The best EV plays are now in China. Analysts are raising price targets on this stock

Published Sun, Mar 3 20247:11 AM EST

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

With Apple reportedly out of the electric car game and Tesla losing market share in some Chinese cities, the best EV stock plays are arguably now all based in China. The country is the world's largest auto market, with new energy vehicle penetration of at least 30%. Most of those cars come from homegrown brands. Tesla China lost market share in January, mainly in China's large cities, "despite price cuts" announced that month, Morgan Stanley analysts said in a Feb. 28 report that looked at the prior month's sales distribution. Xpeng and Nio lost share across regions, while BYD saw gains in major cities but losses in less developed areas, where it saw increased competition from state-owned players, the report said. Li Auto 's market share waned, and Morgan Stanley analysts are watching whether there will be a boost from new models. The automaker on Friday announced its first fully battery-powered car, a multi-purpose vehicle called the Li Mega. Li Auto's cars to date have all been SUVs that are technically hybrids since they come with a fuel tank for charging the battery. That product strategy addressed consumers' range anxiety, and quickly propelled Li Auto to tens of thousands of vehicle deliveries a month, making it the best-seller among its startup peers. Earnings top expectations The U.S. and Hong Kong-listed company last week reported earnings that beat FactSet predictions — and prompted a few analysts to raise their price targets. "Following our upgrade earlier this month, Li Auto delivered impressive earnings/guidance, further cementing its position as a top-tier China OEM," Deutsche Bank analysts said in a late February report. They rate the stock a buy and raised their price target by $9 to $50 a share. That's about 9% above where shares closed Thursday, at $45.88. Part of their thesis comes from the automaker's high gross profit margin, which came in at 23.5% in the fourth quarter, above the predicted 21%. Li Auto management said they expect gross margin to fluctuate between 10% and 25%, but generally remain above 20%. "Gross margin is proving much more resilient than feared despite the ongoing price war," the Deutsche Bank analysts said. Li Auto shares are up more than 20% so far this year. Deliveries in February came in at a relatively low 20,251 cars, which the company attributed to the week-long Lunar New Year holiday that month and the coming launch of new models. But the startup still predicts a rebound to 50,000 car deliveries in March . Bank of America Securities analysts last week raised their forecasts for Li Auto's sales volumes and earnings per share — for a $9 increase in their price target to $57 a share. BofA rates the stock a buy. Li Auto has three other battery-only cars planned for the market, and is starting deliveries of its new Li Mega this month. New competition? But even with its premium pricing the company isn't immune from intense competition in China's electric car market. Aito, a new energy vehicle brand developed by Huawei, claimed it delivered 21,142 cars in February — more than Li Auto — and said its new M9 SUV has more than 50,000 orders. The brand sells cars in a slightly lower price range than Li Auto's, and doesn't yet offer an MPV. Seres , the auto manufacturer behind Aito, said Friday it produced more than 32,000 cars in February, up by about 250% from a year ago. Shanghai-listed Seres shares are up 21% so far this year. Chinese smartphone company Xiaomi is also targeting its 20 million premium users with its forthcoming car, its president Weibing Lu told me last month. Top authorities are paying attention. Chinese President Xi Jinping on Thursday called for further support for new energy vehicle development, especially by constructing charging infrastructure. Separately, the White House on Thursday said the U.S. is beginning a probe into whether imports of Chinese vehicles could pose national security risks. While the U.S. remains a tough market for Chinese automakers to crack, their electric cars are in Europe and heading to other markets. China vied with Japan last year for the most car exports globally. After long holding to a China-first strategy, Li Auto last week said that by the end of this year it will begin overseas delivery, after setting up local sales and services in the Middle East and Central Asia. Nio, which delivered just over 8,100 cars in February, last week said it has entered a technology license agreement with Forseven, a subsidiary of Abu Dhabi-owned CYVN Holdings. Nio already sells cars in Norway and other parts of Europe. The company is set to release fourth quarter earnings before the U.S. market open on Tuesday. — CNBC's Michael Bloom contributed to this report.