Can Li Auto rev up again despite Chinese EV stock sell-off?

Beijing-based electric-vehicle name Li Auto’s share price has tumbled in recent days, following negative news flows weighing on the industry.

  • Li Auto’s stock lost steam after hitting an all-time high last Tuesday
  • A Beijing probe and a short-seller’s accusations involving other Chinese EV players has dampened overall investor optimism
  • Analysts were recently bullish on the Nasdaq newcomer after forecast-beating revenues

Li Auto stock hits the brakes following Chinese investigation

Chinese electric vehicle (EV) maker Li Auto has so far failed to claw back recent losses in its market value, with its stock price tumbling another 8.8% on Monday (30 November 2020) to finish at US$35.99.

That is its weakest close in 2 weeks, and is down 18.1% from the stock’s all-time high of US$43.96 last Tuesday (24 November).

The recent Nasdaq newcomer had begun crashing last Wednesday (25 November), when it sank 7.4% to close at US$40.72, before sliding a further 3.1% to finish at US$39.48 on Friday (27 November).

It was not the only Chinese EV name to experience a sharp sell-off last Wednesday. Investors in Li Auto and its peers, including XPeng, had a knee-jerk reaction after being spooked by news that the car-making arm of property conglomerate Evergrande Group would be a target of a probe by the authorities into its investments and the amount of land it occupied.

That investigation, conducted by China’s top economic planning body, could signal that Beijing wants to rein in and regulate the booming EV sector, said industry insiders that spoke to the Nikkei Asian Review.

Then on Monday, Chinese EV stocks continued to trend downwards, after well-known short-seller Hindenburg Research accused China-based battery and EV manufacturer Kandi Technologies Group of falsifying sales.

Where next for the Li Auto stock?

Still, even with the recent price slide, Li Auto’s shares have more than doubled in value since their first public trading day in end-July.

Analysts have been bullish on Li Auto of late, with seven analysts recommending “buy” and two rating it as a “hold”.

Earlier this month, Citi upgraded the counter to a “buy” call from “neutral” while also raising its target price on the stock to US$45.60, from US$27.10 previously. In a bull market scenario, the analyst’s valuation model indicated that the Nasdaq-listed stock may even surge to potentially hit US$111.38.

By Q1 2021, sales of new EVs within China are set to more than double year on year, according to the Citi research team. Likewise, JPMorgan analysts have said that the Chinese EV industry growth will continue to speed up, with electrics making up about a fifth of all vehicles sold by 2025.

Citi added that monthly shipments of Li Auto’s Li ONE SUV will likely reach 6,000 units by next January. The Chinese company, which started delivering Li ONEs just a year ago in November 2019, shipped close to 3,700 units in October 2020.

China International Capital Corporation (CICC) also recently lifted its price target to US$40, from US$21.50, and maintained its “outperform” rating. The investment bank foresees even fatter margins for Li Auto next year, citing the company’s strong cost control and operational efficiencies.

Gross margins for its third fiscal quarter ended September 2020 widened to 19.8%, up from 13.3% in the second quarter, Li Auto said in results released on 13 November 2020.

Moreover, CICC analysts believe the firm will continue to pump money into research and development for self-driving and intelligent cabin projects, garnering new sales while staying competitive in the family segment.

What’s your view on Li Auto?

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