Here’s Why Meituan Dianping Invested in Li Auto

Although their valuations are far higher than traditional automakers, many electric vehicle (EV) stocks have rallied hard in 2020.

As of early September, Tesla Inc (NASDAQ: TSLA) is the world’s most valuable automaker by a large margin thanks to a huge rally that has seen shares of the company more than quadruple year-to-date.

Tesla isn’t the only EV stock that’s done well. A Chinese EV stock that recently debuted in New York, Li Auto Inc (NASDAQ: LI), went public at US$11.50. As at the time of writing, it’s trading above US$16.

The market is ripe for disruption given the upcoming tech advancements in autonomous driving, battery efficiency, and data generation.

With the rallies, the market is giving a lot of credit to EV makers many years in advance in terms of disruptive technologies – deserved or not.

In terms of achieving the numbers to justify the rally, Tesla may need to really execute in terms of autonomous driving or batteries. Li Auto management will need to execute as well to achieve its valuation.

Given the importance of execution, a company’s management team is critical.

On the management front, one of Li Auto’s largest shareholders, Meituan Dianping (SEHK:3690), believes in Li Auto’s CEO, Li Xiang, and his execution abilities.

Here’s more for investors on why Meituan Dianping invested in Li Auto in the first place.

Why Meituan Dianping invested in Li Auto

According to Meituan Dianping’s second-quarter 2020 earnings transcript, Meituan thinks Li Auto “is a good investment”.

Meituan’s CEO and co-founder Xing Wang is bullish because the EV market is huge and there is a lot of potential in the sector.

According to Meituan’s CEO, Li Auto’s founder Li Xiang is also “a top-tier entrepreneur” and Li Auto has a “very good product” in Li One.

Wang said of Li Auto’s CEO:

“He understands cars, and he understands an EV. So I think he’s a visionary entrepreneur and who can go down to earth and manage many details.

So I’m very confident in this entrepreneur and the team he has built and the product they have designed and manufactured and delivered.  

So in one sense, I believe Li Auto is going to be a very, very successful company. So I think that’s going to be a very good investment.”

Li Auto isn’t Li Xiang’s first company. Li Xiang also founded Autohome Inc (NYSE: ATHM) and helped make it one of China’s leading online destinations for automobile customers.

The fact that Li Xiang has previous experience building a company is a plus.

Meituan also thinks there could be more synergies in the long term between it and Li Auto, with the long term meaning at least five to ten years.

Meituan’s CEO notes that Li Auto is researching autonomous driving, and there could be synergies given that Meituan is essentially a mobility company given its food delivery operations.

Meituan may also need to adopt more EVs in the future given the trend.

Foolish bottom line

Meituan Dianping is bullish on Li Auto given the EV maker’s high-quality product and its top-notch CEO.

In the long term, Meituan thinks there could be potential synergies between it and Li Auto.