Goldman sees a 50% gain ahead for this Chinese electric vehicle stock, initiates with buy rating

Published Wed, Jan 3 202411:57 AM ESTUpdated Wed, Jan 3 202412:31 PM EST

Chinese vehicle maker Li Auto is about to pick up the pace with its product launches, making it a ripe investment opportunity, according to Goldman Sachs. Analyst Tina Hou initiated coverage of Li Auto with a buy rating and price target of $52.90, which implies the stock could jump 52.9% over the next 12 months. The new rating comes as the carmaker's monthly deliveries surged to record highs and as it prepares to launch a new fully electric model in a couple of months. "We expect the competitive positioning of BEV [battery electric vehicle] models and deepening sales network to drive another leg of growth for Li Auto," Hou wrote in a Wednesday note. "With continued scale economics and operating leverage, we expect Li Auto to deliver the fastest earnings growth with top-tier free cash flow generation among our China auto OEM coverage, positioning the company for sustainable growth in a highly competitive market." Li Auto is a "leading pure NEV player" with 5% of the NEV, or new energy vehicle, market share in China, Hou said. It's also one of the very few profitable EV pure plays in the country. The company has grown popular with its cars that come with a fuel tank to charge the battery and extend driving range, and it's fueling China's fast-growing electric car market , which includes front-runner BYD , Tesla , XPeng and Nio , just to name a few. Several positive catalysts are behind Goldman's upgrade of Li Auto, including the company's new model launches, developments in its City NOA program — its advanced assisted-driving system for urban drivers — as well as the company's quarterly results due in late February. Li Auto announced Sunday it expects to launch and begin deliveries of its Mega multipurpose electric vehicle on March 1. The company has already started taking preorders in China for the vehicle — which will be its first model produced at its Beijing plant — at an estimated price of under 600,000 yuan, or $84,533.24, Reuters reported . During Li Auto's third-quarter earnings call in early November, the company's management said Li Auto has plans to launch four entirely new models in 2024, including a large SUV set to launch in the first half of the year that's catered toward younger families, as well as three BEV models in the second half. That would amount to eight models in Li Auto's portfolio by the end of this year, Goldman noted. In its delivery update released Sunday, Li Auto said it delivered more than 50,000 cars in December for a total of 376,030 in 2023, a roughly 182% year-on-year increase. LI 1Y mountain Li Auto stock. "We expect Li Auto to have one of the most aggressive new model pipelines and store expansions into the next two years … Li Auto's upcoming BEV models will be more competitive than peer offerings in terms of price, size and smart features," Hou wrote in the note, noting that the company's BEV models are expected to contribute 34% of its revenue by the end of 2025. New model launches could also drive further volume growth, she noted. Downside risks for Li Auto include deteriorated market demand and greater competition in the EV market, which could weigh on Li Auto's volume, margins and cash flow, Hou said. Hou had also initiated Chinese EV startup Nio with a neutral rating, saying it has certain brand recognition advantages "as an early mover." Nio has been losing market share in China's NEV market, however, and Hou noted that its growth rate could remain soft as the carmaker has a more mature product portfolio compared to its peers.