Shares of Autoliv (NYSE:ALV), the world's largest maker of airbags and seatbelts, plummeted 5.06% in pre-market trading on Friday, despite reporting better-than-expected second-quarter results. The sharp decline reflects investor concerns over ongoing tariff impacts and challenges in the Chinese market, overshadowing the company's strong financial performance.

Autoliv reported adjusted earnings per share of $2.21 for Q2, surpassing the analyst consensus estimate of $1.97. The company's quarterly sales reached $2.714 billion, a 4.2% increase year-over-year, also beating expectations. However, these positive results were overshadowed by other factors impacting investor sentiment.

A key issue weighing on the stock is the ongoing impact of tariffs. Autoliv reported that the negative impact from U.S. tariffs was around 35 basis points on operating margin. While the company managed to recover about 80% of tariff costs in Q2 and expects to recover most of the remaining costs later in the year, the CFO warned that new tariffs on steel, aluminum, and non-USMCA compliant parts could amount to around $100 million annually. This ongoing uncertainty surrounding tariffs appears to be a significant concern for investors.

Additionally, Autoliv faced challenges in the crucial Chinese market. CEO Mikael Bratt highlighted that while the company outperformed in Americas, Europe, and Asia excluding China, it experienced "strong headwinds from LVP mix shifts, particularly in China." This underperformance in China, a key growth market for automotive suppliers, seems to have further dampened investor enthusiasm.

Despite these challenges, Autoliv raised its full-year guidance for organic sales growth to around 3%, up from the previous estimate of around 2%. The company also maintained its outlook for adjusted operating margin at around 10-10.5%. However, this improved guidance wasn't enough to offset the near-term concerns about tariffs and China market performance.

As the market digests this mixed report, all eyes will be on how Autoliv navigates the challenges in China and manages the ongoing impact of tariffs in the coming quarters. The stock's significant drop suggests that investors are taking a cautious stance, prioritizing these potential headwinds over the company's current financial strength.