Among U.S.-listed Chinese EV stocks, Li Auto (NASDAQ:LI) has been a top performer. Since January, LI stock has experienced a nearly 93% run-up in price.
Compare that to another high-profile Chinese EV play, Nio (NYSE:NIO). While NIO is in the green for 2023, the stock has delivered far less spectacular returns (around 4.6%) year-to-date.
Another name in this category, Xpeng (NYSE:XPEV) has performed well, but its gains for the year (77.5%) are moderately below that of LI.
Beyond delivering an outsized performance compared to peers, Li Auto may have the strongest chance amongst the bunch to “level up” on its recent success. This leaves shares in a strong position to add to their latest gains.
This is despite the market’s latest skepticism about future runway for the stock, as seen from its plateauing in price since last month.
LI Stock: Cooling Excitement Sets in After Big Rally
Eight months back, it seemed as if it was going to be a bumpy road ahead for Li Auto. With Tesla (NASDAQ:TSLA) initiating an EV price war in China, locally-based competitors appeared to be in a tough spot.
Following suit with price cuts threatened margins. Sitting out of the price war threatened market share/future growth. However, in the ensuing months and quarters, price war fears proved to be an overreaction. Li wound up reporting strong delivery and earnings figures for the ensuing months/quarters.
Yet while these impressive numbers helped to spur a new round of investor enthusiasm for LI stock, as mentioned above, this rally has screeched to a halt.
This comes even as the EV maker has continued to crush it. In August, deliveries grew 663.8% year-over-year. Last quarter (ending June 2023), Li reported sequential revenue growth of 52.6%, and sequential earnings growth of 92.9%.
Given current macro-related worries about China, the market’s pivot to an “on the fence” view makes some sense. That said, a closer look suggests that, much like with the perceived price war headwind, investors may be once more making a mountain out of a molehill.
Why Sentiment Could Shift Back to Bullish
“Doom and gloom” headlines about the Chinese economy may imply tougher times ahead for LI stock, but that may not be necessarily the case, even if the economic environment in its home market becomes more challenging.
For one, state efforts like the extension of tax break for EVs through 2027, could help to keep demand steady. The latest industry-wide data on Chinese auto sales suggest that this tax break extension (announced in June) is having the intended effect.
More specific to Li Auto, it may just well be the type of car it is producing that keeps it continuing to experience satisfactory revenue and earnings growth.
As Louis Navellier and the InvestorPlace Research Staff pointed out back in June, what may explain Li’s success in recent quarters could be the company’s focus on SUVs for the mass affluent market.
Li’s success at capturing a greater share of this niche within the Chinese automotive market may continue, helping to outweigh the impact of a sluggish economy on overall EV sales.
Investors may be bracing for impact, but if Li’s monthly delivery and quarterly fiscal figures continue to meet/beat expectations, chances are this stock will experience another big rally.
An Appealing Buy on Weakness
Yes, if Chinese EV demand ends up being more resilient than currently expected, this could be a booster for both of this stock’s above-mentioned peers. However, even in this scenario, LI likely has a clearer path to higher prices.
Both Xpeng and Nio keep facing challenges with reaching profitability. This could outweigh the benefit of further revenue growth. In contrast, Li is already profitable, and earnings could rise dramatically if growth comes in line with expectations.
Another issue for NIO and XPEV in the future is a recent crackdown on Chinese EV makers in Europe. Expansion into Europe has been a big part of the respective growth stories for both stocks, whereas Li has been taking things slowly with its global expansion plans.
Considering these strengths, LI stock is one of the better ways to play the rise of EVs in China, if you’re bullish that this trend will continue.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.