Li Auto Stock Surges After Strong Earnings and Collaboration with Volkswagen

Li Auto Stock

Li Auto Inc. (LI), one of the leading electric vehicle (EV) makers in China, reported its second-quarter earnings on August 9, 2023, and surprised the market with better-than-expected results. The company posted a net income of $0.30 per share, beating the consensus estimate of $0.24 per share. Revenue increased by 228.1% year-over-year to $3.95 billion, surpassing the consensus estimate of $3.69 billion.

The strong performance was driven by robust vehicle deliveries, which reached 86,533 units in the second quarter, up by 201.6% year-over-year and 44.8% quarter-over-quarter. The company attributed the growth to the increasing demand for its Li ONE model, a six-seater premium SUV with a range extension system that allows it to run on both electricity and gasoline.

Li Auto also raised its guidance for the third quarter, expecting to deliver between 100,000 and 103,000 vehicles, representing a year-over-year increase of 277% to 288.3%. Revenue is forecasted to be between $4.46 billion and $4.59 billion, indicating a year-over-year growth of 246% to 256.4%.

Li Auto Stock

Li Auto announces strategic collaboration with Volkswagen

In addition to its impressive earnings, Li Auto also announced a framework agreement with Volkswagen Group China on strategic technical collaboration and a stock purchase deal for owning a strategic minority investment by Volkswagen in Li Auto. According to the agreement, Volkswagen will invest $700 million in Li Auto for a 4.99% stake and an observer board seat.

The two companies plan to jointly develop at least two new Volkswagen-branded EV models for the Chinese market, based on Li Auto’s EV platform and software technologies. The first model is expected to be launched in 2026, followed by another one in 2027.

The collaboration aims to leverage Li Auto’s strengths in smart vehicle solutions and range extension systems, as well as Volkswagen’s global brand recognition and market share. The partnership will also help Li Auto generate recurring revenue from licensing its technologies to Volkswagen and accelerate its path to profitability.

Li Auto shares soar after the news

The market reacted positively to Li Auto’s earnings and collaboration news, sending its shares up by more than 20% on August 10, 2023. The stock closed at $46.65 per share, reaching a new all-time high and giving the company a market capitalization of $42.2 billion.

Analysts also praised Li Auto’s performance and prospects, with several of them raising their price targets and ratings on the stock. Morgan Stanley reiterated its “overweight” rating and price target of $53, citing Li Auto’s strong delivery growth and margin improvement. Bank of America upgraded Li Auto from “neutral” to “buy” and increased its price target from $52 to $56, highlighting Li Auto’s competitive advantages in range extension technology and software capabilities. Nomura initiated coverage of Li Auto with a “buy” rating and a price target of $54, noting Li Auto’s potential to become a leader in the premium EV segment in China.

Li Auto is one of the three major EV players in China, along with NIO Inc. (NIO) and XPeng Inc. (XPEV). The company was founded in 2015 by Xiang Li, a former co-founder of UCWeb Inc., a mobile internet company that was acquired by Alibaba Group Holding Ltd. (BABA) in 2014. Li Auto went public on the Nasdaq in July 2020, raising $1.1 billion in its initial public offering.

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