Is Li Auto Stock a Buy or a Sell as Analyst Sentiment Flip Flops?

Chinese electric vehicle (EV) stocks have been in the news this year for multiple reasons, most of which are positive. On the macro level, China has set a GDP growth target of “around 5%” for 2025 and recently announced a plan to boost consumption. 

New energy vehicle (NEV) penetration rates in China have been over 50% for the last several months, in part due to the government’s supportive policies. China’s BYD (BYDDY) — already the largest NEV seller globally — announced a new charging technology that can charge a car for up to 400 kilometers in 5 minutes. Previously, it partnered with DeepSeek for self-driving and offerred the features for free in its vehicles. Following in BYD’s footsteps, Zeekr (ZK) also announced that it will offer advanced self-driving features for free. 

Then we have Nio (NIO), which announced a partnership with battery giant CATL to build the world’s largest battery swap network. Xpeng Motors (XPEV) is also getting ambitious and is betting on humanoids and flying cars.

Chinese EV Companies Are Putting Up a Tough Fight 

Western automakers have been in awe of their Chinese rivals for a reason, and some, like Tesla (TSLA) and Ford (F), have publicly praised them. 

Li Auto (LI) stands out among Chinese EV companies and has hit several milestones. Its monthly deliveries peaked at above 50,000 last year, which remains an aspirational number for peers. Similarly, the company’s cumulative deliveries topped 1 million last year, well ahead of names like Nio and Xpeng Motors.

Importantly, while EV startups are infamous for their perennial losses and cash burn, Li Auto is profitable and posts free cash flows. While brokerages have been relatively bullish on Li Auto compared to its peers, analyst sentiment has flipped-flopped this year. The trend is perhaps best captured by the recent downgrade by Macquarie as the firm had upgraded LI only in February.

Li Auto Stock Forecast

In February, JPMorgan upgraded Li Auto while assigning the EV company a target price of $40 – the highest among prominent sell-side analysts. However, analyst sentiment started to sour following Li Auto’s Q4 2024 earnings where it forecast that its Q1 revenues will fall on a year-over-year basis.

Along with Macquarie, Nomura downgraded Li Auto to “Neutral” while Deutsche Bank cut its estimates for the company’s 2025 volumes by 10% to 630,000. Overall, Li Auto has a consensus rating of “Moderate Buy” from the 13 analysts actively covering the stock. Its mean target price is $33.64, 23% higher than the March 18 closing price. 

Li Auto’s Growth Has Sagged

Li Auto created a niche for itself with its premium extended-range electric vehicle (EREV) that comes with a fuel tank to extend the battery range. Last year, Li Auto pivoted to battery electric vehicles (BEVs) and launched the Li MEGA MPV. However, the model did not receive the expected response from buyers. Li Auto admitted that MEGA’s operating strategy was “mis-paced.” The company expects MEGA’s sales volumes to be only between 10,000-15,000 in 2025.

Li Auto’s sales volumes have nosedived in recent months after peaking last year. Notably, in the first two months of 2025, Xpeng Motors outsold Li Auto. It was the first time since September 2022 that Li Auto sold fewer cars than Xpeng Motors.

Li Auto’s margins have also taken a hit amid higher promotional activity. Its vehicle margin fell to 19.7% in Q4 2024 compared to 22.7% in the corresponding quarter last year. It forecast vehicle margin of “around 19%” for Q1 amid negative seasonality and sales promotion.

What’s Li Auto Doing to Revive Its Growth?

Li Auto is taking several measures to revive its growth and will launch multiple BEV models over the next two years beginning with the Li i8 SUV. To support the adoption of its BEVs, Li Auto is doubling down on charging infrastructure and plans to increase its supercharging stations to 2,500 by the time it launches the i8. The company, which currently has fewer than 2,000 of the stations, plans to increase the count to 4,000 by the end of 2025.

Li Auto is also doubling down on smaller cities in China and is looking to increase after-sales coverage in Tier 4 and Tier 5 cities. The company has also ramped up its marketing efforts to acquire more customers. Li Auto sees overseas expansion as another leg of its growth and is partnering with local companies in other countries.

Is Li Auto Stock a Buy or a Sell?

Consensus estimates call for the company’s revenues to rise 17% in 2025, which is similar to its 2024 top-line growth. Analysts however expect the company’s sales growth to more than double to 35.6% in 2026. Its per-share earnings are expected to rise by almost 30% in 2025 and 43% in 2026. However, a lot would depend on how sales volumes of Li Auto’s upcoming BEV models shape up.

Li Auto trades at a forward enterprise value-sales multiple of just 0.61x, which looks quite attractive. The forward price-earnings (P/E) is also below 20x, which is again not demanding. Li Auto has among the strongest balance sheets among Chinese NEV companies and held around $15.6 billion as cash and cash equivalents at the end of 2024.

While there are concerns over Li Auto’s ability to protect its margins and the company still needs to prove its mettle in BEVs, I find the stock quite attractive here and would use the ongoing weakness to add more positions.