Key Fundamental Report for Li Auto Inc. (NASDAQ:LI) - A Viable Business with a Strong Growth Rate

By
Goran Damchevski
Published
March 02, 2022
NasdaqGS:LI
Source: Shutterstock

Li Auto Inc. (NASDAQ:LI) is one of the EV stocks that are not as popular, but the company is expressing some solid fundamentals, which may be worth watching. Li Auto is interesting for investors that are willing to get exposure to the Chinese SUV market, that is why we will analyze the performance of the stock, as well as future growth expectations.

Overview

Li Auto is a China based electric vehicle manufacturer that sells smart sport utility vehicles (SUVs). The current model is the Li ONE, a 6-seat large premium electric SUV equipped with a range extension system and advanced smart vehicle solutions.

The Company started volume production of Li ONE in November 2019 and released the new 2021 Li ONE in May 2021. Li is also aiming to expand production to new vehicles, such as BEVs and EREVs, to target a broader consumer base.

It is important to note that Li Auto differentiates itself from NIO (NYSE:NIO) and Xpeng (NYSE:XPEV) by focusing on premium electrical SUVs. This is good because the company will have some space in the market to develop its business. 

The company is operating in a growing market segment in China, with 9.3m SUVs sold in 2016 and 11.2m SUVs sold in 2021, this represents a total growth of 20.4% or a CAGR of 3.15% in the last 5 years - Source.

new-li-one-suv
NasdaqGS:LI New Li ONE Model from May 2021

Latest Earnings

The latest earnings report resulted in a price jump of 9% for Li Auto. Here are the highlights:

  • FY 2021 revenue CN¥ 27b vs CN¥ 9,456b a year ago
  • FY 2021 net loss was CN¥ 321m compared to CN¥ 151.6m a year ago
  • Q4 2021 revenue of CN¥ 10,6b compared to CN¥ 4b a year ago

The company also released guidance for Q1 2022 and expects to see between CN¥ 8.84 billion (USD 1.39 billion) and CN¥ 9.43 billion (USD 1.48 billion). This would represent an increase of 163% from the first quarter of 2021.

The company is posting a healthy growth rate, but subsidies from the Chinese government have been cut by 30% and are planned to be extinguished by 2023. This may have made investors weary in the beginning of 2022, but as long as the company attains high growth rates, it will be worth watching.

Moving forward, we will see what analysts are expecting to see in Li Auto's future.

The chart below shows how future estimates are tied to the performance of the company thus far.

earnings-and-revenue-growth
NasdaqGS:LI Earnings and Revenue Growth March 2nd 2022

One thing that stands out for Li Auto, is that the company is free cash flow positive, with CN¥ 8.3b.

This means that the company does make money, but will probably not show profits while it is growing and expanding capacities. For investors, this signals that the company's risk is significantly reduced and that it has a viable business model (which is not always the case for young companies).

See our latest analysis for Li Auto

Future Estimates

Taking into account the latest results, the consensus forecast from Li Auto's 20 analysts is for revenues of CN¥51.5b in 2022, which would reflect a major 91% improvement in sales compared to the last 12 months. Losses are expected to be contained, narrowing 11% from last year to CN¥0.28.

There was no major change to the consensus price target of US$45.97,

A better approach is to look at the spread of price targets:

  • The most bullish analyst prices Li Auto at US$64 per share
  • The most bearish prices it at US$34 per share

If these estimates are reliable, then we can notice that the company is trading on the lower end of price targets (US$30.4), suggesting an upside to the average.

The Bottom Line

The company is starting massive production of SUVs and expected to be posting high growth rates in the next few years. If met with wide market adaptation, they will further increase capacities and diversify their EV fleet.

The SUV market has also been growing by about 3% CAGR in China, and Li Auto is in a very good position to tap into both consumer demand and a growing market.

The spread of price targets indicate that the company is trading at the lower end, this may give long term investors an opportunity to enter the company if they believe that Li Auto will continue to execute high growth.

Western investors need to keep in-mind that investing in Chinese stocks carries with it an additional set of risk, as these stocks are exposed to the fluctuations of relations between US and China, as well as the adopted policies of China regarding publicly traded companies.

However, before you get too enthused, we've discovered 1 warning sign for Li Auto that you should be aware of.

Simply Wall St analyst Goran Damchevski and Simply Wall St have no position in any of the companies mentioned. This article 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.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.