Li Auto (LI) Stock May Be 5% Undervalued Despite August Model Refreshes

Li Auto stock has had a difficult three years, with the share price down about 70.3%, yet current checks suggest the valuation now sits close to what most models consider fair. The Discounted Cash Flow (DCF) intrinsic value estimate is in line with the current market price and the main market based metrics also point to Li Auto trading at about the right level.

• Over the past three years Li Auto has declined 70.3%, which puts recent short term gains into the context of a longer period of weak returns for shareholders.
• Upcoming refreshed models such as the MEGA MPV and i8 SUV, along with international expansion, can help support revenue expectations. However, ongoing delivery declines and recent production issues may limit how much investors are willing to pay for that growth.
• Li Auto scores 3 out of 6 on valuation checks, which points to a mixed picture rather than a clear bargain or clear overvaluation.

The issue now is whether Li Auto's current price fairly reflects this balance between muted past returns, new growth efforts and a valuation that already looks roughly aligned with intrinsic value estimates.

Find out why Li Auto's -46.0% return over the last year is lagging behind its peers.

Does Li Auto Look Fairly Valued on Cash Flow?

The Discounted Cash Flow (DCF) model estimates the value of Li Auto by projecting future free cash flows and discounting them back to today. For Li Auto, the latest twelve month free cash flow is a loss of about CN¥18.6b, and the model assumes recovering cash flows over time based on analyst and trend estimates.

On that basis, the 2 Stage Free Cash Flow to Equity model points to an intrinsic value of about $14.34 per share, which is only slightly above the current market price and implies the stock is around 4.9% undervalued. The recent headlight supply issue that affected July production helps explain why the market is cautious even though the DCF points to modest upside.

Overall, the Discounted Cash Flow result suggests Li Auto stock currently looks about fairly valued, with only a small discount to intrinsic value reflected in the price.

Li Auto is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Li Auto.

Does Li Auto Look Fairly Valued on Sales?

For Li Auto, the P/S multiple is a useful cross check because revenue is a clearer anchor than earnings while the company is still absorbing large investment and reporting free cash flow losses.

Li Auto currently trades on a P/S of about 0.8x, compared with an auto industry average of roughly 0.6x and a peer group average near 1.9x. The fair P/S ratio implied by the model, which blends factors such as growth expectations, margins, size and risk, is about 0.9x. That is only slightly above the present 0.8x level.

This suggests that Li Auto stock is priced close to what the model indicates is reasonable based on sales, with a small discount to the fair ratio that is not large enough to characterize the shares as clearly cheap or expensive.

On the P/S multiple, Li Auto appears roughly fairly valued based on its revenue profile, risks and peer comparisons.

See what the numbers say about this price — find out in our valuation breakdown.

The Li Auto Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the Li Auto valuation puzzle leaves off and spell out what future growth, margins and earnings would need to look like for the stock to be worth materially more or materially less than today's price, based on different grounded storylines. Rather than focusing on a single multiple or model output, each Narrative sets out its own fair value assumptions so you can later compare them with Li Auto's reported results.

Community views on Li Auto sit far apart, with one side seeing disciplined execution upside and the other focused on margin and policy risk.

Bull case: 27% undervalued

"Aggressive investment in proprietary intelligent driving systems (e.g., the VLA driver model and in-house AI chips), and the rapid rollout of these features across the lineup are expected to unlock high-margin, recurring software and services revenue..."

Read the full Bull Case to see why Li Auto could be undervalued

Bear case: 26% overvalued

"The accelerating competitive landscape, led by aggressive pricing and rapid iteration from domestic giants like BYD and global players such as Tesla, may lead to increased marketing and sales expenses as well as lower average selling prices, compressing both revenue growth and gross margin..."

Read the full Bear Case to see why Li Auto could be overvalued

Do you think there's more to the story for Li Auto? Head over to our Community to see what others are saying!

The Bottom Line

For Li Auto, both the Discounted Cash Flow (DCF) intrinsic value estimate and the sales based multiples suggest the stock now sits close to what the current fundamentals justify, with only a small implied discount. That makes the valuation read as about right rather than clearly cheap or expensive. The real debate from here is whether Li Auto can stabilise deliveries and margins enough for investors to gain confidence in its cash flow path. How that execution story plays out will likely decide whether the current pricing ends up looking like a fair entry point or a value trap.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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