Li Auto Plunges 4.96% Amid JPMorgan Downgrade and Intensifying EV Competition – What’s Next for the Bearish Trend?

Summary
• JPMorgan downgrades Li Auto to 'neutral' with a $28 price target, citing waning BEV market optimism
• LI shares trade at $23.67, down 4.96% intraday, with a 52-week range of $17.44–$33.12
• Options chain shows heightened volatility, with 20 contracts trading above 40% implied volatility

Li Auto’s stock faces a sharp intraday selloff as JPMorgan’s bearish revision highlights intensifying competition in China’s EV sector. The downgrade, coupled with aggressive pricing cuts on the i8 SUV and looming rival launches, has triggered a 4.96% drop. With the stock trading near its 52-week low, traders are scrambling to assess whether this is a short-term correction or a structural shift in market dynamics.

JPMorgan Downgrade Sparks Sell-Off as Competition Intensifies
JPMorgan’s downgrade of Li Auto to 'neutral' from 'overweight' has sent shockwaves through the stock, with analyst Nick Lai slashing 2025/26 volume and earnings estimates by 10–20%. The firm cites 'conservative volume' expectations for Li’s BEV business amid fierce competition from rivals like NIO’s ONVO L90 and BYD’s upcoming Dynasty Tang. Lai’s on-the-ground research in Shanghai and Shenzhen revealed that competing models are capturing significant customer traffic, undermining Li’s i8 launch. The stock’s 4.96% drop reflects investor skepticism about Li’s ability to defend margins and market share in a sector where price wars are accelerating.

EV Sector Volatility as Tesla Trails Behind
The broader EV sector remains volatile, with Tesla (TSLA) down 2.16% intraday despite its dominant market cap. Li Auto’s 4.96% decline outpaces peers like XPeng (+4.24%) and NIO (-3.79%), highlighting divergent investor sentiment. While Tesla’s production scale offers some insulation, smaller players like Li Auto face existential risks from pricing pressures and product differentiation challenges. The sector’s 52-week range (17.44–33.12) underscores the fragility of EV valuations in a tightening competitive landscape.

Options Playbook: High-Leverage Puts and Calls for Short-Term Volatility
• RSI: 22.89 (oversold)
• MACD: -1.10 (bearish divergence)
• Bollinger Bands: $21.79–$32.85 (stock near lower band)
• 200-day MA: $25.77 (price below trend)

Key Levels: Support at $23.99–$24.15 (30D support), resistance at $27.32 (middle Bollinger Band). The stock’s 4.96% drop suggests a short-term bearish bias, but oversold RSI (22.89) hints at potential rebounds. VanEck Low Carbon Energy ETF (SMOG), though flat, offers sector exposure for long-term bulls.

Top Options:
1. LI20250822P22 (Put, $22 strike, 8/22 expiry):
• IV: 47.67% (elevated volatility)
• Leverage: 169.29% (high reward for downside)
• Delta: -0.1478 (moderate sensitivity)
• Theta: -0.00559 (slow time decay)
• Turnover: 1,374 (liquid)
• Gamma: 0.13016 (responsive to price swings)
• Payoff (5% downside): $0.33 per contract (max(0, 23.6650.95 - 22) = 0.33).
This put offers asymmetric upside if Li Auto breaks below $22, leveraging high IV and liquidity.

2. LI20250822C25.5 (Call, $25.5 strike, 8/22 expiry):
• IV: 48.29% (balanced volatility)
• Leverage: 139.41% (aggressive bullish play)
• Delta: 0.1804 (modest directional bias)
• Theta: -0.04558 (moderate time decay)
• Turnover: 3,009 (high liquidity)
• Gamma: 0.14624 (reactive to rebounds)
• Payoff (5% downside): $0.00 (max(0, 23.6650.95 - 25.5) = 0).
This call is ideal for contrarian bets on a rebound above $25.5, capitalizing on high gamma and IV.

Hook: Aggressive bears target LI20250822P22 for a $22 breakdown, while bulls eye LI20250822C25.5 on a bounce above $25.5.

Backtest Li Auto Stock Performance
The backtest of LI's performance after a -5% intraday plunge shows favorable results, with win rates and returns indicating positive short-to-medium-term gains. Here's a detailed analysis:1. Frequency and Win Rates: The event occurred 637 times, with a 3-day win rate of 53.06%, a 10-day win rate of 52.59%, and a 30-day win rate of 54.63%. This suggests that following a -5% intraday plunge, LI tends to experience positive returns over various short and medium time frames.2. Returns: The average 3-day return is 0.82%, the 10-day return is 1.97%, and the 30-day return is 4.53%. These returns, while modest, demonstrate that LI can recover from such significant dips, with the maximum return during the backtest period being 8.51% over 59 days. This indicates that while there may be some short-term volatility, LI has the potential for gradual recovery and growth in the aftermath of a substantial intraday decline.In conclusion, while the performance is mixed in the short term, with some positive returns, investors should be cautious due to the volatility observed. A -5% intraday plunge is a significant event, and while it does not always lead to immediate recovery, the stock tends to show positive returns in the following days and weeks.

Act Now: Position for Li Auto’s Volatile Path Amid Sector Turbulence
Li Auto’s 4.96% intraday drop reflects a critical inflection point in its BEV strategy amid intensifying competition. While JPMorgan’s bearish revision casts doubt on near-term margins, the stock’s oversold RSI and Bollinger Band positioning suggest potential for short-term rebounds. Traders should monitor the $22 support level and $25.5 resistance, with options like LI20250822P22 and LI20250822C25.5 offering high-leverage plays. Meanwhile, Tesla’s -2.16% decline as the sector leader underscores broader EV sector fragility. Watch for a breakdown below $22 or a reversal above $25.5 to dictate next steps.