no surprise that LI stock has been in an extended slump. Further signs that EV demand is in for a moderate-to-severe slowdown market could mean more underwhelming returns ahead.
That said, long-term trends remain favorable for this space. Not only that, there are factors specific to Li Auto that make it a much stronger way to play these long-term trends, relative to its competitors.
Li Auto Beats Its Peers in Two Ways
I wouldn’t say “the party’s over” for this industry. Multi-year forecasts continue to call for EV sales in China to hit 15.3 million annually by 2030, or 155% above current estimates for 2022.
However, instead of spreading your bets around, by buying Nio (NYSE:NIO) and XPeng (NASDAQ:XPEV) as well, you may be better off sticking to just LI stock.
Li Auto is already on track to become profitable. As InvestorPlace’s Thomas Niel pointed out on Oct. 5, analyst forecasts call for this company to report positive earnings per share (or EPS) in both 2022 and 2023.
Nio and XPeng aren’t anywhere close to hitting profitability, especially XPeng. As I recently argued, XPeng’s cash burn has been on the rise in recent quarters, which is something that could continue to put pressure on its shares.
Li Auto has something else on its rivals: a more cautious approach to expansion into areas like Europe. Li is looking to form partnerships in Europe. Nio and XPeng, on the other hand, are both looking to penetrate this market on their own. That’s a riskier approach, given the rising competition there.
Bottom Line on LI Stock
Li Auto stock currently earns a B rating in Portfolio Grader. There isn’t a great urgency to add it to your portfolio today, even as a speculative position. Given near-term issues playing out in the Chinese electric vehicle industry, this stock will likely stay under pressure.
More negative macro and/or industry-specific news could send the stock back to its 52-week low ($16.86 per share), or perhaps to even lower prices. Nevertheless, while it’s a good idea to steer clear of NIO or XPEV, even if they become cheaper from here, at lower prices LI may be worth scooping up.
By keeping more focus on its home market, there are fewer concerns and less uncertainty with LI stock compared to its rivals. That’s why you should consider adding it to your watchlist as a possible buy down the road.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.