Shares of Hesai Group (NASDAQ: HSAI) plunged 5.03% in Tuesday's intraday trading session, despite the company reporting strong third-quarter results that beat expectations. The sell-off appears to be driven by concerns over margin pressure and a cautious outlook for the autonomous driving technology sector.

For the third quarter of 2025, Hesai reported net revenues of RMB795.4 million (US$111.7 million), representing a 47.5% year-over-year increase. The company's net income reached RMB256.2 million (US$36.0 million), a significant turnaround from a net loss in the same period last year. However, gross margin declined to 42.1% from 47.7% in the prior year quarter, primarily due to a decrease in high-margin non-recurring engineering services revenue.

While Hesai maintained its leadership in long-range automotive lidar with a 46% market share, investors seem concerned about intensifying competition in the sector. The company secured design wins for its high-end ETX lidar with major automakers, but the multi-lidar setups required for Level 3 autonomous driving could pressure pricing. Additionally, despite raising full-year guidance, Hesai's outlook for Q4 implies a potential slowdown in growth rate, which may have contributed to the stock's decline as investors reassess the company's near-term prospects in a challenging macroeconomic environment.