The EV segment has suffered at the hand of macro developments in 2021. For one, investors have pivoted away from growth stocks – under which you can add EV makers – to safer investment havens as fears of inflation have come to the fore and interest rates have risen.
At the same time, the global chip shortage has played havoc with production schedules, affecting many industries, chief among them the auto sector.
The impact was evident in Li Auto’s (LI) outlook for the rest of the year, when the Chinese EV maker reported the first quarter’s financials last week.
That said, in the first quarter, revenue came in stronger than expected. Sales more than quadrupled from the same period last year to 12,579 units, generating revenue of 545.7 million, ahead of the Street’s forecast for revenue of $522.5 million. On the bottom-line, on the other hand, there was a $0.01 miss.
The company’s Q2 guide calls for total deliveries between 14,500 and 15,500, which suggests an average monthly production rate of 5,000 units.
“By comparison,” said Needham’s Vincent Yu, “Under double-shift schedules, which the company has started to implement recently per mgt., the maximum production rate should be ~8k per month. The difference is due to the chip shortage that has impacted the entire auto industry.”
Li’s management thinks the chip constraints will modestly improve as the year progresses, and by September expects production of more than 10,000 units a month, assuming the shortage “does not worsen.”
Yu still thinks the production “bottleneck” will be a headwind to sales this year. However, despite the “inflationary environment,” and increases to raw material costs, the company does not foresee gross margins being affected, and neither does Yu.
“We think Li is on track to reach the 19% vehicle gross margin target despite macro headwinds, as the margin profile between the old and new Li One model is similar with a designed gross margin of 25%,” the analyst noted.
Accordingly, headwinds or not, Yu remains a Li Auto bull. The analyst rates the stock a Buy, and his $37 price target implies ~45% upside over the next 12 months. (To watch Yu’s track record, click here)
Yu’s colleagues agree. The 3 other recent LI reviews also say Buy, giving the stock a Strong Buy consensus rating. The average price target is just below Yu’s, and at $37.65, suggests one-year returns of 47%. (See LI stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.