How a Shanghai EV Fire and Safety Concerns at Li Auto (LI) Have Changed Its Investment Story

• Earlier this week in Shanghai, a Li Mega electric vehicle caught fire and was completely destroyed, with both occupants escaping unharmed as Li Auto cooperated with authorities to investigate the cause, reportedly originating from its CATL battery pack.
• This incident intensifies scrutiny on Li Auto’s vehicle safety at a time when the company is already contending with declining sales for its established models and uncertain market traction for its new electric offerings.
• We'll explore how heightened vehicle safety concerns and shifting market conditions could influence Li Auto's investment outlook.

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Li Auto Investment Narrative Recap

To own shares of Li Auto, you need to believe the company can successfully transition from extended-range hybrids to pure electric vehicles (BEVs) while scaling profitably, even as sales struggle and new launches face an uncertain reception. The recent Li Mega fire in Shanghai heightens near-term safety scrutiny; if investigations lead to recalls or erode consumer trust, this could weigh on the company’s most important catalyst, restoring momentum for its new BEV models, but as of now, the incident does not appear to be a material event affecting the business fundamentals.

On the innovation front, Li Auto’s battery partner, Sunwoda, announced plans for a next-generation all-solid-state battery with the potential to lengthen EV driving ranges to over 1,000 km and support multi-decade use, responding directly to range anxiety, one key catalyst for BEV adoption and a possible lever to improve market sentiment after any negative press on safety. However, this technology is scheduled for small-batch production only in 2026, meaning it will not address immediate safety concerns or sales headwinds from the Li Mega incident.

By contrast, investors should also be mindful that if margin pressures worsen alongside negative headlines, the company’s ability to ...

Read the full narrative on Li Auto (it's free!)

Li Auto's outlook anticipates CN¥232.1 billion in revenue and CN¥15.2 billion in earnings by 2028. This projection relies on a 17.4% annual revenue growth rate and a CN¥7.1 billion increase in earnings from the current level of CN¥8.1 billion.

Uncover how Li Auto's forecasts yield a $28.87 fair value, a 32% upside to its current price.

Exploring Other Perspectives

Five Simply Wall St Community members estimate Li Auto’s fair value in a range from CN¥27.33 to CN¥32.88. While some focus on growth catalysts like battery innovation, ongoing safety concerns may have broad implications for brand trust and future demand.

Explore 5 other fair value estimates on Li Auto - why the stock might be worth just $27.33!

Build Your Own Li Auto Narrative

Disagree with existing narratives? Create your own in under 3 minutes - extraordinary investment returns rarely come from following the herd.

• A great starting point for your Li Auto research is our analysis highlighting 2 key rewards that could impact your investment decision.
• Our free Li Auto research report provides a comprehensive fundamental analysis summarized in a single visual - the Snowflake - making it easy to evaluate Li Auto's overall financial health at a glance.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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