Dividend Stocks

30,000 Reasons Morgan Stanley Is Betting on Li Auto (LI) Stock

This morning, Morgan Stanley announced that it had reiterated its “overweight” rating and price target of $40 on Li Auto (NASDAQ:LI). The update followed store checks and communication with Li Auto salespeople. The price target implies upside of about 25% from current prices.

Last month, the Chinese electric vehicle (EV) company made 28,277 deliveries, up 146% year-over-year and marking the third -consecutive month of over 20,000 deliveries. Since its inception, Li Auto has now delivered a total of 363,876 vehicles.

“In May, Li Auto’s monthly gross sales exceeded RMB10 billion for the first time in our history, laying a solid foundation for us to reach the sales target of RMB100 billion in 2023,” said CEO Xiang Li. “The full-scale upgrade of our organizational processes has comprehensively strengthened our operating capabilities, advancing both our operating quality and efficiency in an upward spiral.”

LI Stock: Morgan Stanley Reiterates $40 Price Target

Through Morgan Stanley’s store checks, the investment bank has estimated that Li Auto’s foot traffic in flagship locations located in Tier 1 cities have increased by 16% month-over-month and to a year-to-date high in May. This was likely driven by the popularity of the company’s L7 and L8 vehicles.

“With sufficient order book and growing store footprints, the founder of Li Auto continues to target 30k sales in June. Along with solid April and May sales, Li Auto is poised to beat the high end of 2Q guidance (76-81k) by 3k if June sales can reach 30k as guided, and underpins the company’s 40k monthly in late 2H,” said Morgan Stanley analyst Tim Hsiao.

Additionally, Li Auto’s retail conversion rate, which is the ratio of order intake to foot traffic, tallied in at 8% last month, which is higher than its historical rate of between 5% and 6% and the industry average of between 4% and 5%. Morgan Stanley attributes this elevated rate to product positioning and interest surrounding the L7 and L8 models.

Li Auto’s sales team seem to be optimistic as well, explaining that all models experienced an uptick in demand in May. The L7 accounted for an estimated 40% to 50% of all orders, while the L8 and L9 models each accounted for 25%.

LI has an average price target of $39.05 among 25 firms with coverage of the stock.

On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. 

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.