Li Auto Q3 preview: Where next for Li Auto stock?

Chinese electric vehicle stocks have not experienced the same surge in value their US counterparts have enjoyed this year, but do Li Auto shares look cheap compared to its rivals ahead of its third quarter earnings?

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When will Li Auto release Q3 earnings?

Li Auto will release third quarter earnings before US markets open on Monday November 29.

 

Li Auto Q3 earnings preview: what to expect from the results

Electric vehicle stocks are hot right now. Tesla is worth over $1.1 trillion – more than the next nine largest automakers combined - and newcomers Rivian and Lucid, which both went public this year, are touting huge valuations despite the fact they have only just started production.

And yet, Chinese outfits have not managed to capture the imagination of investors in the same way as their US rivals despite the fact they are producing significant volumes and operating in the biggest EV market in the world.

Two of the three major Chinese EV makers listed in the US – XPeng and NIO – have already reported third quarter earnings, with both beating delivery and revenue expectations, leaving Li Auto to wrap-up the season. Let’s have a look at how Li Auto is faring versus its domestic rivals ahead of its earnings.

Below is a table outlining how close the race is among three of the biggest Chinese electric vehicle makers:

Deliveries

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Li Auto

8,660

14,464

12,579

17,575

25,116

XPeng

8,578

12,964

13,340

17,398

25,666

NIO

12,206

17,353

20,060

21,896

24,439

 

Li Auto was forced to cut its guidance for third quarter deliveries because it struggled to get its hands on the chips it needs from suppliers in Malaysia, where the pandemic has led to a slower-than-expected recovery in chip production. That has caused a slowdown in deliveries over September and October compared to August. The outlook for deliveries in the fourth quarter will be closely-watched.

Meanwhile, NIO’s production has also proven volatile in recent months. Having reported record deliveries of over 10,600 vehicles in September, that plunged to just 3,667 in October because it is upgrading production lines and adjusting operations to cater for new models. It has warned that deliveries will fall to 23,500 to 25,500 units in the fourth quarter.

XPeng has managed to be more consistent in terms of deliveries and has said fourth quarter deliveries will rocket to 34,500 to 36,500. XPeng has also recently launched a wave of new models and only started delivering its new G3 and G3i SUVs as well as its range of P5 family sedans in September, and it has just announced that it is launching its first car purposefully designed with the international market in mind - the new G9 flagship SUV.

Analysts forecast Li Auto’s total revenue will rise to a new record of RMB7.42 billion in the third quarter from RMB2.51 billion the year before. That would also mark a significant increase from the RMB5.03 billion of revenue booked in the previous quarter thanks to the significant uplift in deliveries.

Let’s see how that compares to its two rivals. The Q3 2021 figure for Li Auto is based on consensus numbers from Reuters, which are higher than the RMB6.98 billion to RMB7.25 billion guidance outlined by the company:

Revenue

(RMB, millions)

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Li Auto

2,511

4,147

3,575

5,039

7,426

XPeng

1,990

2,851

2,951

3,761

5,720

NIO

4,526

6,641

7,982

8,448

9,805

 

Analysts expect the third quarter loss from operations to come in at RMB248.6 million. That would be the smallest loss booked this year, narrowing from the RMB525.9 million loss in the second quarter and the RMB407.7 million loss booked in the first. That would be wider than the RMB176.3 million loss booked the year before.

The net loss at the bottom-line is expected to swell to RMB235.7 million from RMB235.5 million in the previous quarter, but improve from the loss seen the year before.

All three carmakers remain in the red, but analyst forecasts suggest Li Auto could turn profitable next year while figures for NIO suggest it won’t turn a profit at the bottom-line until late 2023. The market is nascent and expansion will remain the priority for the foreseeable future, particularly as they start to eye international opportunities where competition will be even fiercer than it is in China.

Plus, with the trio all in the red, value is being assigned to the strong prospects underpinned by the rapid growth we are seeing in the electric vehicle market. However, based on forecasts for this year, Li Auto offers better value, with a market cap equal to 8.7x annual revenue, than the 11.7x offered by NIO and the 15.3x on offer by XPeng. And all three look attractive when compared to the valuations being assigned to some US players.

Li Auto completed its US listing in the middle of the 2020 and swiftly climbed to a high of $47.70 in late November of that year. The stock trades over 17% below that all-time peak seen a year ago but has rallied over 77% since the middle of May. The 21 brokers that cover Li Auto have a Buy rating on the stock and an average target price of $42.70, implying there is over 30% potential upside from the current share price over the next 12 months. Meanwhile, brokers see over 41% potential upside for NIO shares but only 7.8% for XPeng.

 

Where next for Li Auto stock?

The Li Auto share price started trading in July last year at $16.00. The share price quickly rallied to an all-time high of $47.70 in November 2020 before falling lower, hitting a 2021 low of $16.96. 

The share price rebounded off the low, to $36.60 by July 2021, and has traded relatively rangebound since, capped on the upside by $36.60 and on the lower band by $25.00. 

More recently the range has tightened. Over the past month the share price trades capped by $34.80 on the upside and the 50 sma at around $29.50 on the downside, and the price is trading mildly towards the upper side of the trading range. It has pushed above its 20 and the RSI is also supportive of further gains whilst it remains out of overbought territory.  

Buyers might look for a move over $34.80 with possible resistance seen at $36.60, the July high, and $37.50, the 2021 high. 

On the flipside, sellers following poor results could look for a move below $29.50 to target $25.50, the October low. 

Where next for Li Auto shares?

 

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