Warning: Toyota Poses a Big Threat to Li Auto Stock

Stock Market

Li Auto (NASDAQ:LI) stock has had an interesting year.

The company has done very well making plug-in hybrid vehicles, battery-powered cars backed by gasoline engines. A PHEV avoids many trade-offs plaguing other electric cars.

Lithium ion batteries are heavy. They have less energy density than gasoline, even with the weight of an engine added. Li’s PHEVs can seat six, have lots of cargo room, and don’t weigh as much as rivals.

But disruption is coming to this market. Li has a plan for it, but that plan may not be good enough to boost Li stock moving forward.

A Closer Look at Li Stock

Li began with hybrids because, according to Li CEO Li Xiang, batteries are too expensive and charge too slowly for his customers.

Li offered its all-electric roadmap in April. It will launch five fully electric cars in 2025.

Li also plans to build 3,000 800 volt charging stations, which can add 240 miles to a car’s range in just 10 minutes. The 2025 line will have 5 of these “High Performance Charging” vehicles and 5 hybrids.

The change is taking place thanks to CATL, the giant Chinese battery maker. CATL’s Qilin battery still uses Lithium, but it features nickel magnesium cobal and co-called “cell to pack” technologies to deliver higher energy densities.

There are versions being planned with a range of over 600 miles. CATL calls its new battery packs “semi-solid” batteries, and claims they could even power airplanes.

Japanese Solids

But liquid batteries, or even semi-solid batteries, can’t deliver the energy density of solid batteries. Solids are also more stable, and safer.

That’s why a recent announcement from Toyota Motor (NYSE:TM) shook up the industry. The Japanese giant says it has a solid battery design that will come out in 2025 cars and will, by 2027, deliver 700 miles of range on a 10-minute charge. The batteries are also said to be more durable.

If Toyota can deliver, it shakes up the entire industry. A safe, solid battery with the range of a gas-powered car and a competitive refueling time, is one thing. Having that from a company that has scaled production, and with $41 billion of cash to invest, is something else.

For those who don’t believe Toyota’s claims, Nissan (OTCMKTS:NSANY) also says it has solid battery technology.

The Bottom Line

The move toward solid batteries adds risk to every electric vehicle and battery stock. This includes Li Auto. It also includes Tesla and CATL.

I have written this before, but it bears repeating. With electric cars, batteries are the ballgame.

Solid batteries that recharge quickly, that don’t degrade, and that have a competitive price won’t be easy to make. Li is depending on CATL to make them. If its partner can deliver, Li’s future will be safe.

But there are no guarantees in any of this, and the Japanese claims also deserve a skeptical response. Toyota is up just 20% so far this year. Li stock is up 80%.

Stay tuned.

As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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