Li Auto’s SWOT analysis: stock outlook amid autonomous driving push

Li Auto Inc (NASDAQ:LI)., a prominent player in China’s new energy vehicle market with a market capitalization of $26.85 billion, has been making significant strides in the electric vehicle (EV) industry, particularly in the realm of autonomous driving technology. According to InvestingPro analysis, the company maintains a strong financial health score of 3.16 (rated as GREAT) and holds more cash than debt on its balance sheet. As the company navigates the competitive landscape and transitions from extended-range electric vehicles (EREVs) to battery electric vehicles (BEVs), investors and analysts are closely monitoring its performance and future prospects.

Company Overview and Recent Performance

Li Auto has established itself as a leading manufacturer of premium smart electric SUVs in China. The company gained recognition for being the first to commercialize extended-range electric vehicles in the country. However, recent market dynamics have presented both opportunities and challenges for the automaker.

In the second quarter of 2025, Li Auto experienced share price weakness, with its stock dropping 8.37% in the past week. Despite this recent decline, the company has demonstrated strong performance with a 46.81% return over the past year and revenue growth of 10.75%. According to InvestingPro data, the company maintains healthy financials with a current ratio of 1.87, indicating strong liquidity. The recent underperformance was attributed to slower month-to-date sales, which were tracking behind the company’s second-quarter volume guidance of 123-128k units, or 48-53k in June.

Despite these short-term challenges, some analysts remain optimistic about Li Auto’s long-term prospects. Morgan Stanley (NYSE:MS), for instance, has maintained an "Overweight" rating on the stock, citing the company’s potential for a second-half operational resurgence supported by a new model cycle.

Autonomous Driving Technology and Strategy

Li Auto’s focus on autonomous driving technology has become a key differentiator in the competitive EV market. The company recently showcased its navigate-on-autopilot (NOA) capabilities during a test ride in Guangzhou, demonstrating the vehicle’s ability to handle complex traffic scenarios autonomously.

A notable aspect of Li Auto’s strategy is its commitment to maintaining LiDAR technology in its vehicles. This decision stands in contrast to some competitors who have opted to reduce costs by removing such features. Li Auto believes that LiDAR enhances safety and stability, particularly under adverse conditions, and plans to retain this technology until achieving higher levels of autonomous driving (L3/L4).

The company’s approach to expanding its average selling price (ASP) and margins revolves around increasing the adoption rate of its advanced driver-assistance system, AD Max, rather than reducing costs through feature reduction. This strategy aligns with Li Auto’s focus on safety and technological advancement in the pursuit of autonomous driving capabilities.

Financial Projections and Metrics

Analysts have provided varying financial projections for Li Auto, reflecting the dynamic nature of the EV market and the company’s ongoing transition. Morgan Stanley’s analysis from November 2024 projected significant revenue growth, with estimates rising from RMB 123,851 million in 2023 to RMB 202,461 million by 2026.

However, earnings per share (EPS) projections show some fluctuation. Analysts expect a decrease in EPS for 2024 to RMB 6.32, followed by growth in subsequent years. The company’s price-to-earnings (P/E) ratio is anticipated to improve from 26.6 in 2024 to 14.9 in 2026, potentially indicating increasing investor confidence in Li Auto’s long-term profitability.

Competitive Landscape and Market Position

Li Auto operates in a highly competitive EV market, facing challenges from both established automakers and emerging EV startups. The company’s transition from EREV to BEV models is seen as a critical factor in maintaining its market position and driving future growth.

Some analysts have expressed concerns about Li Auto’s ability to sustain growth beyond its niche in premium EREVs. Macquarie Equity Research, for instance, downgraded the stock from "Outperform" to "Neutral" in March 2025, citing fewer-than-expected new model launches and revised guidance as key factors.

The competitive landscape also includes direct challenges from other Chinese EV manufacturers, such as the Huawei-backed AITO brand. Additionally, the potential for severe price competition in the EV market could pressure vehicle margins across the industry.

Future Outlook and Challenges

Li Auto’s future success largely depends on the reception and performance of its new BEV models. The company has confirmed two new BEV SUV launches in 2025, which, while fewer than some analysts expected, will be crucial in determining Li Auto’s trajectory in the evolving EV market. With a gross profit margin of 20.51% and positive earnings yield of 4%, the company appears well-positioned financially for this transition. Want deeper insights into Li Auto’s financial health and growth potential? InvestingPro subscribers have access to over 30 additional financial metrics and expert analysis, including detailed valuation models and peer comparisons.

The transition from EREV to BEV technology presents both opportunities and risks. While it allows Li Auto to tap into the growing demand for pure electric vehicles, it also exposes the company to increased competition and potential challenges in maintaining its current market share.

Bear Case

How might Li Auto’s transition from EREV to BEV impact its market position?

Li Auto’s transition from extended-range electric vehicles (EREVs) to battery electric vehicles (BEVs) could potentially disrupt its current market position. The company has built a strong reputation and customer base with its EREV models, which offer a unique solution to range anxiety. However, as the BEV market matures and charging infrastructure improves, the demand for EREVs may decline.

