Li Auto-W's stock plummeted 5.03% during intraday trading on Tuesday, extending recent declines for the automotive sector.

The sharp drop comes amid multiple company-specific headwinds, including the recent granting of 35 million share options and 5.6 million restricted share units to executives and employees, raising dilution concerns. Fundamentally, the company reported a first-quarter net loss of RMB 2.29 billion, which expanded 452% year-over-year, while second-quarter guidance points to continued declines in both deliveries and revenue. Vehicle gross margin collapsed from 19.8% to 6.1% year-over-year, severely limiting pricing flexibility amid intensifying competition.

At the industry level, the Chinese automotive sector faces significant challenges, with May auto retail sales falling 16.1% year-over-year and lithium carbonate prices surging, squeezing margins across the sector. Recent commentary from industry figures has highlighted a challenging environment, with domestic retail sales for the January to May period falling 19.5% year-on-year. Analysis points to declining sector earnings and a market focus shifting towards high-growth technology sectors as additional factors pressuring automotive stocks.