Few investments are emblematic of today’s trends than Li Auto (NASDAQ:LI). Even after its initial public offering, the excitement surrounding Li Auto stock hasn’t slowed down at all.
In a time of “unicorn mania,” billion-dollar initial public offerings are popular investment vehicles. That’s one trend that Li Auto stock is part of. It’s also involved in the same electric-vehicle trend that boosted the Nio (NYSE:NIO) stock price this year.
But don’t assume that Li Auto is just another billion-dollar IPO. Moreover, the company isn’t a carbon copy of Nio, even if they share the same industry and target demographic.
You can be bullish on Nio while also considering its competitors. In the case of Li Auto, we might be looking at a major disruptor.
A Closer Look at Li Auto Stock
To be honest, there isn’t much history to Li Auto stock as the shares went public on July 30. The company originally planned to set the starting price between $8 and $10. However, the IPO price ended up being $11.50. Li Auto raised $1.1 billion in the IPO and listed the shares on the Nasdaq.
You might recall the disappointing share-price drop that happened after the 2018 Nio stock IPO. With Li Auto stock, at least in the beginning, the earliest buyers weren’t likely disappointed with the results.
On the day of the Li Auto stock IPO, the shares rocketed 50% and exceeded $16. By Aug. 7, the stock price was threatening to breach the $17 level.
Buyers should be advised, though, that fresh IPO stocks tend to be volatile. That’s because “price discovery,” in which the market is figuring out the appropriate price range for the stock, is still in progress. Therefore, expect big daily price movements for a while, both to the upside and to the downside.
Niche within a Niche
In order to stand out, Li Auto can’t just be a Nio clone. Since Nio is more famous and its IPO came first, Li Auto must specialize in a certain segment of the Chinese electric-vehicle market.
The company has been around for five years, so it’s had time to establish its position among middle-class Chinese automobile buyers. In particular, Li Auto has chosen to focus on SUV’s costing between $21,000 and $70,000.
Thus, one could say that Li Auto’s sub-niche is the Chinese value-SUV market. As the company put it, Li Auto seeks to provide “unparalleled value for money with the performance, functionality, and cabin-space of a large premium SUV but pricing close to a compact premium SUV.”
That’s a reasonable business model as the world is still recovering from the novel-coronavirus crisis. Undoubtedly, some automotive shoppers are interested in electric vehicles and want a roomy SUV but their budgets are tighter during the global pandemic.
Off to a Great Start
Li Auto commenced volume production of the company’s first SUV model, known as Li One, just last year. As of June 30, Li Auto managed to deliver over 10,400 of these vehicles.
It’s worthwhile to compare this to Nio’s performance in terms of vehicle deliveries. As I reported not long ago, “Nio sold 10,331 vehicles during the quarter that ended in June” of this year.
I also observed that this represented a 191% year-over-year increase in Nio’s quarterly vehicle deliveries. The point is that Nio started slowly but eventually gained traction.
Li Auto seems to be having a more favorable start than Nio, at least so far. In fact, one could say that whereas Nio struggled for a long time, Li Auto really hit the ground running.
It might just be a matter of timing as the world really seems ready for budget-priced electric vehicles now. In time, the market will decide whether Li Auto can maintain its strong forward momentum over the long haul.
The Bottom Line
Is there more to Li Auto stock than just a confluence of hot trends? For the moment at least, it’s “so far, so good” as this unique automaker stays in its own lane and delivers value to budget-conscious electric-vehicle enthusiasts.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
