$LI Swimming Against The CurrentWith its plans to ramp up its production in Q4 2023 to meet the huge demand it is seeing, Li Auto (NASDAQ: LI) may see an increase in sales in Q4 which could see it reaching full year profitability for the first time in its history. Meanwhile, LI stock has the potential to continue soaring on the upcoming June 2023 delivery data if its deliveries increase from the 28,277 it delivered in May. Given LI’s trend of growing its deliveries despite the headwinds facing other Chinese EV companies, LI stock could be a profitable long-term hold.
LI Fundamentals
Promising Deliveries
While other EV makers like Nio (NYSE: NIO) and XPENG (NYSE: XPEV) are seeing a decline in deliveries and are making production and delivery cuts, LI increased its deliveries in May to 28,277 vehicles, a 146% increase YoY. That would mean that LI is well on its way to achieving its 76,000–81,000 delivery target for Q2 since it delivered 25,681 vehicles in April, and if LI can replicate its May deliveries in June, it may even exceed its target.
May would be the third consecutive month for Li to deliver over 20,000 vehicles, which are mostly driven by the Li L7, which had more than 10,000 deliveries for the second consecutive month.
LI has delivered more than 106 thousand vehicles as of May 2023, which makes it the third-top Chinese EV maker in terms of deliveries in China, trailing behind BYD (OTC: BYDDF) and Aion (OTCPK: GNZUF).
Increasing Production Capacity
With the high demand LI is seeing for its vehicles, CEO, Xiang Li, announced that the company is planning to increase its production capacity from 7,500 vehicles a week to 10,000 vehicles a week by Q4 2023 through the addition of new equipment.
The increased production capacity may improve LI’s profitability since it could lead to an increase in sales. At the same time, scaling production could have a positive impact on LI’s profit margins which could see the company achieve its first full year of profitability. Given the stock’s average price target of $40.33, LI stock could reach a higher level if the company is profitable in 2023 – which could make the current PPS a bargain.
LI Financials
In its Q1 2023 report, LI’s assets increased 9% QoQ from ¥86 billion to ¥94 billion, and its cash and cash equivalents increased 14% QoQ from ¥38 billion to ¥43.6 billion. LI’s total liabilities increased by 14% QoQ from ¥41 billion to ¥47 billion.
Revenue also increased 100% YoY from ¥9 billion to ¥18 billion. Operating costs increased almost 36% from ¥2.5 billion to ¥3.4 billion, which contributed to the operating income increase of 198% YoY from ¥413 million in operating loss to ¥405 million in operating income. As a result, LI reported a net income of ¥933 million – a YoY increase from the ¥10.8 net loss it recorded last year.
Technical Analysis
LI stock’s trend is bullish with the stock trading in an upwards channel. Looking at the indicators, the stock is trading above the 200, and 50 MAs which are bullish indications, and is currently testing the 21 MA as a resistance. Meanwhile, the RSI is approaching overbought at 64 and the MACD is bearish.
As for the fundamentals, LI stock just witnessed two catalysts in the delivery update for May and its CEO announcing the production capacity increase that is planned for Q4 2023. If LI reached or exceeded its Q2 2023 delivery target, it could be a huge future catalyst for LI stock, since most other EV manufacturers are seeing declining sales. At the same time, if LI is able to report full year profitability thanks to the planned production increase, the stock could soar to greater heights.
LI Forecast
LI is currently one of the most exciting EV manufacturers in the Chinese market with the huge increase in its deliveries growth. Furthermore, while other EV manufacturers are making production and delivery cuts, LI is planning to increase its production capacity by 33% by Q4 2023. LI stock is currently one of the EV stocks to watch for since a lot of EV stocks are underperforming currently.
