Li Auto Stock Gains as Macquarie Upgrades on Lower Risk at Current Levels

Li Auto Inc. (LI) shares surged on Thursday, February 6, 2025, following an upgrade from Macquarie Equity Research. The investment group raised its rating on the stock from 'neutral' to 'outperform,' citing several positive catalysts for the short-term Chinese electric vehicle (EV) market. This move comes as EV stocks have been trading higher this week on renewed hope for a damaging trade war between the U.S. and China.



Macquarie analysts listed several positive catalysts for the shift, including new model launches, expanded margins due to operating leverage, the end of subsidies pulling demand forward, reduced discounting pressures, and clarity on potential European Union (EU) tariffs. These factors led Macquarie to upgrade Li Auto's stock from 'neutral' to 'outperform.' The firm sees BYD Co. Ltd. (BYDDF) and NIO Inc. (NIO) benefiting from the shift, with BYD leading the charge by selling 419,400 units in September, marking a 46% year-over-year increase.



Li Auto, however, faces a more challenging outlook despite performing well in sales. The company sold 53,700 units in September, marking a 49% year-over-year increase. Macquarie believes there is a lack of a clear catalyst in the second half of the year, particularly as no new models are scheduled for release during this period. The market is notably shifting toward pure battery electric vehicles (BEVs), which could pressure Li Auto's margins as it continues to produce extended-range electric vehicles (EREVs).



Price competition pressuring the margins is one of the key risks, alongside a potential decline in demand for EREVs as consumers shift to fully electric vehicles. Li Auto risks losing momentum without new BEV models or innovations in the near term. Still, Macquarie analysts point out that Li Auto could outperform if its L series continues selling well and if it can successfully launch a BEV SUV in 2025. For now, Macquarie has set the price target at $33, giving it an upside of 10.4%. The firm also gave Li Auto stock a downgrade from 'outperform' to 'neutral.'

Investors should consider these factors when evaluating Li Auto as an investment opportunity. While the company faces challenges, the upgrade from Macquarie suggests that the market is optimistic about its prospects in the short term. As the EV market continues to evolve, Li Auto's ability to adapt and innovate will be crucial for its long-term success.