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Li Auto Lined Up for Further Upside

As concerns related to the global environment escalate, electric vehicles are gaining a multi-year tailwind. In the transition towards electric vehicles,…

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This article was originally published by TipRanks

As concerns related to the global environment escalate, electric vehicles are gaining a multi-year tailwind. In the transition towards electric vehicles, China has been leading the race. It’s forecasted that by 2030, electric vehicles will account for three out of five new cars in China.

Without a doubt, it seems like a good time to remain invested electric vehicle companies. At the same time, it’s important to be selective when considering exposure to electric vehicle stocks. More than 400 companies are already in the electric vehicle business in China.

It goes without saying that there will be bankruptcies and industry consolidation in the coming years. One company that seems positioned to survive the competition and growth at a healthy pace is Li Auto (LI).

In terms of stock price action, LI stock touched lows of $17.0 in May 2021 from an all-time high of $47.7. The correction was triggered by valuation concerns related to electric vehicle stocks, particularly at a time when chip shortage was impacting growth.

However, the correction seems to be over and LI stock has gradually trended higher to current levels of $30.7. Considering the company’s growth trajectory, further upside seems likely. (See Li Auto stock charts on TipRanks)

Strong Vehicle Deliveries Likely to Sustain

The sharp rally in LI stock has been associated with strong fundamental developments.

For Q1 2021, the company reported delivery of 12,579 vehicles. This was higher by 334.4% on a year-on-year basis. Further, for Q2 2021, the company’s vehicle deliveries increased by 166.1% to 17,575 vehicles. Clearly, growth has been stellar.

If we look deeper, there are two important points to note.

First and foremost, the company launched its first model, Li ONE, in November 2019. Growth has been robust and solely driven by one SUV model. Now, the company is investing in developing new vehicles. Once there is a broader portfolio of vehicles, it’s likely that deliveries will surge further.

Furthermore, Li Auto reported having 65 retail stores as of March 2021. By Q2 2021, the company’s retail stores increased to 97 with presence in 64 cities. As the company expands its retail network, strong growth is likely to sustain.

Robust Top-Line Growth and Cash Flows

For Q1 2021, the company reported revenue of $545.7 million. Revenue increased by 319.8% on a year-on-year basis. Considering the vehicle delivery numbers for Q2 2021, strong revenue growth is expected to sustain.

However, there are other important stock upside catalysts. For one, the company’s vehicle margin was 8.4% in Q1 2020. Vehicle level margin has increased to 16.9% as of Q1 2021. As deliveries surge, margin is likely to remain robust.

More importantly, Li Auto reported positive operating cash flow of $141.4 million for Q1 2021. This implies an annualized cash flow of $560 million. The company also reported free cash flow of $87 million for the quarter.

With revenue growth and margin expansion, Li Auto seems well positioned to deliver healthy free cash flows in the next few years. This is important, as the company can invest in growth through internal cash flows than further equity dilution.

It’s also worth noting that Li Auto reported cash and equivalents of $4.6 billion as of March 2021. Additionally, the company raised $862.5 million through a convertible senior note offering in April 2021. The company seems fully financed for the next 12-24 months.

Wall Street’s Take

According to TipRanks’ analyst consensus rating, LI stock comes in as a Strong Buy with 5 Buy ratings assigned in the last three months.

As for price targets, the average Li Auto price target is $45.9 per share, implying around 49.37% upside potential from current levels.

Concluding Views

Currently, the company’s only model is a six-seat premium SUV. Given the cash buffer, Li Auto seems well positioned for new launches in the next few years.

Further, companies like Nio (NIO) and XPeng (XPEV) have already made inroads into Europe. Likewise, Li Auto could well pursue international expansion in the coming years.

With a strong cash buffer, focus on innovation and healthy cash flows, LI stock is worth considering at current levels.

Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.

The post Li Auto Lined Up for Further Upside appeared first on TipRanks Financial Blog.

Energy & Critical Metals

Daimler Truck’s powertrain plants in Germany will produce electric drive components

Following intensive talks, Daimler Truck AG and the Works Council have agreed that the three powertrain sites in Gaggenau, Kassel and Mannheim will specialize…

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Following intensive talks, Daimler Truck AG and the Works Council have agreed that the three powertrain sites in Gaggenau, Kassel and Mannheim will specialize in different components for electrified drives.

In the future, they will drive the global production of battery-electric and hydrogen-based drive systems in a production and technology network for electric drive components and battery systems, together with the sister plant in Detroit. Significant additional investments in future technologies at the Daimler Truck powertrain plants will drive technological change.

  • The Mercedes-Benz plant in Gaggenau, which specializes in heavy-duty commercial vehicle transmissions, will develop into a competence center for electric drive components as well as the assembly of hydrogen-based fuel cell drive components.

  • The Mercedes-Benz plant in Kassel is expanding its current focus on commercial vehicle axles and will become a competence centre for electric drive systems.

  • The Mercedes-Benz plant in Mannheim, specialized in commercial verhicle engines, is drawing on the more than 25 years of experience of the Competence Center for Emission-free Mobility (KEM) located at the plant and is focusing on battery technologies and high-voltage-systems.

Important scopes for alternative drives, such as the production of electrically driven axle systems, e-motors and inverters, as well as the assembly of fuel cell systems, will be integrated into the powertrain plants in the future, in addition to investments in the reprocessing and recycling of battery systems.

Our industry is undergoing a transformation toward CO2-neutral trucks. Since conventional drive systems will also be with us for some years to come, we are focusing the future orientation of our powertrain plants primarily on flexibility, cost-effectiveness and very well-trained employees. This had to be reconciled in our negotiations with the Works Council. With the production and technology network for electric drive components and battery systems in conjunction with the competence centers at the plants, we have succeeded in doing so. In this way, we are creating optimum conditions for maximum competitiveness for our plants and at the same time laying the foundations for a successful future.

