Li Auto Plunges 9% Amid Tariff Fears and Analyst Downgrades: Is the EV Sector in Turmoil?

Summary
• Li Auto (LI) slumps 9% intraday, trading at $22.43 after opening at $23.46
• Analysts from JPMorgan and Macquarie downgrade the stock, citing subsidy expiration and pricing pressures
• U.S.-EU regulatory shifts and Trump-era tariff rumors amplify sector-wide jitters
• Options volatility surges, with put options at 22–22.5 strikes seeing 132%+ price change ratios

Li Auto’s sharp decline reflects broader automotive sector anxiety over evolving trade policies and regulatory uncertainty. With the U.S. and EU potentially accepting divergent safety standards and Trump-era tariffs looming, investors are recalibrating risk. The stock’s 9% drop—its lowest since $18.11—highlights immediate vulnerability amid sector-wide jitters.

Regulatory Uncertainty and Analyst Skepticism Fuel Li Auto’s Freefall
Li Auto’s 9% intraday plunge is driven by a confluence of factors: sector-wide fears over U.S.-EU trade agreements that could allow vehicles to bypass harmonized safety and emissions standards, Canada’s refusal to lift auto-related tariffs, and analyst downgrades from JPMorgan and Macquarie. The latter cited intensifying competition in China’s EV market and the impending expiration of government subsidies, which could exacerbate pricing pressures. Compounding these concerns, Li Auto’s high dynamic P/E of 264.84x makes it particularly sensitive to margin erosion, amplifying the sell-off.

EV Sector Mixed as Tesla Holds Steady, Li Auto Lags
While Li Auto tumbles, Tesla (TSLA) edges up 0.11%, showcasing divergent exposures to trade policy risks. The EV sector remains fragmented: NIO and XPeng face similar regulatory headwinds, but Tesla’s global production flexibility and U.S. manufacturing infrastructure insulate it from immediate margin pressures. Li Auto’s lack of U.S. manufacturing and reliance on China-U.S. exports make it a laggard in this environment. The Hang Seng Index (^HSI) also underperforms, with Li Auto’s YTD return (-7.31%) lagging the index’s 25.63% gain.

Bearish Options and ETFs to Navigate Li Auto’s Volatile Outlook
• MACD: -0.939 (bearish divergence), Signal Line: -1.036, Histogram: 0.097 (narrowing bearish momentum)
• RSI: 53.79 (neutral), Bollinger Bands: 22.83–26.29 (price near lower band)
• 200-day MA: $25.64 (price below), 30-day MA: $26.37 (bearish crossover)

Li Auto’s technicals signal continued downside pressure, with key support at $23.96–24.13 and resistance at $24.56. The stock trades near its 52-week low of $18.11, raising liquidity concerns. Two put options stand out for bearish exposure:

• LI20250905P22 (Put, $22 strike, 2025-09-05)
- IV: 68.50% (elevated volatility)
- Leverage Ratio: 39.68% (high gearing)
- Delta: -0.321 (moderate sensitivity)
- Theta: -0.0128 (moderate time decay)
- Gamma: 0.1372 (responsive to price swings)
- Turnover: 2,792 (liquid)
- Payoff (5% downside): $0.14/share (22 - 21.86 = 0.14)
This contract offers a balance of leverage and liquidity, ideal for a 5% bearish scenario.

• LI20250905P22.5 (Put, $22.5 strike, 2025-09-05)
- IV: 69.85% (high volatility)
- Leverage Ratio: 28.77% (moderate gearing)
- Delta: -0.396 (strong sensitivity)
- Theta: -0.0090 (lower time decay)
- Gamma: 0.1448 (high responsiveness)
- Turnover: 1,427 (liquid)
- Payoff (5% downside): $0.64/share (22.5 - 21.86 = 0.64)
This option’s higher strike price offers greater upside in a deeper selloff, though with slightly lower leverage.

Aggressive bears may consider LI20250905P22.5 into a breakdown below $23.96, while LI20250905P22 provides a safer entry for a 5% correction.

Backtest Li Auto Stock Performance
The strategy of buying LI after an intraday plunge of -9% delivered moderate returns but underperformed the benchmark. The CAGR was 10.67%, trailing the benchmark by 15.31%. With a maximum drawdown of 0.00% and a Sharpe ratio of 0.23, the strategy indicated a low risk profile but conservative growth potential.

Act Now: Li Auto’s Tariff-Driven Slide Presents Strategic Entry Points
Li Auto’s 9% drop reflects acute vulnerability to trade policy shifts and margin pressures. With the stock near its 52-week low and options volatility surging, the immediate outlook favors caution. Investors should monitor U.S.-EU trade framework developments and Trump-era tariff implications. Tesla’s 0.11% rise as the sector leader highlights divergent exposures, but Li Auto’s structural challenges demand a bearish bias. Watch for a breakdown below $23.96 or regulatory clarity to dictate next steps.