‘LI has proven itself’; Analysts raise estimates following Li Auto’s solid 1Q report

Chinese electric automaker, Li Auto Inc (NASDAQ:) released its report after the closing bell Wednesday, reporting an EPS beat of RMB 1.35 (RMB 1 = $0.1440), RMB 1.01 better than the analyst estimate of RMB 0.34. Total revenue came in at RMB 18.8B, up 97% YoY/6% QoQ. The company delivered 52,584 vehicles in the quarter.

Bank of America kept its Buy rating on Li but raised their 12-month price target for the stock by $3.00 to $37.00 as they see the brand building and its volume sales as top among the major EV start-ups and profitability improvement is sustainable.

Bank of America analysts wrote in a note, “Li indicated that it prioritizes the market share over further profitability expansion. It will not consider price adjustment or discount in order to gain more order because its product lineup plan and pricing segment have been set in a longer-term perspective.”

Li gave guidance on 2Q delivery of 76-81k units, up 165-182% YoY and 45-54% QoQ, indicating monthly sales to hit 30k units in June. Li expects 2Q revenue of RMB 24.2B-25.9B, suggesting YoY growth of 177-196% and QoQ growth of 29-38%.

Citi raised its price target on the stock to $54.30 (from $51.50) and revised their sales forecast for 2023-2025E from 235/300/365k to 290/350/420k units. To factor in lithium cost decline and better scale effect, Citi raised their GPM forecasts for the same time from 22.0/23.3/25.8% to 22.7/24.1/25.8%.

Citi analysts wrote, “We have a positive outlook on the EREV sector and Li Auto in the longer term given that: 1) Li Auto is the first mover in EREV technology in China, and we expect sharply rising adoption of EREV in the region as the vehicle type is an attractive alternative to BEVs and ICEs given its longer driving range and lower BOM cost; 2) we expect Li Auto to gain market share in the higher-end SUV segment thanks to its competitive products with Level 2.5 ADAS solution and superior functionality.”

Li’s “better-than-expected margins” and solid revenues have Barclays reiterating its Overweight rating and raising its price target on the stock to $34.00 (from $31.00).

LI delivered better gross margins and op margins despite the fact the company launched all three of its models in the past six months. Barclays believes that the solid margins and strong sales demonstrate management’s superb execution abilities. However, analysts think the most significant positive from 1Q results was the fact that LI generated $1.3 billion cash flows from operations and its FCF was almost $1B.

They wrote in a note, “We have highlighted in the past that most Chinese EV makers will likely not survive and industry consolidation seems inevitable in coming years as most EV makers are incurring significant losses currently. We believe LI has proven itself to be one of a few that has staying power. The company still has a lot to prove but, in our view, it has clearly pulled away from the rest of the pack of emerging EV makers in China.”

Shares of LI are up 3.37% in pre-market trading on Thursday.