We recently compiled a list of the 11 Best EV Stocks To Buy For The Long Term. In this article, we are going to take a look at where Li Auto Inc. (NASDAQ:LI) stands against the other EV stocks to buy for the long term.
The Challenges of EV Adoption and the Promise of Solid-State Batteries
On August 30, Mark Fields, former Ford CEO and President joined CNBC’s ‘Squawk Box’ to discuss the challenges facing electric vehicle (EV) adoption. Fields pointed out that early enthusiasm for EVs was driven by automakers and government regulations, but mass adoption is proving more difficult. Consumers are hesitant due to several factors including the high cost of EVs, the lack of visible and convenient charging infrastructure, and the slow charging times compared to gas refueling.
Fields suggested that automakers need to offer more affordable EVs and expand hybrid offerings while working towards breakthroughs in battery technology, especially solid-state batteries. These batteries could eventually reduce charging times to match the convenience of filling up at a gas station.
Fields commended his former company’s strategy as it involves focusing on hybrid models to ease consumers into EV technology without the range anxiety that comes with current models. He noted that automakers are also facing financial challenges in the EV space, as shown by his former company’s recent writedowns.
He emphasized that while automakers are working on delivering low-cost EVs, the real game-changer will be the development of solid-state batteries, which could significantly improve charging times and consumer convenience.
Exploring Three Scenarios for the Future of EVs
Despite the challenges, the EV industry seems inevitable and is poised to grow over the next few decades. We discussed the International Energy Agency’s (IEA) EV outlook in our article about the best EV stocks according to short sellers. Here is an excerpt from it:
“The IEA’s Global EV Outlook 2024 examined the potential paths to electrifying road transport by 2035. The report presents three scenarios: the Stated Policies Scenario (STEPS), the Announced Pledges Scenario (APS), and the Net Zero Emissions by 2050 Scenario (NZE). The STEPS considers current policies and market trends, the APS assumes that all government pledges will be fully implemented on time, and the NZE outlines a pathway to achieve net zero CO2 emissions by 2050.
The projections show that the global EV fleet could grow significantly by 2035. Under the STEPS, the number of EVs is expected to increase from less than 45 million in 2023 to 525 million by 2035. In the APS, this number could reach 585 million, while the NZE Scenario projects a more ambitious growth to 790 million EVs by 2035.
The report also discussed the growth of electric light-duty vehicles (LDVs), buses, and two/three-wheelers (2/3Ws). LDVs, which include passenger cars and light commercial vehicles, are expected to remain the largest segment of the EV market. Electric buses and 2/3Ws are also projected to see significant growth, especially in regions like China and India, where policy support is strong. However, achieving full electrification of these segments will require continued policy support and technological advancements.”
Moreover, governments worldwide are pushing for increased EV production due to environmental concerns, with the U.S. making significant moves in this direction. On July 11, the Department of Energy (DOE) announced $1.7 billion in grants to support the conversion of 11 auto manufacturing plants in eight states to produce electric vehicles and their components. This is part of President Biden’s “Investing in America” initiative, which is aimed at protecting union jobs and giving a boost to EV manufacturing.
The program is funded by the Inflation Reduction Act and will preserve over 15,000 union jobs and create nearly 3,000 new ones, which will support the production of EV components like batteries and electric motorcycle parts.
Our Methodology
For this article, we used screeners and ETFs to identify 22 EV manufacturers with a market cap of above $50 million and narrowed our list to 11 stocks with the highest average analyst price target upside, as of September 11. We took analyst comments mostly from The Fly and TipRanks. We also added the hedge fund sentiment around each stock which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A factory worker welding a car body with precision.
Li Auto Inc. (NASDAQ:LI)
Average Analyst Price Target Upside as of September 11: 39.24%
Number of Hedge Fund Holders: 17
Li Auto Inc. (NASDAQ:LI) is a well-known name in China’s new energy vehicle sector. The company specializes in designing, developing, and manufacturing premium smart EVs. It is recognized for its pioneering role in the commercialization of extended-range electric vehicles in China while also advancing its EV platforms.
Since beginning volume production in late 2019, the company has expanded its lineup to include high-tech models such as the Li MEGA MPV and a range of flagship SUVs, including the Li L9, Li L8, and Li L7.
The company is also improving its charging infrastructure and currently has nearly 750 supercharging stations with over 3,500 charging stalls, which cover over 70% of China’s major economic zones and key highways.
It has partnered with China National Petroleum Corporation (CNPC) to further boost its network and plans to add over 2,000 charging stations and 10,000 charging columns at CNPC locations. By the end of 2024, this expansion will enable the company to extend its charging network coverage to over 90% in major city centers and more than 70% along national routes.
Li Auto (NASDAQ:LI) has been covered by 42 analysts with a consensus Buy rating and a median price target of $27.26. The median price target implies an upside of 39.24%, as of September 11.
On August 28, TipRanks reported that Eunice Lee from Bernstein reaffirmed a Buy rating on the stock with a $33 price target. Lee’s positive stance is supported by the company’s recent financial results, which showed revenue growth both year-over-year and quarter-over-quarter.
The company achieved significant sales volume increases, maintained a solid gross margin despite a drop in average selling price due to a new lower-priced model, and reported positive operating income with improved net income margins. On top of that, the company’s strong cash reserves also highlight a solid balance sheet.
For the future, the analyst is cautiously optimistic about the third quarter and expects revenue growth and sales volume to exceed expectations. However, there are concerns about potential industry-wide demand and pricing pressures in the fourth quarter. Despite these challenges, Li Auto’s (NASDAQ:LI) valuation remains attractive compared to its peers, which is supported by its profitable track record and strong financials.
Li Auto’s (NASDAQ:LI) shares were held by 17 hedge funds with total positions worth $258.398 million. As of June 30, Renaissance Technologies is the biggest shareholder in the company and has a position worth $129.69 million.
Overall LI ranks 6th on our list of the best EV stocks to buy for the long term. While we acknowledge the potential of LI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
