Why This Li Auto Analyst Is Rooting For A Rebound In Deliveries And Revenue In Q4

Chinese electric vehicle startup Li Auto Inc LI will likely see a strong rebound in deliveries and revenue in the fourth quarter, thanks to the imminent launch of the L8 and L9 vehicle models, analyst Bo Pei of US Tiger Securities Inc said.

Li Auto reported Monday solid second-quarter earnings, with year-over-year revenue growth of 73% to $1.30 billion. However, the company's third-quarter revenue guidance of $1.34 billion-$1.43 billion trailed the consensus of $2.02 billion.

Also Read: Alibaba Muted But Hong Kong Stocks Overall Show Momentum, Looking Past Weak China Economic Data

The Li Auto  Rating: Pei maintained a Buy rating on the stock with a price target of $40. The price target is based on 2.1 times the estimated sales for 2023, which is meaningfully lower than Tesla Inc.’s TSLA valuation multiple of 8.6 times. the analyst said in his note. He attributed Li Auto's discounted valuation to relatively more uncertainties faced by the company compared with Tesla, and the fact that its BEV models won't be available until 2023.

The Li Auto Thesis: Despite strong second-quarter earnings, the firm’s third-quarter delivery guidance was not very upbeat, Pei noted. The analyst attributed the softness to the transition to newer models.

“Overall, we believe the soft 3Q guidance is primarily due to the model transition gap (from Li ONE to L9 & L8), actually demonstrating the strong customer interest in the new models,” the analyst said in the note.

Pei expects third-quarter vehicle margin to decline sequentially due to lower volume and the L9 launch. He downwardly revised his gross margin estimate by 48 basis points.

Li Auto Price Action: Li Auto's Hong Kong-listed shares are trading down 2.25% on Tuesday. The stock has lost over 20% in the past month.