Strategy Note /
China

Why we are neutral on Li Auto – an unremarkable Chinese EV player

  • Li Auto primarily targets large middle class families in first-tier cities

  • Its hit product is an EREV model, which has the advantages of both EV and ICE cars

  • The company has been quiet recently, in terms of marketing and product strategy

Why we are neutral on Li Auto – an unremarkable Chinese EV player
Niko Yang
Niko Yang

Senior Analyst

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EqualOcean
22 April 2021
Published byEqualOcean

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One of Li Auto's co-founders, Donghui Ma, has recently left the company.

We view Li Auto (LI:NASDAQ) as a rather conservative EV player based on its product and corporate strategy. While the room for the firm's expansion is limited, Li ONE's features protect Li Auto's business growth in the short-term.

In 2020, the Chinese EV space was fertile and well cultivated, as we showed in our latest article about NIO (NIO:NYSE). Li Auto is also benefitting from the car market's rebound, fast domestic EV adoption and solidifying infrastructure.

An extended-range electric vehicles provider – not as valuable as its peers

Li ONE (or Li Xiang One), the only mass model of Li Auto, is a price-effective SUV for large families in China. Compared with hit products of TSLA, NIO and XPEV. its design is not avant-garde. The model's price starts from CNY 328,000 with an NEDC range of over 800 km and a 40.5 kWh battery.

Fundamentally, Li ONE is poised to deliver stable growth consistently with a combination of ICE and BEV features, which means facing more potential clients. Buyers of Li ONE can enjoy many advantages, such as an easier way to get a NEV plate, which is extremely attractive for many families in Tier 1 cities, government subsidy and lower costs brought by EV charging and convenient use when switching to the 'gas mode.'

Another factor contracting Li Auto's valuation is autonomous driving (AD) technology. The situation is unlike XPEV's NGP delightful result, which, in some of China's road conditions – such as fork roads – recognizes objects more accurately than TSLA's AD system. NIO Pilot, NIO's AD system, reached over 100,000,000 miles of testing. The company didn't show exciting progress in AD. Most recently, to remedy this, Li Auto has cooperated strategically with Nvidia and Desay SV.

Sales were good in November – we expect LI to maintain stable growth

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In November, Li Auto sold 4,646 vehicles, up 25.8% MoM, a new peak. This figure allowed Li Auto to maintain its market share of 2.5%, the same as a month ago. Li achieved 8,338 total sales of vehicles in October and November. Given the management's conservative estimate of between 11,000 and 12,000 units sold in the fourth quarter of 2020, it can easily surpass the target.

Li Auto is not ready for expansion abroad and rolling out a BEV

It is now a prevalent idea among Chinese EV supply chain firms to explore foreign markets. But Li Auto seems to be relatively static on the move. Since the last earnings call, the management hasn't presented a clear guideline on releasing a BEV model in 2022. In December, the company finished seasoned equity offering. Thus, the most recent official claim is ''(i) next-generation electric vehicle technologies, including high-voltage platform, high C-rate battery, and ultra-fast charging, (II) the next BEV platform and future car models, and (III) autonomous driving technologies and solutions and general corporate purposes.''

To read the full article for free, please click here.