With Chinese electric-SUV maker Li Auto (NASDAQ:LI) selling more EVs in China than Tesla (NASDAQ:TSLA) and LI stock trading at a rather attractive valuation, LI stock is clearly a buy in my book. Also noteworthy is that Li is already profitable, unlike most EV startups.
Also, a recent, investment by a Middle Eastern firm in one of Li’s rivals bodes well for the outlook of the entire Chinese EV space. I have become more upbeat about the outlook of the sector, making me more bullish on one of its leading players, Li Auto.
Outselling Tesla by a Wide Margin
In October, Li sold 40,422 EVs in China, far outpacing Tesla which unloaded 28,625 EVs in the Asian country.
Li kept up the great work in November, as it delivered over 41,000 EVs, representing a huge increase of 173% versus November 2022.
Chinese consumers appear to be enamored with Li’s EVs, which feature a fuel tank that can recharge their batteries if necessary. That innovation sharply limits the “range anxiety” that is a major “pain point” preventing consumers from adopting EVs.
Li Is in the Black and Its Valuation Is Very Attractive
In the third quarter, Li’s average gross margin on its vehicles came in at an impressive 21.2%. As a result, it generated income from operations of $320.6 million and free cash flow of $1.8 billion.
Given these figures, the owners of LI stock do not have to worry at all about it going bankrupt.
What’s more, the forward price-earnings ratio of LI stock is 31.5. Given the company’s extremely rapid growth, the stock’s valuation is very attractive.
A Huge Investment in Li’s Rival
Abu Dhabi-based investment firm CYVN Holdings has agreed to buy a huge $2.2 billion of the shares of Nio (NASDAQ:NIO), another China-based EV maker. The deal comes after CYVN invested $738.5 million in Nio in July and bought another $350 million of NIO stock from Chinese conglomerate Tencent (OTC:TCEHY).
CYVN’s large investments in Nio shows that it has tremendous confidence in the Chinese EV sector in general and Nio in particular.
But Nio sold less than 16,000 EVs in November, way less than Li’s total deliveries of over 40,000 during the same month. And Nio lost $664 million in Q3, while Li, as we’ve seen, was firmly in the black.
Since CYVN is confident enough in Nio’s outlook to invest billions of dollars in it, then I believe that Nio is probably going to be very profitable and successful down the road.
If Nio is going to be very successful and profitable down the road, then Li is poised, in my opinion, to become one of the world’s largest automakers in the future.
Li and Other Top Chinese EV Makers Are Well-Positioned to Thrive
I believe that Chinese EV makers, with their first-mover advantage in EV technology and their access to low-cost labor and raw materials, are poised to become global leaders in EV sales.
With the world likely to convert fully to EVs over the longer term, these Chinese EV makers are well-positioned to become some of the world’s largest automotive manufacturers.
And the fact that Li is already beating Tesla in auto sales in China suggests that Li is destined for greatness.
Given these points, I view LI stock as a great pick for long-term investors.
On the date of publication, Larry Ramer 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.