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Li Auto (NASDAQ:LI) stock saw profit taking after reporting record earnings for the June quarter.
Li earned $300 million, 30 cents per ADR share fully diluted, on revenue of $3.95 billion during the quarter. Deliveries more than tripled from a year ago, to 86,533 vehicles.
Despite this, shares hit an air pocket, falling from $46.63 to $41.41 in early New York trade on Aug. 8. Investors got 40% of the loss back by midday August 10, the shares trading at $43.46.
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China Syndrome
Li stock saw a bigger impact from new constraints on investment the Administration laid on China than the positive earnings news. China’s government was not amused, calling the move “blatant economic coercion.”
While I have long been high on Li as a company, I suggested investors pump the brakes on the stock last month. At the time Li was selling at a little over $38 per share.
My concern is not just over tensions between the U.S. and China, but on China’s economy and what it portends for Li.
Li makes battery-first hybrids that appeal to wealthy cadres who are having kids to stay on the good side of President Xi Jinping. But China’s growing economic problems make me question how long Li’s strategy can succeed.
Message of the Market
While Li has fallen from its recent highs, it’s still the best Chinese EV stock you can buy in New York.
XPeng (NASDAQ:XPEV) got a boost from its recent tie-up with Volkswagen (OTCMKTS:VWAGY) and is up 70% in 2023, but Li is up 111%, even with its pullback.
Nio (NYSE:NIO), which is exporting cars to Europe and doubled its deliveries in July, is up 37%. Polestar (NASDAQ:PSNY), controlled by China’s Geely (OTCMKTS:GELYF) but based in Sweden, is down 23% on the year as it delays plans to assemble cars in South Carolina.
The market’s message seems clear. The low energy density of today’s lithium-ion batteries forces trade-offs on size, range, and cost. A big car needs a heavier battery to get anything like an acceptable range.
Li’s SUV is in the sweet spot, getting about 200 miles on a battery charge but 800 miles when gasoline is used. This means it can act as an electric in-town, charged overnight, but there are no fears of getting stuck without energy in the middle of nowhere.
Small electrics like those from BYD (OTCMKTS:BYDDF) outsell Tesla (NASDAQ:TSLA) in China, but big electrics from Ford Motor (NYSE:F) aren’t selling well here, while prices on rival Rivian (NASDAQ:RIVN) EVs are falling.