China is the world’s largest car market and the largest market for new energy vehicles, mainly EVs. More than 20 million new cars are sold annually in the country, with 24.6 million sold in 2021, despite a slowdown due to COVID shutdowns of factories, notes Brendan Coffey, editor of Cabot SX Greentech Advisor.

New energy vehicles — more than 80% of which are battery EVs — sold 3.3 million units in 2021. China is good for nearly one out of every three cars sold on Earth. In the first half of this year, about 12 million vehicles were sold.

SUVs are the most popular style of cars in the country, accounting for nearly half sales, with sedans selling nearly the same number and what are called MPVs in the China market — minivans mainly — a little over 1% of the market.

Li Auto (LI) is a Chinese new energy vehicle only maker founded in 2015. The company focuses on the middle-class heart of the market, vehicles priced between the equivalent of $21,000 to $70,000. Its first model being is the Li ONE, a large SUV of which it delivered 31,716 in its most recent quarter, up more than 150% from the prior year’s quarter.

The vehicle is targeted to families, with three rows and seating for seven. The ONE is an extended range model that primarily runs on batteries while using a small gas tank and internal combustion engine to charges batteries on the go and provide extra distance — putting its range at about 550 miles.

This quarter (Q3), Li will have its first full quarter of sales of its second model, the L9. It began taking orders for the L9 at its 247 retail stores on June 22. It’s a luxury large SUV, that is priced around $68,000.

Right now, Chinese government policy is a positive for the auto industry and EVs. The policy tide helps Li, which expects the L9 to sell well, allowing it to introduce three more models to the Chinese market in 2023 including a model inthe $30,000 to $45,000 price range.

The big question with China right now is how quickly the country can return to normal, as it continues to have spates of strict pandemic lockdowns. Expectations are that the market will be robust once COVID stops halting manufacturing and consumer behavior.

Technically, Li has the look of a stock that is consolidating recent gains and building a base for further advances. Shares rallied off recent lows of $19 with May’s earnings, bringing hope the Chinese auto industry is rebounding. The all-time high for shares, on a closing basis, is $43.46, hit in November 2020.

LI is a very strong stock, technically, in a growth market that is still a reopening play and is insulated from the inflation and economic fears dominating U.S. sentiment. We’ll buy here in expectation shares will climb higher and test the upper $40s.

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