Li Auto’s deliveries are increasing. Is the stock still undervalued?

Chinese luxury electric car maker Li Auto delivered 34,914 vehicles for August, representing a more than 7-fold increase compared to last year. This is well ahead of competitors like Nio and Xpeng, which sold around 19,329 (81% YoY increase) and 13,690 (43% YoY increase). Li Auto is benefiting from strong sales of its high-end electric vehicles that have electric motors coupled with a gasoline-powered range extender generator that helps reduce range anxiety. While the company only had one car model until 2022, it has since launched three cars including the Li L9, a full-size luxury crossover with all-wheel drive, the Li L8, a mid-size luxury crossover, and the L7. These new vehicles help Li meet the needs of a larger customer base, with sales of the Li L7, Li L8 and Li L9 models exceeding 10,000 units in August.

Interestingly, Lee has a Sharpe ratio of 0.5 Since early 2017, less than 0.6 for the S&P 500 index during the same period. This also falls short Sharp 1.3 For Trefis Reinforced Value Portfolio. The Sharpe is a measure of return per unit of risk, and high-performing portfolios can provide the best of both worlds.

The near-term outlook also looks strong. Lee previously indicated that total monthly sales could reach 40,000 units in the fourth quarter. Li appears to have enough bandwidth to expand, with monthly production capacity of 50,000 per month. The company is also expected to launch its first pure battery electric vehicle model called MEGA by the end of this year, with a range of about 500 miles. The company expects the car to be one of the best-selling cars in the Chinese electric car sector, which is worth more than $70,000.

So does the stock still look like a buy? While demand for new Li models is very strong, the company’s fundamentals are also improving. The increasing volumes help Li Auto increase its profit margins. Gross margins for the quarter ended June improved to 21.8%, which is now actually ahead of Tesla, which reported gross margins of just 18.2% in its most recent quarterly report. That’s far ahead of rivals Nio and Xpeng, which have seen margins fall to single digits or negative levels, partly due to price cuts. Li is trading at roughly $39 per share, just below the all-time highs seen recently. In relative terms, the stock currently trades at roughly 3 times estimated 2023 revenue. Although this beats Chinese rival Nio, it falls short of the likes of Tesla and Xpeng. Given Li’s superior growth and profitability, this is a reasonable multiple. See our analysis for Nio, Xpeng and Li Auto: How do Chinese EV stocks compare? For a detailed look at how Nio stock compares to rivals Li Auto and Xpeng.