LI - Li Auto Lost The Price War - More Pain Ahead

2024-06-18 09:00:00 ET

Summary

• Li Auto appears to be retesting its 3Y support levels of $18s and on its way to retest the $15s floor, thanks to the worsening sentiments surrounding Chinese automakers.
• With the US/ EU government imposing hefty tariffs and Chinese automakers flooding the Middle East market, it seems that there are minimal growth drivers ahead.
• LI already reported negative FQ1'24 operating margins, with FQ2'24 likely to be worse as the management embarked on price cuts to boost volume growth.
• While the automaker appears to be well capitalized in FQ1'24, investors may want to temper their intermediate term expectations, with things potentially becoming worse before it gets better.
• As a result, LI is likely to remain a swing trade vehicle for investors with higher risk tolerance in the intermediate term, assuming that current floors hold.

We previously covered Li Auto ( LI ) in March 2024, discussing why it remained a Buy despite the recent market over-reaction to its lower FQ1'24 delivery guidance, since it was mostly attributed to the impacted deliveries during the Chinese New Year festivities and uncertain temporal macro events....

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