Goldman Sachs analyst Tina Hou reiterated a Buy rating on Li Auto Inc (NASDAQ:LI) with a price target of $43.60.

On Monday, Li Auto reported fiscal first-quarter 2024 revenue growth of 36.4% year-on-year to $3.55 billion, missing the analyst consensus estimate of $3.84 billion. Adjusted net earnings per ADS was $0.17, missing the analyst consensus estimate of $0.35.

Hou noted the next few quarters will be a transition period for Li Auto, with the company re-aligning its strategy on product launch, pricing adjustment, sales networks adjustment, and headcount optimization.

The analyst noted that Li Auto’s BEV SUV model launch schedule is delayed to the first half of 2025 from the second half of 2024, and the models will be launched in sequence rather than together.

Li Auto lowered L7, L8, L9, and Mega prices by 18k Chinese yuan to 30k Chinese yuan on April 22, and management disclosed no plans for further price cuts at this stage. However, given the competitive market environment, the analyst expects further price cuts to be carried out into the second half of 2024.

Li Auto management shared plans to adjust the pace of the sales network expansion in 2024 based on the company’s new sales target, closing low-efficiency stores and increasing the proportion of auto park stores, with the total store number below 800 by the end of 2024, Hou said.

Reports indicated that Li Auto started an 18% layoff on April 16. The analyst added that the ADAS team will be scaled back to 1,000 people vs. the previous end-2024 target of 2,000. 

Li Auto is a pure NEV player with a 5% NEV market share in China; as Hou noted, the company will have the most robust model pipeline of 5 new launches and the solid sales network expansion of 400 stores in China in 2024. The analyst expects the competitive positioning of BEV models and deepening sales network to drive another leg of growth for Li Auto. With continued scale economics and operating leverage, Hou expects Li Auto to deliver the fastest earnings growth with top-tier free cash flow generation among his China Auto OEM coverage. 

Li Auto’s upcoming catalysts include new model launches, city NOA development, and quarterly results. 

Li Auto stock lost nearly 30% in the last 12 months. Investors can gain exposure to the stock via VanEck Low Carbon Energy ETF (NYSE:SMOG) and First Trust Long/Short Equity (NYSE:FTLS).

Price Action: LI shares traded lower by 3.85% at $20.88 at the last check Tuesday.

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