Li Auto (LI) stock is down more than 7% in Friday’s trading session. The selloff appeared to be a direct reaction to the U.S. election result, with president-elect Donald Trump vowing to raise tariffs on Chinese imports. However, Li Auto doesn’t export to the U.S. and doesn’t have plans to. As such, I think the selloff is unwarranted. More broadly, I think the stock is oversold and undervalued based on projected earnings growth. That’s why I’m bullish.

Donald Trump is the president-elect and tariffs are going to be headline news when he takes to the White House. While his exact plans for vehicles and electric vehicles (EVs) are uncertain, the former president said he’d look to implement tariffs of 100% or even 200% on Chinese-made vehicles entering the U.S. market. This aggressive stance is part of Trump’s broader strategy to protect the American auto industry and address concerns about Chinese competition.

Of course, tariffs aren’t good for Chinese auto companies exporting to the U.S. In fact, a 100% tariff would almost certainly make any vehicle uncompetitive against a like-for-life peer. Analysts have hypothesized that Trump’s tariffs aim to force Chinese automakers to produce in the U.S. or will be used as a bargaining chip for other concessions.

However, a reason why I am bullish on Li Auto is because its global expansion strategy appears to be focused on markets outside the United States, with a particular emphasis on the Middle East. According to reports, the company planned to enter overseas markets starting in 2024, targeting countries like the UAE and Saudi Arabia.

More recently, Li Auto’s CEO, Li Xiang, indicated that the company’s immediate plans do not include international expansion before 2025, with the boss stating, “We have no plans to expand globally until 2025.” Reports now suggest that the company has pushed its export plan back further, focusing on its position in the Chinese luxury EV market.

This lack of appetite to export could be seen as a sensible option. The Chinese EV market is the biggest globally, with sales surging 82% in 2023 and capturing nearly 60% of global EV purchases. Overall, China’s EV market is expected to grow at a CAGR of 17.15% from 2024 to 2030.

Although I am bullish on Li auto, there are risks worth considering. Of course, there is an issue about being geographically focused on one country — even if it represents 20% of the global population — and that’s a form of concentration risk. China’s economy is widely considered to be faltering, and more economic stimulus will likely be required to enhance domestic demand.

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Nevertheless, Li Auto targets the higher end of the market and this tends to be a more resilient part of the economy. Indeed, Li Auto’s cheapest vehicle — the L6 — sells for around $34,000, a similar price to Tesla’s (TSLA) Model Y, which is not cheap in a poorer country like China.

In addition, I think it’s worth highlighting that Li Auto has continued to deliver impressive growth despite what many consider to be a faltering economy. The firm delivered 51,443 vehicles in October 2024, up 27.3% year-over-year.

Despite this volume growth, Li Auto’s earnings are expected to fall in 2024. That largely reflects some softening of margins and higher costs due to the introduction of new models. Still, I remain positive on the stock because earnings growth is expected to return to 36% in 2025 and 42% in 2026. Furthermore, Li auto is still a good value stock.

At the time of writing, the stock is trading around 20.4x forward earnings, putting it at a 20% premium to the consumer discretionary sector as a whole. However, it’s a huge discount to Tesla at 100x forward earnings and a modest discount to BYD (BYDDF) at 21x forward earnings. Moreover, other peers, such as Nio (NIO), XPeng (XPEV) and Rivian (RIVN), are currently unprofitable. We also need to remember that Li Auto’s cash position of $13 billion is more than half of its market cap.

Therefore, I am encouraged by the forward P/E ratio, medium-term growth, and strong cash position.

On TipRanks, LI comes in as a Moderate Buy based on five Buys, four Holds, and zero Sells assigned by analysts in the past three months. The average LI stock price target is $30.42, implying an about 28% upside potential.

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I’m encouraged by the share price target on Li Auto, which infers substantial upside. However, I believe the stock could go even higher if the company is able to sustain its margins and volume growth. The company, as noted, is very dependent on the Chinese market, but it has delivered strong figures in tough conditions. I also find the P/E ratio particularly attractive given the company’s huge cash reserves, which account for more than half of the current market cap.

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