This Chinese electric vehicle stock is running out of steam as competition heats up, says Bank of America

Bank of America downgraded Li Auto (LI) to Neutral from Buy, trimming its price target to $26 from $31, citing a weaker growth outlook driven by lackluster current quarter delivery guidance and intensified market competition from new entrants like Xiaomi SU7, AITO's M8/M7, and Onvo L90. Analyst Ming Hsun Lee cut 2025-2027 volume sales forecasts by 12%/12%/8%, suggesting Li Auto may need to diversify into other segments or expand overseas to sustain growth. Despite BofA's move, the majority of analysts (19 of 28) maintain a Buy or Strong Buy rating on LI, with an average price target signaling 38% upside.

Analysis

Bank of America has downgraded Li Auto to Neutral from Buy and reduced its price target to $26, reflecting a more cautious stance on the company's near-term growth prospects. The downgrade is predicated on Li Auto's lackluster vehicle delivery guidance for the current quarter, which BofA interprets as a signal of intensified market competition. Specifically, the entry of new models such as the Xiaomi SU7, AITO's M8/M7, and Onvo L90 is expected to pressure Li Auto's sales in its highly profitable family SUV segment. In response to these headwinds, BofA has revised its financial model, cutting volume sales forecasts for 2025, 2026, and 2027 by 12%, 12%, and 8% respectively, while simultaneously raising its operating expense-to-sales ratio estimates. The analysis suggests that to resume its high-growth trajectory, Li Auto may need to strategically pivot into new segments like sedans or pursue more aggressive overseas expansion. It is crucial to note the divergence in sentiment, as this downgrade contrasts with a largely bullish consensus; 19 of 28 analysts still rate the stock a Buy or Strong Buy, with an average price target implying 38% upside, far exceeding the 12% upside projected by BofA's new target.

Key Decisions for Investors

• Investors should closely monitor Li Auto's forthcoming delivery figures against its guidance and the sales performance of new competitors like Xiaomi and AITO to validate the severity of the competitive threat.
• Attention should be focused on any strategic announcements from management regarding product diversification into sedans or accelerated international expansion, as these could act as catalysts to offset slowing growth in its core market.
• Given the significant divergence between Bank of America's cautious view and the bullish analyst consensus, it is prudent to reassess risk exposure, as the stock's trajectory will likely depend on its ability to defend market share against the newly intensified competition.