The shift to BEVs exposes Li Auto to more direct competition from established BEV manufacturers and new entrants in the market. Without the differentiating factor of extended-range technology, Li Auto may struggle to maintain its current market share and could face margin pressures as it competes in a more crowded BEV segment.

Additionally, the development and production of new BEV models require significant investment in research and development, as well as potential retooling of manufacturing facilities. This transition period could impact Li Auto’s profitability in the short to medium term, potentially affecting investor confidence and stock performance.

What challenges could Li Auto face in maintaining its growth trajectory?

Li Auto faces several challenges in maintaining its growth trajectory. Firstly, the company is experiencing a slowdown in sales growth for its current EREV models, as evidenced by weaker-than-expected delivery guidance for the first quarter of 2025. This trend could continue as the market shifts towards pure electric vehicles, potentially impacting Li Auto’s revenue and market share.

Secondly, the intense competition in the Chinese EV market, particularly from well-funded rivals and established automakers entering the electric vehicle space, could make it difficult for Li Auto to differentiate its offerings and maintain its premium positioning. Price competition in the market could pressure margins and profitability.

Lastly, Li Auto’s growth is heavily dependent on the success of its new BEV models, particularly the i8 and i6. If these models fail to resonate with consumers or face production delays, it could significantly impact the company’s ability to meet growth expectations and maintain investor confidence.

Bull Case

How could Li Auto’s focus on autonomous driving technology drive future growth?

Li Auto’s strong focus on autonomous driving technology could be a significant driver of future growth. The company’s recent demonstration of advanced navigate-on-autopilot (NOA) capabilities showcases its commitment to developing cutting-edge autonomous features. As consumer interest in self-driving technology grows, Li Auto’s advanced offerings could become a key differentiator in the competitive EV market.

The company’s decision to maintain LiDAR technology in its vehicles, despite some competitors opting to remove such features to reduce costs, positions Li Auto as a leader in vehicle safety and autonomous driving capabilities. This commitment to advanced technology could attract safety-conscious consumers and potentially command premium pricing for its vehicles.

Furthermore, as autonomous driving technology advances towards higher levels of automation (L3/L4), Li Auto’s early investments and expertise in this area could give it a competitive advantage. This could lead to increased adoption rates of its AD Max system, driving higher average selling prices and improved margins.

What potential does Li Auto have for expanding its market share in the premium EV segment?

Li Auto has significant potential to expand its market share in the premium EV segment. The company’s focus on producing high-quality, technologically advanced electric SUVs aligns well with growing consumer demand for premium electric vehicles, particularly in the Chinese market.

The upcoming launch of new BEV models, such as the i8 and i6, presents an opportunity for Li Auto to capture a larger share of the pure electric vehicle market. If these models successfully combine the company’s reputation for quality with advanced autonomous driving features and competitive pricing, they could attract both existing Li Auto customers and new buyers in the premium segment.

Additionally, Li Auto’s strong brand recognition in China, coupled with its reputation for innovation and safety, positions it well to compete against both domestic and international premium EV manufacturers. As the overall EV market in China continues to grow, Li Auto’s established presence and technological capabilities could allow it to capture a significant portion of this expanding market.

SWOT Analysis

Strengths:

• Advanced autonomous driving technology
• Strong brand recognition in China
• Commitment to safety features, including LiDAR technology
• Established presence in the premium EV segment

Weaknesses:

• Dependence on EREV models in a market shifting towards BEVs
• Potential slowdown in current model sales
• Limited international presence compared to some competitors

Opportunities:

• Expansion into the growing BEV market
• Increasing adoption of autonomous driving features
• Potential for market share growth in the premium EV segment
• Expansion into international markets

Threats:

• Intense competition in the EV market from both domestic and international players
• Potential market saturation in the Chinese EV sector
• Regulatory changes affecting EV incentives or autonomous driving technology
• Economic factors impacting consumer spending on premium vehicles

Analysts Targets

• Morgan Stanley (June 18th, 2025): Overweight rating with a price target of $36.00
• Barclays (LON:BARC) (June 2nd, 2025): Equal Weight rating with a price target of $31.00
• Barclays (March 18th, 2025): Equal Weight rating with a price target of $31.00
• Macquarie (March 17th, 2025): Neutral rating with a price target of HK$105/US$27
• Morgan Stanley (November 20th, 2024): Overweight rating with a price target of $29.00

This analysis is based on information available up to June 18, 2025, and reflects the most recent analyst reports and market data provided. According to InvestingPro, Li Auto currently appears undervalued based on comprehensive Fair Value analysis, with analysts setting price targets ranging from $27.94 to $40.07. The company’s next earnings report is expected on September 2, 2025. For complete access to Li Auto’s detailed financial metrics, Fair Value estimates, and expert analysis, explore the full Pro Research Report available exclusively to InvestingPro subscribers.

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