Revving Up: Is Li Auto Stock Gearing Up for a Detroit Shakedown?

Stocks to buy

Li Auto (NASDAQ:LI) stock is on the move, and there is a palpable fear in Detroit right now beyond concerns over the United Auto Workers strike.

The Chinese hybrid car maker that announced its September results over the weekend.

Li delivered 36,060 cars for the month, 105,108 for the quarter, and 244,225 for the nine months ending in September.

Perhaps more important is the company received more than 40,000 orders during the month, meaning production should continue to increase. That should be good news for Li stock.

The September delivery number is up 212% from a year ago, when Li began scaling production.

Despite the great results, Li stock has been falling lately. It’s still up 74% on the year, but it’s down 24% since Aug. 7, thanks to the faltering Chinese economy.

But Li’s results aren’t what frightens Detroit most. It’s what they imply for China’s electric car transition, which is more advanced than that anywhere else in the world.

The implication is that Chinese buyers, like American buyers, reject compromise. Compromises among weight, range, and price, which dominate car makers’ thinking concerning electrics, don’t interest them.

Li cars can go 200 miles between a charge, or 800 miles between fill-ups. They’re big enough for a family of four, with all the safety features one could want. The flagship LI 9 costs under $70,000.

Is Li Stock Worth Buying?

I called Li overpriced a few months ago, but that’s no longer the case.

If you buy it now just below $36, you’re paying about three-and-a-half times sales for a company that should deliver profits of $250 million this year.

Sales should grow by two-thirds. Contrast that with Tesla, which is selling at 8 times sales and may see sales growth of 15% this year.

All the usual caveats apply. China’s Yuan trades at over 7 to the U.S. dollar and has been falling most of the year.

Its government remains opaque and capricious, replacing calls to prosperity with calls to militant nationalism. China’s real estate market could still crash the whole house of cards.

The Bottom Line

Li’s September success underscores the direction of the global auto market.

It’s a direction that has American companies, maybe even Tesla, on the back foot.

If car buyers are to put a year’s salary, or more, into a vehicle, they want one that will last a decade without compromises. That’s hard to deliver with today’s batteries. It may take a new generation of materials to deliver it.

Meanwhile, battery-first hybrids like those from Li will continue to take market share, in China and around the world.

As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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