Li Auto's Valuation Resilience: Navigating Growth and Value in a Re-Rating EV Sector

The electric vehicle (EV) sector has long been a battleground between growth optimism and value pragmatism. Li Auto (LI), a Chinese-American automaker specializing in gasoline-electric hybrids, recently experienced a 7% stock pullback in 2025, sparking debates about its valuation resilience. To assess whether this correction signals a buying opportunity or a mispricing, investors must dissect Li Auto's financials against the broader sector's shifting dynamics.

Li Auto's Valuation: A Tale of Two Metrics

Li Auto's trailing P/E ratio of 21.49 and forward P/E of 35.41, according to StockAnalysis statistics, place it well above the EV sector's average P/E of 7.91 reported in the S&P sector P/E. This premium reflects investor bets on its growth potential, particularly in China's hybrid market, where it holds a dominant position. However, the company's PEG ratio of 47.92, per StockAnalysis, -a metric that adjusts for earnings growth-suggests the stock is overvalued relative to its projected earnings. This stark contrast to the sector's implied PEG (estimated at 1.62 for motor vehicles in the Eqvista PEG data) raises questions about whether Li Auto's growth narrative justifies its premium.

Compounding this is the company's price-to-sales (P/S) ratio of 1.49, cited by StockAnalysis, which appears undemanding compared to the broader "Auto & Truck" sector's P/S of 2.94 in the NYU Stern P/S. Yet, this metric masks a critical nuance: Li Auto's revenue growth has slowed, with Q2 2025 revenue declining 4.5% year-over-year despite delivering 110,000 vehicles, according to the Investing.com transcript. The stock's 18.34% drop over the past 52 weeks, per StockAnalysis, and its current 25.4% undervaluation relative to intrinsic fair value, according to the Investing.com transcript, hint at a re-rating in progress.

Sector-Wide Re-Rating: Growth vs. Value in the EV Industry

The EV sector's valuation metrics reveal a tug-of-war between growth and value. While the sector's average P/E of 7.91 (S&P sector P/E) suggests undervaluation compared to industries like Semiconductors (41.99 P/E, per the same S&P sector P/E data), this low multiple reflects broader challenges: declining net margins, regulatory uncertainties, and slowing U.S. adoption noted in the BloombergNEF outlook. For instance, the "EV, Auto & Truck Manufacturers" industry's P/S ratio of 2.94 (NYU Stern P/S) contrasts sharply with Li Auto's 1.49, implying that investors are discounting EVs' revenue multiples more aggressively than Li's hybrid model.

The PEG ratio further complicates the picture. Li Auto's 47.92 PEG, per StockAnalysis, -a figure that would typically signal overvaluation-clashes with a March 2025 report noting a PEG of 0.34 in the FinanceCharts PEG, suggesting a possible calculation error or time-sensitive anomaly. Meanwhile, the sector's implied PEG (around 1.62 for motor vehicles, per Eqvista) indicates a more balanced valuation, where growth expectations align with price multiples. This divergence underscores the sector's fragmentation: while some EVs trade at value-like multiples, others, like Li Auto, remain priced for aggressive growth.

Strategic Resilience and Analyst Sentiment

Li Auto's Q2 2025 earnings, though missing revenue and EPS forecasts, demonstrated operational resilience. The company's 20.5% gross margin and 1.87 current ratio (noted in the Investing.com transcript) highlight its financial health, even as it navigates a 4.5% revenue decline. Analysts remain divided: 42 of them maintain a "Buy" rating, with a median price target of $27.98 (per the Investing.com transcript), while firms like J.P. Morgan advocate a "Hold" as reported in the same transcript. This split reflects skepticism about Li Auto's ability to sustain growth in a sector increasingly favoring value metrics.

The stock's 5.66% pre-market rally post-earnings (Investing.com transcript) suggests investor confidence in its strategic pivot toward AI-driven services and cost optimization. However, historical context from similar events reveals a mixed picture: over the past three years, Li Auto's stock has underperformed the benchmark by a median of –2.9% within 30 days of earnings misses (Investing.com transcript). While the recent rally offers optimism, the broader pattern of weak post-miss performance underscores the risks of relying on short-term strategic pivots alone.

The sector's broader re-rating-driven by macroeconomic headwinds and policy shifts-poses a risk. For example, BloombergNEF notes that U.S. EV adoption faces uncertainty due to regulatory changes (BloombergNEF outlook), which could pressure multiples across the board.

Investment Implications

Li Auto's valuation sits at a crossroads. Its premium P/E and PEG ratios suggest it is being priced as a high-growth stock, yet the EV sector's average metrics lean toward value. This disconnect could resolve in two ways:
1. Growth Re-Rating: If Li Auto's strategic initiatives (e.g., AI integration, cost cuts) drive earnings growth above current expectations, its PEG could normalize, unlocking upside.
2. Value Re-Rating: A sector-wide shift toward value metrics-already evident in the EV sector's 7.91 P/E (S&P sector P/E)-could pressure Li Auto's multiples, particularly if growth disappointments persist.

Investors must weigh these scenarios against macroeconomic trends. While Li Auto's hybrid model offers near-term resilience in China's market, the sector's long-term trajectory hinges on global EV adoption and regulatory clarity.

Conclusion

Li Auto's 7% pullback in 2025 has exposed the tension between its growth premium and the EV sector's value re-rating. While its financial health and strategic adaptability offer a floor, the stock's valuation remains precarious. Investors seeking exposure to the EV sector may find better value in companies with more aligned growth and valuation metrics, but those who believe in Li Auto's hybrid model and AI-driven differentiation could see opportunity in its current discount.