Li Auto (LI) stock is down more than 7% in Friday’s trading session. The selloff appeared to be a direct reaction to the U.S. election result, with president-elect Donald Trump vowing to raise tariffs on Chinese imports. However, Li Auto doesn’t export to the U.S. and doesn’t have plans to. As such, I think the selloff is unwarranted. More broadly, I think the stock is oversold and undervalued based on projected earnings growth. That’s why I’m bullish.
Donald Trump is the president-elect and tariffs are going to be headline news when he takes to the White House. While his exact plans for vehicles and electric vehicles (EVs) are uncertain, the former president said he’d look to implement tariffs of 100% or even 200% on Chinese-made vehicles entering the U.S. market. This aggressive stance is part of Trump’s broader strategy to protect the American auto industry and address concerns about Chinese competition.
Of course, tariffs aren’t good for Chinese auto companies exporting to the U.S. In fact, a 100% tariff would almost certainly make any vehicle uncompetitive against a like-for-life peer. Analysts have hypothesized that Trump’s tariffs aim to force Chinese automakers to produce in the U.S. or will be used as a bargaining chip for other concessions.
However, a reason why I am bullish on Li Auto is because its global expansion strategy appears to be focused on markets outside the United States, with a particular emphasis on the Middle East. According to reports, the company planned to enter overseas markets starting in 2024, targeting countries like the UAE and Saudi Arabia.
More recently, Li Auto’s CEO, Li Xiang, indicated that the company’s immediate plans do not include international expansion before 2025, with the boss stating, “We have no plans to expand globally until 2025.” Reports now suggest that the company has pushed its export plan back further, focusing on its position in the Chinese luxury EV market.
This lack of appetite to export could be seen as a sensible option. The Chinese EV market is the biggest globally, with sales surging 82% in 2023 and capturing nearly 60% of global EV purchases. Overall, China’s EV market is expected to grow at a CAGR of 17.15% from 2024 to 2030.
Although I am bullish on Li auto, there are risks worth considering. Of course, there is an issue about being geographically focused on one country — even if it represents 20% of the global population — and that’s a form of concentration risk. China’s economy is widely considered to be faltering, and more economic stimulus will likely be required to enhance domestic demand.
