Citi analysts told investors in a note Thursday that they should buy shares of Li Auto Inc (NASDAQ:LI) and sell Xpeng Inc (NYSE:XPEV).
They told investors that the firm held an investor call with Li Auto, where the company discussed its model pipeline, sales, and earnings outlook.
Citi believes the valuation methodology the market is likely to adopt will switch from PS to PE in the fourth quarter due to weak 4Q23 demand visibility, current share prices of high-beta names no longer being at a historical low compared with June 2023, and the fact that the price war, margin and cash flow concern will be "more of a swing factor entering into early-2024."
Focusing on Li, the analysts stated: "We have a positive outlook on the EREV sector and Li Auto in the longer term given that: 1) Li Auto is the first mover in EREV technology in China, and we expect sharply rising adoption of EREV in the region as the vehicle type is an attractive alternative to BEVs and ICEs given its longer driving range and lower BOM cost; 2) we expect Li Auto to gain market share in the higher-end SUV segment thanks to its competitive products with Level 2.5 ADAS solution and superior functionality."
The firm raised the Li Auto price target to $65.10 from $54.30. The stock is currently up 1.9% at $42.60 on Thursday.
Meanwhile, the analysts explained that the firm believes the XPeng's model cycle "faces serious challenges in 2023 and beyond, as it will be squeezed by Tesla/BYD/Leapmotor."
"Also, the sector's key problem is over-supply, especially B-segment BEV (P7 located in this market). We believe the current valuation has fully priced in Xpeng/VW partnership," the analysts concluded. XPeng shares are currently down over 1%, trading around the $16.74 mark.