LI - Another red flag for EV industry as Li Auto stock price craters
2024-03-07 21:02:00 ET
It has been another difficult week for the electric vehicle (EV) industry as Tesla stock plunged to its lowest point since May 2023. It has crashed by over 50% from its all-time high.
Now, Li Auto (NASDAQ: LI), one of the top Chinese EV companies, has plummeted. It dropped by over 3.7% in New York on Thursday and by over 20% in Hong Kong on Friday morning. This means that the stock will crash during the American session.
Concerns about Li Auto are rising
Li Auto has emerged as one of the top Chinese EV companies. It is growing its sales and is now targeting between 70k and 100k vehicle sales monthly this year. It delivered 20k vehicles in February and expects to hit 50k in March.
Li Auto also published strong financial results last week. Its revenue jumped by 136% in the fourth quarter to over $5.8 billion. This surge was mostly because the company boosted its deliveries during the quarter. It was offset by the relatively low vehicle selling prices.
Li Auto also became profitable as its operating margin improved to 7.3%. Its net income surged to $810 million, making it one of the most profitable EV companies in the world.
And unlike other EV companies, it has a strong balance sheet with over $14.6 billion in cash and short-term investments. This is a substantial amount for a company that has a market cap of over $37 billion. Tesla, which has a market cap of over $558 billion has $29 billion in cash.
Li Auto also issued a strong forward guidance. It expects its revenue will rise to between $4.4 billion and $4.53 billion this quarter.
Still, Li Auto stock has not done well since publishing those results. For one, its Mega vehicle has received weak consumer reception and is said to have some cancellations. In a note, analysts at UOB also noted that the company may not reach its target as the EV industry slows. They said :
“We do not expect Li Auto’s monthly sales to reach 70,000-100,000 units in 2024, as guided by the management, given the increasing competition and the disappointing market response to Mega.”
Li Auto is also facing substantial challenges. Competition from the likes of BYD, Tesla, and Xpeng is rising, pushing them to slash prices. There are concerns that the EV sector is getting highly saturated as we saw in the solar energy and steel industries.
Li Auto stock price forecast
LI stock surged hard after the company published its financial results last week. This rally saw it reach a high of $46.38, its highest point since August 7th last year. Recently, however, the uptrend has lost momentum and crashed to $36.
The stock has plunged below the important support level at $42.33, its highest swing in November last year. It has also crashed below the 38.2% Fibonacci Retracement level.
Therefore, the outlook for LI stock is bearish, with the next point to watch being the 50% retracement level at $33.95.
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