Bernstein lowers rating on Li Auto, says EV maker will see a 'bumpier road ahead'

Bernstein downgraded Chinese EV maker Li Auto (LI) to Market Perform from Outperform, trimming its price target to $26 from $33, citing a "bumpier road ahead" due to heightened competition in the premium PHEV/EREV and crowded BEV segments. Analyst Eunice Lee highlighted that Li Auto's BEV efforts are diluting margins and that new product cycles face challenging prospects, echoing JPMorgan's recent downgrade. Despite these concerns, a majority of analysts (21 of 28) still maintain a Buy or Strong Buy rating on the stock.

Analysis

Bernstein has downgraded Li Auto to Market Perform from Outperform, cutting its price target to $26 from $33, signaling a more cautious outlook for the Chinese electric vehicle manufacturer. The downgrade is predicated on expectations of a "bumpier road ahead," driven by two primary factors: intensifying competition within Li Auto's core extended-range and plug-in hybrid SUV segment, and significant challenges in the overcrowded battery electric vehicle (BEV) market. According to the analyst, the company's strategic push into BEVs is actively diluting profit margins. This sentiment is not isolated, as it follows a similar downgrade to Neutral by JPMorgan last week, suggesting a growing concern among some analysts about the company's near-term growth prospects and ability to defend its market share. Despite these headwinds and a new product cycle focused on BEVs, which Bernstein views as facing challenging prospects, the majority of Wall Street analysts remain bullish, with 21 of 28 covering the stock maintaining a Buy or Strong Buy rating.

Key Decisions for Investors

• Investors should closely monitor competitive announcements and market share data in the premium Chinese PHEV/EREV segment, as this is the primary area of concern cited in recent analyst downgrades.
• Attention should be paid to Li Auto's next earnings release for any confirmation of margin dilution resulting from its BEV strategy, which could validate the more cautious analyst outlooks.
• Given the divergence between recent downgrades and the broader bullish analyst consensus, a prudent approach may be to assess the sales performance of the new i8 and i6 models before adjusting a long-term position.