Jefferies initiates Li Auto with buy rating

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By Michael Elkins

Shares of Li Auto Inc (NASDAQ:LI) are up 1.93% in mid-day trading on Monday after Jefferies initiated coverage on the electric vehicle stock with a Buy rating and $20.70 price target. Jefferies believes that investors’ worries on the cannibalization between L9 and L8 are overdone. Channel checks suggests that the daily new order intake of L8 is generally 20%-30% higher than that of Li One’s average level before Li One was discontinued. 20% of L8’s customers switched from L9 on tight budgets, 30% of them compare L8 to AITO M7 and Denza D9, and the rest are attracted from BBA customer groups.

Analysts wrote in a note, “Li Auto has a natural edge in terms of product differentiation given CEO Li Xiang is also the founder of Autohome. The company has proven its product capability with Li one emerging as the top 5 selling SUV in the crowded RMB300K-400K market, which was firstly featured with super large space (three rows for six seats), no range anxiety (EREV solution) and four screens in the cabin.”

They also wrote, “With comprehensive product offerings, Li Auto is well positioned to carve out its niche catering to family customers and taking share from BBA.”

Li Auto is Jefferies’ favorite NEV startup given its first mover advantage in the hybrid market, precise product positioning, and operational efficiencies.

“We expect Li Auto to see net profit of RMB2.7bn/7.4bn in 2023/2024 considering the better economies of scale driven by the rising portion of shared parts of upcoming L series models,” wrote the analysts.