Why Li Auto Is A 'Quality Asset' In Growing EV Space

Li Auto Inc. LI shares are recovering from a recent sell-off, with Thursday's upside supported in part by a positive analyst action.

The Li Auto Analyst: Needham analyst Vincent Yu initiated coverage of Li Auto with a Buy rating and $37 price target.

The Li Auto Thesis: Li Auto operates in the smart EV market in China, which enjoys several upside drivers, Yu said in the initiation note.

The Chinese EV industry has seen double-digit increases in monthly sales since May 2020, culminating in the snapping of a two-year decline in Chinese vehicle sales, the analyst said.

The Chinese government is focusing on increasing EV penetration to 20% of the auto market by 2025, suggesting a fourfold increase in market opportunity, he said.

The domestic EV industry is also likely to be spurred by heavy investment in EV infrastructure by local cities and incentives for EV purchases, Yu said.

Related Link: Homebound? Chinese EV Makers Nio, Xpeng, Li Auto Mull Listings In Hong Kong: Reuters

Li Auto's extended-range EVs, the analyst said, differentiate it from peers.

The company's Li One model uses extended-range technology, which allows the vehicle to run on a battery pack that can be charged by a gasoline engine, significantly increasing its range, the analyst noted.

The company is expected to release a battery EV model in 2023, capitalizing on the secular tailwinds from improvements in battery and charging technologies, he said.

Additionally, the company's focus on vehicle margins and operating efficiencies indicate that it will likely have a faster profitability timeline than peers, Yu said.

"We believe the company's unique value proposition, focused strategy, and diligent margin and costs control, make it a quality asset in the growing EV space." 

LI Price Action: At last check, Li Auto shares were rallying 7.67% to $25.13.

Related Link: How to Buy Li Auto Inc. (LI) Stock

Photo by Jengtingchen via Wikimedia.