China's Urbanization And EV Advancements Will Transform Premium Mobility

Key Takeaways

• Proprietary technology, strong urban charging network, and innovative software offerings uniquely position Li Auto for superior growth and margin expansion versus peers.
  
• Expansion into new Chinese cities and global markets, coupled with financial strength, bolsters recurring sales growth and long-term market dominance.
  
• Intensifying competition, overreliance on niche segments, technological transition challenges, high investment demands, and external regulatory risks could all strain profitability and future growth.

Catalysts

Operates in the energy vehicle market in the People’s Republic of China.

• Analyst consensus anticipates Li Auto's product innovation and ADAS (autonomous driving) investment to bolster future growth, but the company's rapid pace in integrating foundational AI models, open-sourcing the Halo OS, and developing low-cost, high-precision simulation environments positions it to accelerate margin expansion and unlock high-margin software and subscription revenues at a rate materially above peers.
  
• While consensus expects BEV launches and charging network buildout to deliver moderate revenue uplift, Li Auto's execution-already operating the largest urban highway supercharging network-uniquely positions the company to capture a disproportionate share of the surging premium BEV market as urbanization and environmental policy create a long-term tailwind, leading to sustained sales growth and increased market share well ahead of analyst forecasts.
  
• With targeted expansion into tier-4 and tier-5 Chinese cities through the Star Program and the ability to rapidly secure leading market share in new regions, Li Auto is set to benefit from untapped demographic trends and the rise of the middle class, ensuring recurring volume growth and mitigating competitive pressures on net margins.
  
• As consolidation accelerates in China's competitive NEV market, Li Auto's financial strength, proprietary technology stack, and high customer loyalty will allow it to emerge as a dominant national champion, achieving operating leverage that drives robust improvement in earnings and cross-cycle resilience.
  
• Management's strategic approach to exports-targeting 30% of global sales, beginning with Asia and Europe-ushers in a new long-term earnings vector, allowing Li Auto to ride major secular trends toward EV adoption worldwide and to diversify revenue streams, further supporting sustainable revenue and profit growth.

Li Auto Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Li Auto compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Li Auto's revenue will grow by 36.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 5.6% today to 8.6% in 3 years time.
• The bullish analysts expect earnings to reach CN¥31.8 billion (and earnings per share of CN¥26.9) by about August 2028, up from CN¥8.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, down from 22.1x today. This future PE is lower than the current PE for the US Auto industry at 18.5x.
• Analysts expect the number of shares outstanding to grow by 0.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.7%, as per the Simply Wall St company report.

Li Auto Future Earnings Per Share Growth

Risks

• Heightened competition in China's premium NEV segment, with competitors aggressively benchmarking Li Auto's L Series and launching similar products at lower prices, could trigger price wars and lead to shrinking average selling prices and thinner gross margins, directly pressuring profitability.
  
• Heavy reliance on China's mid-to-high-end SUV segment and late entry into sedans and international markets exposes Li Auto to shifting consumer preferences, market saturations, and regional economic downturns, which could constrain overall revenue growth.
  
• Although Li Auto plans to expand with BEVs, the company's core strength remains in EREV technology, which may face declining policy support and consumer demand as regulators and customers accelerate their adoption of pure battery electric vehicles, undermining market share and long-term revenue growth.
  
• Persistently high R&D and capex requirements for developing new platforms, deploying supercharging networks, and investing in advanced driver-assistance technologies could maintain elevated costs and weigh on net margins, especially if revenue growth begins to slow or anticipated scale is not achieved.
  
• Geopolitical instability, increasing global trade protectionism, and the risk of stricter Chinese and international regulatory actions-such as export restrictions, subsidy removals, and evolving ADAS safety standards-could increase compliance costs, hamper overseas expansion, and cause demand volatility, thereby harming both revenue visibility and earnings stability.

Valuation

• The assumed bullish price target for Li Auto is $40.24, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Li Auto's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.24, and the most bearish reporting a price target of just $18.08.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥370.8 billion, earnings will come to CN¥31.8 billion, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 12.7%.
  
• Given the current share price of $24.65, the bullish analyst price target of $40.24 is 38.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.