Last May, I told you that Li Auto (NASDAQ:LI) might be the only Chinese auto stock you need to own. This should have big implications for LI stock holders.
Maybe I undersold it. Maybe Li is the only auto stock you should own, period.
Li, which mainly makes hybrid family cars for the Chinese market, opened February 29 at about $45.40 per share, a market cap of $45.4 billion. At that price it has a price to earnings (PE) ratio of 29.4. Yes, it has earnings.
Is it too late to get in?
Why Li?
Cars like those made by LI stock are the “new hotness” in America’s auto market.
Editors are falling all over themselves apologizing to Toyota Motor (NYSE:TM), which has been making hybrids for decades. But unlike my Corolla, the Li 9 is a “battery first” hybrid. The engine powers the battery, not the drive train. A new Prius using this technology was recently called “the greenest car in America,” because most daily trips don’t use gasoline.
That’s Li’s calling card.
I explained this last July, when LI stock introduced its Li 9. Gasoline has greater energy density than today’s batteries. By combining its battery with that gas engine, the Li 9 can go 682 miles between fill-ups. https://www.licarco.com/li-auto-l9 That means you can go from San Antonio to El Paso without stopping and still have gas in the tank.
The Li 9 is also a full-size car. It can seat six and claims all the self-driving capabilities of a typical Tesla (NASDASQ:TSLA). All that for about $64,000, based on the current exchange rate.
Li By The Numbers
But you’re not buying a car, you’re buying stock in a car company.
In 2023 Li earned $1.64 billion, $1.54 per share, on revenue of $17.2 billion. (I converted the numbers in its earnings release into U.S. dollars at the current exchange rate of 7.19 Yuan to the dollar). The gross margin was 22%, the operating margin 6%, and there was $6.14 billion in free cash flow. This came despite Tesla leading a price war against Chinese EV rivals.
The numbers came out February 26, but they had been hinted at since the first of the year. That’s when Li reported deliveries of 131,805 vehicles for the fourth quarter, and 376,030 for all of 2023. For some reason investors failed to take the hint, but they jumped on the stock once the financials came out, sending it from $35/share to over $46 in a day.
The Li EV
Li is launching its first true EV, called the Mega today, March 1. It will continue producing its three hybrid models, the Li 7, Li 8, and Li 9.
The Mega is a minivan, with 310 miles of range available on a 10-minute charge. It uses a new CATL battery, has a flat back end, and a sloping front window like my old Toyota Previa. Expect a price of about $70,000.
To support the Mega, Li is building its own network of Superchargers, with 10,000 planned by the end of 2025.
The Bottom Line
Li hopes to make 800,000 cars this year. That’s more than double its total for 2023.
While BYD (OTCMKTS:BYDDF) is aiming at the mid-market, with cars priced as low as $11,500, Li is aimed squarely at the lower-volume, but higher-margin luxury market now dominated by Tesla.
Li’s cars are bigger than Tesla’s. They have greater range and equivalent features. Its stock is also much hotter than Tesla’s, up 30% in 2024 while Tesla is down 18%.
Elon Musk may have met his match in Li Xiang.
On the date of publication, Dana Blankenhorn did not hold (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.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his free Substack newsletter.