Why Li Auto Stock Raced Higher on Monday

Both investors and analysts are getting markedly more positive about Chinese auto makers.

Like numerous electric vehicle (EV) stocks lately, Li Auto (LI 7.63%) had essentially been punished by the market on concerns that demand was waning for such cars. That gloomy sentiment wasn’t in evidence on Monday, as investors turbo-charged the stock with a nearly 8% gain in price. This was aided in no small measure by an analyst’s recommendation upgrade.

From neutral to bullish

Well before market open, 86Research pushed its Li Auto recommendation up one peg to buy from its previous hold. The reasoning behind the move wasn’t immediately clear, and there was no indication of price target.

However, the adjustment comes amid something of a bullish pundit stampede on Chinese EV stocks. Last week, influential U.S. investment bank Morgan Stanley added Li and peers Nio and XPeng to its “research tactical ideas” list. Morgan Stanley is convinced that the stock prices of all three will rise over the coming 15 days.

86Research’s Li Auto bump also comes on the heels of an EV industry-supporting move by China’s Ministry of Commerce. The Ministry announced that people who trade in older cars to buy qualifying (more energy-efficient) internal combustion or new energy vehicles (NEVs) will be eligible to receive subsidies from the government. These can reach as high as 10,000 yuan ($1,379), depending on the trade-in.

Worth getting revved up about?

I’d be cautious about the Li Auto price pop, as I feel the sluggish Chinese economy is going to continue dampening business for EV makers into at least the near future. While the nation’s government is eager to do what it can to juice demand, those kinds of subsidies alone aren’t enough to provide a significant jump in that demand.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nio. The Motley Fool has a disclosure policy.

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