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Why Li Auto Stock Soared 13% Today

What happened

Shares of electric-vehicle (EV) manufacturer Li Auto (NASDAQ: LI) exploded on Tuesday and was trading 10.8% higher as of 2 p.m. ET after hitting a day’s high of 12.8%. Investors saw an opportunity to buy the EV stock after Monday’s sell-off, backed by encouraging updates from China.

So what

Several districts in China, including financial hub Shanghai, were under strict lockdowns for a couple of months or so amid surging COVID-19 cases. That hit the industrials sector particularly hard as companies were forced to suspend operations, with several automakers even postponing product launches and reporting a sharp dip in sales in recent weeks.

Factories in Shanghai, though, are now up and running — 96.3% of industrial businesses in Shanghai tracked by the Chinese government have resumed operations, according to the latest update from China’s Ministry of Industry and Information Technology. That means one less overhang for stocks of China-based auto companies listed in the U.S., including Li Auto.

Just days ago, Li Auto said that, although its parts suppliers have resumed production, they aren’t operating at full capacity yet. That’s the biggest reason Li Auto’s manufacturing facility isn’t running at full capacity, either, which is hurting vehicle deliveries.

Now what

With Shanghai now reopening, investors in Li Auto expect the company to grow at an even faster pace. Li Auto is on solid footing — it’s one of the leading new energy vehicle manufacturers in China, with its only EV, the Li One SUV, emerging as the third-highest-selling SUV in May. Li Auto’s deliveries jumped 176% sequentially in May.

Li Auto also recently delivered solid numbers for its first quarter, including gross margin of 22.6% and a jump of nearly 168% in year-over-year revenue. The company is now ready to launch its second EV — the Li Auto L9 SUV — on June 21, with deliveries expected to start in August.

Li Auto couldn’t escape Monday’s sell-off, but investors found the perfect excuse in the latest updates from China to buy the EV stock on the dip today.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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