Bank of America Securities gave Li Auto a "Buy" rating and a $42 price target in its initial coverage report on the Chinese electric vehicle company's bullish sales growth prospects.

BofA analyst Ming Hsun Lee said Li Auto's sales are expected to grow at a CAGR of 48 percent from 2020-2025, driven by rising EV penetration, strong market demand, and rapid expansion of sales channels.

Extended-range EVs address consumers' concerns about electric vehicles' range and are also proving their demand in the Chinese electric vehicle market, the analyst said.

CICC says Li Auto sales expected to reach 80,000 units by 2021, as its products reach more customers

BofA also expects Li Auto's share of China's EV market to grow from 3% in 2020 to 6% in 2023 as it focuses on improving the user experience more than other traditional car OEMs, and the company's continued access to low-cost capital will be another catalyst for its share price to rise in the future.

Looking ahead, the bank expects Li Auto to launch one model per year from 2022 to 2024, and gradually venture into the full-size and compact SUV segments.

In addition, Credit Suisse analyst Bin Wang also upgraded Li Auto from "Neutral" to "Outperform" and raised the price target from $33 to $40.

The analyst said Li Auto management expects the company's January order book to continue to increase despite Tesla's China-made Model Y price cut, signaling better-than-expected sales momentum.

The analyst also said Li Auto has a "clear and ambitious plan" for an ADAS hardware upgrade program for automated driving assistance.

China's emerging automakers are taking share of traditional cars, at least in the case of Li Auto

The Li ONE, Li Auto's only model, delivered 6,126 units in December, setting a new monthly delivery record, according to data released by the company earlier this month.

That delivery volume was up 31.9 percent from November and 529.6 percent from December 2019.

Li Auto said it also had a record number of new orders in December but did not disclose specific figures.

Li Auto delivered 14,464 Li ONEs in the fourth quarter of 2020, up 67 percent from the third quarter, and Li ONE deliveries totaled 32,624 units for the year from January to December 2020.

Li Auto closed up 2.48 percent on Wednesday to close at $31.76.

Li Auto surpasses 30,000 cumulative deliveries