Li Auto LI has revealed the first images of its new all-electric SUV, the Li i8. This marks a big step for the Chinese automaker as it is moving beyond its popular hybrid-like EREVs (Extended-Range Electric Vehicles). The i8 was shown alongside Li’s first electric vehicle, the Mega MPV, and its flagship L9 SUV.

The i8 SUV is expected to compete with luxury SUVs from Tesla, BYD, XPeng XPEV, NIO NIO and German brands like BMW, Mercedes-Benz and Audi. The Li i8 is expected to fuel investor optimism in 2025.

Li Auto has quickly become one of China’s top luxury car brands, delivering 500,508 vehicles in 2024. In comparison, its competitors XPEV and NIO delivered 221,970 units and 190,068 units, respectively. 

In the trailing 12-month period, however, LI shares have plunged 37.5%, underperforming the Zacks Auto, Tires and Trucks sector’s dip of 0.7% and the S&P 500 index’s return of 18.5%.

Li Auto’s shares have also lagged XPEV and NIO shares in the same time frame. While XPEV shares have surged 80.7%, NIO shares have dipped 21.4% in the trailing 12 months.

One Year Performance

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LI has been suffering from rising expenses, margin pressures, macroeconomic uncertainties and policy risks. Its shares are currently overvalued, as suggested by its Value Score of C. In terms of the forward 12-month price/sales, LI is trading at 1.12x, higher than its median of 0.94x and the Zacks Automotive – Foreign industry’s 0.59x.

Price/Sales Ratio (F12M)

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Li Auto’s average selling price (ASP) has been declining due to changes in its product mix, which are impacting the company’s top-line growth despite higher deliveries. Rising selling, general and administrative (SG&A) expenses, driven by increased employee compensation, including CEO performance-based stock awards, are also adding financial pressure. SG&A expenses surged 32.1% year over year, while R&D expenses fell 8.2% on a year-over-year basis in the third quarter of 2024.

While Li Auto’s aggressive supercharging network expansion is a noteworthy initiative, it requires substantial capital investment, which would weigh on short-term profitability. By the end of 2025, the company aims to build more than 1,200 supercharging stations along highways, covering 90% of national highways. 

Beyond internal challenges, macroeconomic uncertainties, potential tariff hikes and evolving government policies on EV subsidies, charging infrastructure and market regulations pose additional risks to Li Auto’s long-term growth.

The Zacks Consensus Estimate for LI’s 2025 EPS is currently pegged at $1.70, down by 2 cents over the past 30 days.

Conclusion

Despite its strong delivery growth and expansion into fully electric vehicles, Li Auto faces significant challenges that could weigh on its growth trajectory and stock performance.

LI currently carries a Zacks Rank #5 (Strong Sell), suggesting that it may be wise for investors to stay away from the stock for the time being. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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