Li Auto (NASDAQ:LI) stock is the big Chinese EV success story of 2023.

Shares are up over 65%, while those of rival Chinese companies have barely budged. The company is rightly being called the Chinese Tesla (NASDAQ:TSLA). If this were an American company, its stock would be a bargain. 

But there’s a worm in the apple, with a message for the rest of the EV market.

Li Auto isn’t selling EVs, which makes Li stock more attractive.

Plug-in Hybrids and LI Stock

Li has found success with plug-in hybrids. These are full-size family cars, competitive with the Tesla Model Y. They’re even superior in some areas. Li is on target to sell 300,000 cars this year, with 28,277 sold just last month, up 146% from a year earlier. 

But take Li’s new flagship model, the L9. The drivetrain has separate motors for the front and rear wheels and takes a half-hour to go from 20% charge to 80% using a 480-volt charger. But this only gets it a range of 133 miles. A gas-powered motor behind the battery extends that to over 800 miles.

The L9 will cost about $70,000, comparable to a Tesla Model S. It’s short on battery power, but it’s a full-size family car, not a coupe.

The L9 eliminates compromises found in fully electric vehicles. You’re not driving a little putt-putt around, because the L9 is full-sized, with full-sized features and electronics.

Owners can recharge overnight the electric engine, so you never see a gas station when you’re in town. The design also eliminates range anxiety, since it can travel over 800 miles using the gas-powered engine. My little Toyota (NYSE:TM) hybrid only goes 550 miles on a tank of gas.

The Electric Transition

Li is positioning itself as an electric car company because electric motors are improving fast. A new Mercedes Benz (OTCMKTS:MBGYY) axial flux motor delivers twice the torque of current radial motors, while taking up one-third the weight and space. MIT has demonstrated a motor powerful enough to be used on regional jets.

Modern electric motors aren’t just better for the environment than gas engines. They’re simpler, cheaper, and more reliable, with almost no moving parts. This is why Toyota recently replaced CEO Akio Toyoda with Koji Sato. That company is now changing everything about how it makes cars as it moves to plug-in electrics.

It takes scale to compete in today’s electric car market. Having just a vision’s no solution, everything depends on execution, as Sondheim wrote. Tesla has the necessary scale to compete.

Toyota is going to have it. Li’s hybrid designs, its growth trajectory, and its profitability, could let it play in that league, alongside BYD (OTCMKTS:BYDDF), Volkswagen (OTCMKTS:VWAGY), and possibly one or two other players.

The Bottom Line

Once we’ve gone electric, car sales are going to fall. Electric motors and drivetrains are far more reliable than what they’re replacing.

This means that, as exciting as the transition may be, margins for the winners could be as thin as they are for General Motors (NYSE:GM) and Ford Motor (NYSE:F) now, once the transition is complete.

This is something that EV analysts don’t like to talk about. We’re accustomed to replacing our cars every few years because parts wear out and mileage improves. Your kids may not have to do that with their EVs. Since electric motors scale from smartphones to airplane size, the kids may cut their costs further, and allow cities to scale, with e-bikes and rentals.

The market in 2030 will look nothing like today’s market. This will impact Li Auto as it impacts everything else.

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.