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Li Auto: Why analysts remain bullish despite recent decline

China’s third largest EV maker has seen its market cap slashed by nearly 15% since announcing the offering of convertible senior notes.

  • Li Auto Inc (NASDAQ: LI) share price, down over 30% in 2021, has sunk 15% since Wednesday (07 April 2021)
  • The decline came after the electric vehicle (EV) manufacturer said it would be offering US$750 million worth of convertible senior notes
  • The stock has underperformed this year due to rising competition, regulatory concerns and supply chain issues
  • Analysts continue to rate the stock a ‘buy’ and see a 77% upside on Li Auto
  • Buy and sell Li Auto shares with an IG account

Li Auto stock price: what’s the latest?

Li Auto shares closed 4.3% lower on Monday (12 April 2021), after announcing the offering of nearly US$900 million worth of notes.

The Chinese EV maker said it has completed the offering of US$862.5 million in aggregate principal amount of its 0.25% convertible senior notes due 01 May 2028.

This included the exercise in full by the initial purchasers of a 13-day option to purchase up to an additional US$112.5 million in aggregate principal amount of the notes.

The company said it is planning to use the net proceeds from the notes offering for research and development of new vehicle models, including BEV models, research and development of leading technologies, and working capital and other general corporate purposes.

Why does Li Auto continue to stay down?

Li Auto’s share price, which is down over 32% this year, has plunged nearly 15% in the last one week alone.

Last Wednesday (07 April), the EV stock crashed by 13%, after it first announced the debt offering of US$750 million worth of convertible senior notes.

Besides the note offering, market observers believe increasing competition, supply chain issues, regulatory concerns and rising interest rates are also driving the decline of high growth stocks like Li Auto.

Tesla, for example, has launched a locally manufactured version of its Model Y, while China’s largest automaker Geely will also be unveiling a premium EV brand this year.

A shortage in chips used in the production of EVs has also forced Chinese EV companies like Nio to suspend their production activity. Finally, ongoing concerns around the delisting of US-listed Chinese stocks also continue to weigh on investor sentiment around stocks like Li Auto.

Where next for Li Auto stock?

Nevertheless, Li Auto was able to deliver 4,900 Li ONEs in March 2021, representing a 238.6% year-over-year increase, and an improvement over the first two months of the year.

This brought deliveries for the first quarter of 2021 to 12,579 units, up 334.4% year-on-year.

On the back of this, analysts maintain a consensus rating of ‘buy’ on the stock and a 12-month price target of US$38.52, which represents a 77% upside, the latest MarketBeat poll data show.

The latest rating was provided by Needham & Company analyst Vincent Yu, who initiated coverage on Li Auto with a ‘buy’ call and price target of US$37.

The analyst was optimistic on the company's ‘differentiated’ EV products and relatively higher margins. He also liked Li Auto's ‘unique value proposition’, focused strategy, and ‘diligent’ margin and costs control.

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This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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