Li Auto’s Strong Fundamentals And Technicals Paint A Bullish Picture (NASDAQ:LI)

Li Auto Inc. (NASDAQ:LI) has showcased strong financial and operational performance in a recent quarter. The company reported a significant increase in vehicle deliveries and expanded its retail and servicing presence across multiple cities. The financial outcomes, encompassing revenues to net income, reflect this positive trajectory. Emphasizing its commitment to innovation, Li Auto has introduced technological advancements and new product launches tailored to diverse consumer preferences. Alongside these achievements, the company has undertaken successful fundraising endeavors and maintains a promising outlook for the future, solidifying its standing in the rapidly evolving Electric Vehicle (EV) sector. This piece examines Li Auto’s financial and technical metrics to forecast potential stock price trajectories and identify investment prospects. Notably, the stock exhibits a robust bullish trend, and surpassing the $47 mark could trigger a significant upward surge, given the burgeoning demand in the EV market.

A Deep Dive into Surging Sales and Expansion

Li Auto posted impressive financial figures in the second quarter of 2023. The company achieved a whopping 201.6% year-over-year increase in total vehicle deliveries, reaching 86,533 units. The expansion to 331 retail stores across 127 cities further emphasized this aggressive scaling of operations, with 323 servicing centers and authorized body and paint shops in 223 cities. The company’s vehicle sales for the quarter amounted to US$3.86 billion, showcasing a surge of 229.7% compared to the same period in the previous year and a sequential growth of 52.6% from Q1 2023. While the vehicle margin slightly declined to 21.0% in Q2 2023 from 21.2% in Q2 2022, it still marked an improvement from 19.8% in Q1 2023.

Moreover, Li Auto’s total revenues touched US$3.95 billion, marking a robust growth of 228.1% year-over-year and a 52.5% rise from the first quarter. The gross profit for the period was reported at US$859.9 million, up by 232.0% from Q2 2022 and growing by 62.8% from the previous quarter. The gross margin saw a modest uptick, settling at 21.8%. Remarkably, the company recorded a net income of US$327.19 million, a significant turnaround from the net loss experienced in Q2 2022 and up 147.4% from Q1 2023. This indicates a strengthening operational efficiency and perhaps better cost management. The marked rise in Li Auto’s net income, depicted in the chart below, underscores the company’s potential profitability going forward.

Furthermore, the company’s net cash from operating activities stood at US$1.53 billion, showcasing impressive growth year-over-year and sequentially. The free cash flow followed the same trajectory, reaching US$1.33 billion, emphasizing the company’s ability to generate healthy cash after accounting for capital expenditures.

In recent developments, July 2023 saw the company deliver 34,134 vehicles, marking a 227.5% growth from July 2022. Notably, the Family Tech Day held in June 2023 highlighted the company’s intention to unveil its super flagship 5C BEV model, Li MEGA, and showcased technological advancements and roll-out plans for autonomous driving features. The launch of the Li L9 Pro in August 2023, designed to cater to a broader range of family users, further emphasized the company’s focus on innovation and addressing diverse consumer needs.

Looking ahead, Li Auto remains bullish for Q3 2023. The company anticipates vehicle deliveries between 100,000 and 103,000, reflecting an anticipated growth from 277.0% to 288.3% year-over-year. The expected total revenues are between US$4.46 billion and US$4.59 billion, signifying a growth of 246.0% to 256.4% compared to Q3 2022.

Deciphering Li Auto’s Bullish Trajectory

The fundamental outlook for Li Auto appears bullish, and this sentiment is mirrored in its technical chart. The weekly chart below indicates a strong uptrend since its 2022 low of $12.52, demonstrating consistent upward momentum. A significant reason for this upward movement was the solid foundation established during the latter part of 2022. The price consolidated in the last quarter of 2022 and the first quarter of 2023, forming a base pattern before ascending.

Historically, a similar rally was evident in 2020, propelled by growing global interest in EV manufacturers, enhanced by Li Auto’s impressive operational metrics. The successful Initial Public Offering (IPO) for Li Auto and its consistent delivery figures, which surpassed market anticipations, further strengthened investor trust. Notably, the Chinese EV sector expanded rapidly, with government initiatives and a rising demand for sustainable transport. Li Auto’s distinctive Extended Range Electric Vehicle (EREV) offering set it apart in this booming market, influencing the stock’s bullish trend.

Post the 2022 dip, the stock mimicked the previous rally, with prices recently approaching the highs of 2020, followed by a slight correction. The stock has been oscillating between $12 and $47. However, its overarching trend remains bullish, highlighted by a double bottom in the price. Such patterns often emerge when the EV industry captures global attention due to environmental concerns. The rally initiated in 2022 seems to have been propelled by market oversold conditions, as reflected by the RSI.

Examining the short-term daily chart, the recent rally reveals a sturdy base at $12.52, from where the price surged, forming double bottoms at $12.52 and $16.09. While not a textbook double bottom, the subsequent price hike was significant. Another double-bottom formation occurred between $20.80 and $21.48, after which the price surged again. These repeated double bottoms underscore the stock’s persistent bullish momentum, which is expected to persist in the foreseeable future. The recent price correction in September introduced another double bottom, with the stock currently trending upward. A breach over $47 would signify a market buy signal, making it worth considering for investors seeking potential growth. Further supporting this is the RSI, which remains above the mid-level 50, confirming the bullish market inclination.

Market Risk

While Li Auto’s rapid expansion in retail stores and servicing centers is commendable, most of its operations seem concentrated in China. The company’s revenues could be significantly impacted if the domestic market faces economic or regulatory challenges. Moreover, the rapid scaling of operations, as seen in the growth of vehicle deliveries and retail store expansion, could lead to potential operational risks. Managing such a fast-paced expansion might lead to potential inefficiencies or quality control issues.

The impending launch of the Li MEGA and the company’s ambitious plans for autonomous driving features could face technological hurdles. If there’s any setback or delay in their roll-out, it might dent investor confidence. The Chinese EV market is increasingly competitive, with several players vying for market share. As competitors ramp up their operations and innovations, Li Auto will face challenges maintaining its growth trajectory. The EV industry, especially in China, is subject to governmental regulations. Any policy changes or regulatory interventions might risk Li Auto’s operations.

From the technical perspective, the stock price has oscillated significantly between $12 and $47, which means investors need to consider a degree of volatility. If Li Auto cannot break the $47 soon, the chance of further drop might increase. Additionally, a drop below $35 could suggest a neutral price movement.

Bottom Line

Li Auto has demonstrated robust financial gains and operational strides in recent quarters, notably an impressive surge in vehicle deliveries and a vast expansion of its retail footprint. The company’s revenue and net income figures testify to its prosperous trajectory. Introducing innovative products and technological advancements, such as the upcoming Li MEGA and autonomous driving features, emphasizes its commitment to catering to diverse consumer needs. Financially, Li Auto’s ability to generate significant cash flows and bullish forecasts for the upcoming quarter underlines its potential.

Technically, the stock indicates a strong bullish trend, backed by consistent performance since its 2022 low and validated by repeated double-bottom formations, a historically bullish indicator. The technical analysis suggests continued positive momentum, with the stock signaling a potential growth opportunity if it surpasses the $47 mark. Investors might consider buying Li Auto at its present value, anticipating a price increase soon.