Strong fundamentals and technicals paint a bullish picture for Li Auto (NASDAQ: LI )

Li Auto Co., Ltd. (NASDAQ: LI) demonstrated strong financial and operating results in its most recent quarter. The company reported a significant increase in vehicle deliveries and expanded retail and service operations in multiple cities.Financial results, including revenue and net profit, reflect Such a positive trajectory. Li Auto emphasizes its commitment to innovation, launching technological advancements and new products targeting different consumer preferences. In addition to these achievements, the company has conducted successful capital raisings and maintains an optimistic outlook for the future, solidifying its position in the rapidly growing electric vehicle (EV) sector. This article examines Li Auto’s financial and technical indicators to predict the potential stock price trajectory and determine investment prospects. Notably, the stock is showing a strong bullish trend given the growing demand in the electric vehicle market, and a break above the $47 mark could trigger a sharp rise.

A deep dive into sales surge and expansion

Li Auto’s financial data for the second quarter of 2023 were impressive. The company’s total vehicle deliveries increased 201.6% year-on-year to 86,533 vehicles. This aggressive scale of operations is further underlined by the expansion of retail stores to 331 stores in 127 cities, with 323 repair centers and authorized body and paint shops in 223 cities. The company’s vehicle sales this quarter reached US$3.86 billion, a year-on-year increase of 229.7% and a sequential increase of 52.6% from the first quarter of 2023. Automotive profit margins fell slightly to 21.0% in the second quarter, from 21.2% in the second quarter of 2022 to 2023, which is still an improvement from 19.8% in the first quarter of 2023.

In addition, Li Auto’s total revenue reached US$3.95 billion, a strong year-on-year increase of 228.1% and a 52.5% increase from the first quarter. Gross profit for the quarter was US$859.9 million, an increase of 232.0% from the second quarter of 2022 and a sequential increase of 62.8%. Gross profit margin increased slightly and stabilized at 21.8%. It is worth noting that the company achieved a net profit of US$327.19 million, which was a significant improvement from the net loss in the second quarter of 2022 and an increase of 147.4% from the first quarter of 2023. This points to growing operational efficiencies and possibly improved cost management. As shown in the chart below, Li Auto’s significant growth in net profit highlights the company’s potential future profitability.

Additionally, the company’s net cash generated from operating activities was $1.53 billion, an impressive year-over-year and sequential increase. Free cash flow followed the same trajectory, reaching $1.33 billion, underscoring the company’s ability to generate healthy cash after accounting for capital expenditures.

Looking at recent developments, the company delivered 34,134 vehicles in July 2023, an increase of 227.5% from July 2022. It is worth noting that the Home Technology Day held in June 2023 highlighted the company’s intention to launch its super flagship 5C pure electric model Li MEGA and demonstrated the technological advancement and launch plan of autonomous driving functions. The Li L9 Pro, launched in August 2023, is designed to cater to a wider range of home users, further emphasizing the company’s focus on innovation and meeting diverse consumer needs.

Looking forward, Li Auto remains optimistic about the third quarter of 2023. The company expects vehicle deliveries to be between 100,000 and 103,000 vehicles, with a year-on-year growth of 277.0% to 288.3% expected. Total revenue is expected to be between US$4.46 billion and US$4.59 billion, representing an increase of 246.0% to 256.4% compared with the third quarter of 2022.

Interpreting Li Auto’s bullish trajectory

Li Auto’s fundamental outlook appears bullish, and this sentiment is also reflected in its technical chart. The weekly chart below shows a strong uptrend from the 2022 low of $12.52, indicating continued upward momentum. An important reason for this rise is that a solid foundation has been laid in the second half of 2022. Prices consolidated in the last quarter of 2022 and the first quarter of 2023, forming a bottom pattern before rising.

Historically, 2020 has seen a similar rebound, driven by growing global interest in electric carmakers and Li Auto’s impressive operating metrics.SookeL Successful initial public offering (IPO)Investors’ trust is further bolstered by i Auto and its delivery figures that continue to exceed market expectations. Notably, China’s electric vehicle industry is expanding rapidly, driven by government initiatives and growing demand for sustainable transportation. Li Auto’s unique extended-range electric vehicle (EREV) offering sets it apart in this booming market, influencing the stock’s bullish trend.

After falling in 2022, the stock mimicked its previous rally, with prices recently trading near its 2020 highs before a minor pullback. The stock has been trading between $12 and $47. However, its overall trend remains bullish, with double bottoms highlighted. This pattern often occurs when the electric vehicle industry draws global attention due to environmental concerns. The rally that began in 2022 appears to be driven by oversold conditions in the market, as reflected by the RSI.

Looking at the short-term daily chart, the recent bounce showed a solid base at $12.52 before the price surged to form a double bottom at $12.52 and $16.09. While not a textbook double bottom, the subsequent price increase was significant. Another double bottom formed between $20.80 and $21.48, after which the price surged again. These repeated double bottoms highlight the stock’s ongoing bullish momentum, which is expected to persist for the foreseeable future. The recent price correction in September introduced another double bottom, and the stock is currently trending upward. A break above $47 would signal a market buy and is worth considering for investors looking for potential growth. Further supporting this is the RSI, which remains above the mid-50 level, confirming the bullish bias in the market.

market risk

While Li Auto deserves credit for its rapid expansion of retail stores and service centers, most of its business appears to be concentrated in China. If the domestic market faces economic or regulatory challenges, the company’s revenue could be materially affected. In addition, the rapid expansion of the business may bring potential operational risks, judging from the growth in vehicle deliveries and the expansion of retail stores. Managing such a fast-paced expansion can lead to potential inefficiencies or quality control issues.

The upcoming Li MEGA and the company’s ambitious plans for self-driving features may face technical hurdles. Any setbacks or delays in their rollout could erode investor confidence. Competition in China’s electric vehicle market is becoming increasingly fierce, with multiple manufacturers vying for market share. As competitors ramp up operations and innovation, Li Auto will face the challenge of maintaining its growth trajectory. The electric vehicle industry, especially in China, is subject to government regulations. Any policy changes or regulatory intervention may bring risks to Li Auto’s operations.

From a technical perspective, the stock price has ranged widely between $12 and $47, which means investors need to consider a certain level of volatility. If Li Auto cannot break above $47 soon, the likelihood of further declines may increase. Additionally, a break below $35 could indicate neutral price action.

bottom line

In recent quarters, Li Auto has demonstrated strong financial earnings and operational progress, particularly a significant increase in vehicle deliveries and a significant expansion of its retail business. The company’s revenue and net profit figures attest to its prosperous trajectory. The launch of innovative products and technological advancements, such as the upcoming Li MEGA and autonomous driving capabilities, underscores its commitment to meeting diverse consumer needs. On the financial front, Li Auto’s ability to generate significant cash flow and optimistic forecasts for the next quarter highlight its potential.

Technically, the stock shows a strong bullish trend, supported by continued performance since the 2022 lows and validated by a repeating double bottom pattern (a historical bullish indicator). Technical analysis suggests that positive momentum continues, signaling potential growth opportunities if the stock breaks above the $47 mark. Investors may consider purchasing Li Auto at its current price, which is expected to rise soon.