Looking for EV Stocks? Check Out Li Auto Inc.
In recent years, there has been a massive surge in the number of electric vehicles (EVs) on the road. Seeing the booming market, every automaker—from Tesla Inc (NASDAQ:TSLA) to Detroit’s “Big Three,” to EV start-ups—wants a piece of the action.
Investors have noticed the trend, too. Just take a look at how much TSLA stock has gone up this year alone and you’ll see how enthusiastic investors are about the industry.
Since the U.S. stock market loves the EV business so much, EV companies from other countries want to list their shares here too. One foreign EV stock that recently went public in the U.S. is Li Auto Inc. (NASDAQ:LI).
Li Auto is a Chinese company that designs, develops, manufactures, and sells smart electric sport utility vehicles (SUVs). (Source: “Form 424B4,” Li Auto Inc., July 30, 2020.)
Compared to most other EV companies in China, Li Auto stands out due to its focus on making extended-range electric vehicles (EREVs), which have an electric propulsion system and a range extension system.
The electric propulsion system is what you’d expect from an all-wheel-drive electric SUV: it consists of front and rear dual electric motors and a battery pack.
The range extension system, as the name suggests, is used to extend the range of the vehicle. The system is made up of a fuel tank, a 1.2-liter, 3-cylinder, turbo-charged engine, as well as a generator. The range extension system uses gasoline only to generate electricity; the car is still propelled by its electric motors.
Now, you might think that by building cars with an internal combustion engine in the system—even though it is only used to charge the battery—Li Auto Inc. is not as pure-play as, say, a company that builds just battery electric vehicles (BEVs).
However, the decision to include a range extension system actually makes a lot of sense in China. You see, the country is densely populated and has limited EV charging facilities. As a result, most consumers simply don’t have convenient access to charging infrastructure.
Therefore, if you decide to sell a BEV in China, you would reach just a subset of the market. The rest of the consumers who are willing to drive electric cars would have too much “range anxiety.”
Of course, I’m not saying that BEVs can’t succeed in China—Tesla’s models have been selling like hotcakes in that country. But by having a range extension system, Li Auto Inc. has the potential to reach a broader market.
The company started volume production of its first model, “Li ONE,” in November 2019. Li ONE is a six-seat, large EREV that has a total range of 800 kilometers (almost 500 miles). The vehicle is also equipped with Level 2 autonomous driving features. (Source: Ibid.)
Instead of offering a wide range of trims and options like most other EV makers, Li Auto Inc. has given Li ONE a flat price of RMB328,000 (around $46,000).
Now, we know that the COVID-19 outbreak in China led to a major lockdown in many parts of the country earlier this year. So you are probably wondering whether there are any people actually buying the newly launched EREV in this environment.
Well, the numbers might surprise you.
In the fourth quarter of 2019, Li Auto delivered 973 Li ONEs. The number grew to 2,896 in the first quarter of 2020, marking a sequential increase of 198%. (Source: Ibid.)
Then, in the second quarter of 2020, the company delivered a whopping 6,604 Li ONEs. That was another 128% of growth quarter-over-quarter!
One thing that often concerns EV stock investors is that the automotive industry is quite capital-intensive. In the case of many EV start-ups, they often have to invest a lot of money to ramp up production capacity.
The good news is, even though Li Auto Inc. is a new player, its own Changzhou manufacturing facility already has an annual production capacity of 100,000 vehicles. With additional machinery and production line installation, the facility’s production capacity can be expanded to 200,000 units per year.
Li Auto Inc.: Improving Financials
LI Auto is yet to report earnings as a publicly traded company, but from its latest filing to the U.S. Securities and Exchange Commission, we can get a glimpse into how it is doing financially.
In the second quarter of 2020, the company generated RMB1.9 billion (around $275.0 million) of revenue, which marked a 128.6% increase from the first quarter. (Source: “Form 424B4,” Li Auto Inc., op. cit.)
Strong top-line growth should not come as a surprise, given that Li Auto’s vehicle deliveries more than doubled during this period.
At the bottom line, Li Auto had a net loss of RMB75.2 million (around $10.6 million) in the second quarter of this year. The amount was narrower compared to the net loss of RMB77.1 million incurred in the first quarter.
The company had plenty of liquidity at the end of June, with RMB3.7 billion (around $521.2 million) in cash and cash equivalents, restricted cash, time deposits, and short-term investments.
Li Auto Inc. priced its initial public offering (IPO) at $11.50 per American depositary share (ADS) on July 30. After the stock started trading, it quickly skyrocketed to over $17.00 apiece.
LI stock has since pared some of those gains, but trading at $16.71 per share at the time of this writing, it is still up 45% from the IPO price.
The EV market is still booming in China, so if the company can continue ramping up its production and grow its financials, Li Auto stock could deliver some serious returns down the road.