—Yaris Pürsün, Head of Global Powertrain Operations Daimler Truck

Another element of the technology network for electric drive components and battery systems are the innovation laboratories (InnoLabs). In addition to the competence centers, these are being set up at all plants. They specialize in innovative production processes, new technologies and products.

The aim of the InnoLabs is to close the gap between prototype production and series development. Series start-ups are thus to be prepared with maximum efficiency so that products can be transferred from the prototype phase to series production as quickly as possible. With the InnoLab Battery located at the Mercedes-Benz plant in Mannheim, Daimler Truck AG will establish its own pilot battery cell production and thus lay an important foundation stone for future competence in battery technology.

In its transformation toward CO2-neutral transportation, Daimler Truck is focusing on two all-electric drive technologies: battery and hydrogen-based fuel cell. With these, every customer application can be covered with full flexibility in terms of routes—from well-plannable, urban distribution transport to multi-day transports that are difficult to plan. Which solution is used by the customer depends on the specific application.

As the first battery-electric truck, the Mercedes-Benz eActros for routes in distribution transport will go into series production at the Mercedes-Benz plant in Wörth in October 2021, followed by the eEconic next year. The battery-electric eActros LongHaul for long-distance transport will follow from the middle of the decade. Key components be manufactured at the powertrain plants in the future.

In addition to the products, the powertrain plants are to become CO2-neutral from 2022, just like all other European Daimler Truck plants. This will be made possible, among other things, by a green power concept at Daimler: CO2-free power procurement from renewable energy sources will form the basis for CO2-neutral production. As part of this, the sites will purchase electricity from wind and solar farms as well as hydropower plants from 2022 onwards. On the way to becoming green production sites, the Mercedes-Benz powertrain plants are also to operate CO2-free in the long term by successively establishing fully renewable energy systems over the next few years.

The sister plant in Detroit, which is part of the global production network for powertrain components, will continue to strengthen its role in the US market and, as a competence center for electric powertrain components, make an important contribution to shaping sustainable transportation in the American market.

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Energy & Critical Metals

Tata Steel contracts for 27 electric trucks for transportation of finished steel in India

As part of its sustainability initiative, Tata Steel is partnering with an Indian start-up to deploy electric trucks for its steel transportin India. This…

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As part of its sustainability initiative, Tata Steel is partnering with an Indian start-up to deploy electric trucks for its steel transportin India. This marks the first use of EVs by any steel producer in the country for transportation of finished steel.

The electric trucks feature a 230.4 kWh Lithium-ion battery pack with a cooling system and a battery management system giving it capability to operate at ambient temperatures upto 60 °C (140 °F). The battery pack will be powered by a 160-kWh charger setup which would be able to charge the battery from 0 to 100% in 90 min. With zero tail-pipe emission, each electric vehicle would reduce the GHG footprint by more than 125 tCO2e every year.

Tata Steel has contracted for 27 EVs, each with a carrying capacity 35 tonnes of steel (minimum capacity). The company plans to deploy 15 EVs at its Jamshedpur plant and 12 EVs at its Sahibabad plant. The first set of EVs for Tata Steel are being put in operation between Tata Steel BSL’s Sahibabad Plant and Pilkhuwa Stockyard in Uttar Pradesh.

At a virtual ceremony organized on July 29, Tata Steel formally flagged-off the loaded vehicle at the Pilkhuwa Stockyard to move to the Sahibabad plant, 38 km away.

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Energy & Critical Metals

Tesla Is Hiking Prices In The U.S. While Slashing Them In China

Tesla Is Hiking Prices In The U.S. While Slashing Them In China

After posting its most recent earnings "beat", Tesla is taking on two starkly…

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Tesla Is Hiking Prices In The U.S. While Slashing Them In China

After posting its most recent earnings "beat", Tesla is taking on two starkly different strategies for its U.S. and its China business. 

In the United States, the automaker is raising prices in an attempt to boost profit margins, while in China it is keeping prices steady in what is likely an attempt to drum up more demand, Reuters reported

So far, Tesla has raised the price of its Model 3 and Model Y "about a dozen times" in the U.S. this year, the report notes. At the same time, the company also introduced an affordable version of its Model Y in China.

Tesla isn't just facing increased scrutiny in China from its citizens and the government, but is also running face-first into a wall of Chinese EV competitors. 

Toni Sacconaghi of Bernstein has questioned demand in China as a result of the introduction of the lower priced Model Y. He has said that the model "may make sustained margin improvement difficult". Chinese owners were "were less enthusiastic and had lower repurchase intentions than owners in the United States and Europe," a Bernstein survey recently showed.

Meanwhile in the U.S., Tesla continues to raise the price of its Model Y long range, which is now priced at $53,990. In China, the more affordable Model Y is priced at $42,394.

Roth Capital Partners analyst Craig Irwin told Reuters: "I think Tesla is looking to be as competitive as it can be in China. Lower prices will be a part of that aggressive market positioning. There is a very large difference in battery prices in the U.S. and China, as well as local vehicle manufacturing costs."

Hargreaves Lansdown analyst Nicholas Hyett added: "It wasn't so long ago that the group was trimming prices in the U.S. to gain scale and maximize profitability, and it feels like we're now seeing that in China too."

Gene Munster at Loup Ventures attests that the lower prices in China could "have a lasting effect" for the company in the country: "Teslas are on average 3x the cost of a typical EV made in China so they have to be priced less than the U.S. to compete. Prices of Teslas in China will be below (the) rest of the world for the next decade."

Tesla's market share in China has fallen to 11% in the battery electric vehicle market. China makes up 44% of the global EV market. 




Tyler Durden Fri, 07/30/2021 - 10:36
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