Shares of Lithium Americas Corp. (LAC) plummeted 5.14% in Thursday's trading session, marking a significant reversal from its recent rally. The steep decline was primarily triggered by a downgrade from JP Morgan and a broader slump in lithium stocks.

JP Morgan analyst Bill Peterson downgraded LAC from Hold to Sell, setting a price target of $5, which implies nearly 50% downside from Wednesday's closing price. Peterson argued that the recent U.S. government investment in LAC, while positive, does not justify the stock's dramatic surge over the past month. The analyst views the government's stake more as a "backstop" for the company in a challenging lithium market rather than a truly strategic investment.

The downgrade comes after LAC's stock had rallied almost 200% over the past month, fueled by the U.S. government's decision to take a 5% equity stake in the company. This investment was part of the Trump administration's efforts to secure critical minerals supply chains and reduce dependence on China. However, JP Morgan suggests that the stock is no longer being valued solely on fundamentals and expects a correction if U.S.-China trade relations normalize.

Adding to the pressure on LAC, the broader lithium sector experienced a significant pullback on Thursday. Several other lithium stocks, including Quantumscape and other rare earth miners, also saw substantial declines. This sector-wide slump indicates that investors may be reassessing valuations in the wake of the recent rally, potentially driven by profit-taking and concerns about the sustainability of current prices in the lithium market.