Short-term and long-term opportunities of Li Auto

Li Auto (02015) is a high-growth company with a historical PE ratio of around 22x. It earned over 11 billion yuan last year (2023) and currently has a market cap of over 200 billion yuan. The company is aggressive this year. From a qualitative analysis perspective, whether looking at the industry cycle or the company's own cycle, this is a solid company.

Its founder, Li Xiang, has been a serial entrepreneur with a keen sense of market trends. We admire upright individuals, and he seems to radiate positive energy. Li Auto has two goals: the short-term goal is to sell 800,000 vehicles this year. BYD currently sells 4 million vehicles annually, but Li Auto targets the premium segment—it doesn’t produce cars priced below 200,000 yuan. The second goal is to match iPhone's sales by 2030, which is an incredibly ambitious target. If it achieves these sales goals, Li Auto could become a company with terrifying potential.

Recently, Li Auto’s new MPV model was criticized as a "coffin car" and accused of over-marketing. In reality, the MPV, priced at 500,000 yuan per unit, targets the family car market with decent potential. Aesthetics are subjective—what matters is the actual sales data. Recent media reports indicate that Li Auto’s first MPV sold around 4,000 units since launch, while the internal annual target was 70,000 to 80,000 units (7,000-8,000 monthly deliveries). Sales usually ramp up gradually. During our store visits, we noticed sales focus was on the L7 model, and unverified rumors suggest the MPV’s annual target may be revised down to 50,000-60,000 units. This is likely why the stock price has dropped recently.

In the EV sector, we closely follow BYD, Tesla, and Li Auto—especially Li Auto as a growth stock. The NEV sector has strong operating leverage: when sales rise rapidly, profit growth is substantial, but when sales decline, procurement advantages and operational efficiency suffer, leading to significant gross margin compression. Studying different automakers’ sales and gross margins easily confirms this.

Thus, tracking this sector requires granularity. We monitor monthly sales and weekly fluctuations. Opportunities arise when market expectations diverge from actual sales. For example, Li Auto’s stock surged to over 180 yuan post-earnings but dropped to around 120 yuan three weeks later. Valuation-wise, if it hits this year’s target of 800,000 units, its current valuation is cheap. We’ll closely watch March-April-May sales—if data is strong while market valuation remains stagnant, this becomes a clear opportunity. Note: this hinges on tracking data showing outperformance versus expectations.

Li Auto consistently offers trading opportunities. For instance, the week before January 26 earnings, its stock hit a low of 102 yuan amid expectations of zero profit due to price wars. Post-earnings, it skyrocketed to 180+ yuan. This divergence between expectations and reality is a repeatable strategy to capture opportunities.