Investing

Why Tesla's Rival Li Auto Is Crashing Today

Gerelyn Terzo

Published: April 22, 2024 11:43 am

While all eyes have been on Tesla’s (Nasdaq: TSLA) electric vehicle (EV) cost-cutting measures, Beijing rival Li Auto (Nasdaq: LI) got swept up in the selling pressure too, with shares down 8.5% at their lowest point today. While the stock has come off its lows of the session, it remains below the $25 threshold as investors prove they’ve got their eyes on the exit sign. In early April, LI shares were hovering near $32 per share, bringing their decline to over 22% this month so far.

The EV pricing wars are on, and they’re taking no prisoners. After Tesla announced it would be slashing prices in China, Li Auto followed suit, taking to social channels to reveal it would lower prices between $2,485 and $4,144 across models to appeal to more households. This includes the hybrid auto maker’s L7, L8 and L9 series as well as its energy sensation Mega, an EV that runs on Nvidia (Nasdaq: NVDA) chips.

Eric Han of Shanghai-based advisory firm Suolei said the latest moves indicate the EV pricing wars have expanded to the premium market segment and are likely to only intensify from here. Smaller EV makers will have a difficult time competing in this environment while Tesla and Li Auto duke it out, not to mention BYD. 

Softer EV Demand

The EV market is one filled with many twists and turns, the latest of which has proven to be softer demand, including in China. After years of robust demand, China’s EV market has slowed. Li Auto, which is famous for its extended-range electric vehicles, is pulling out all the stops, promising cash refunds to customers who bought EVs before the latest price cuts were revealed. 

While Li Auto’s deliveries had been rising, the company appears to have hit a snag in 2024. Last month, Li updated its Q1 delivery outlook, lowering expectations from a range of 100,000 and 103,000 vehicles to between 76,000 and 78,000 deliveries, citing in part “excessive emphasis on sales volume and competition” that served as a distraction from “enhancing user value.” 

Is Li Auto a Sell in 2024? 

Wall Street has turned cautious on Li Auto’s stock of late. Barclays analysts must have seen the writing on the wall. Last month, the British bank lowered its price target on Li Auto from $56 to $39 but maintained an “overweight” rating. 

In February, Deutsche Bank lifted its rating on Li Auto from a hold to a buy but lowered the price target by almost 10% to $45. A few days ago, Deutsche Bank analysts sounded the alarm on heightened competition for Li Auto’s L6 EV model, which is on the lower end of the pricing scale and goes head-to-head with Tesla’s Model Y. While the L6 is likely to be a volume driver in China, the biggest auto market on the planet, Li Auto will have to fight for every sale.