Li Auto Stock Struggles to Find Footing Amidst Recall and Downgrades

Li Auto's stock (NASDAQ:LI) is facing significant headwinds, currently struggling to establish a support level as it navigates a series of negative catalysts. The stock has declined by 25% year-to-date, and its RSI has fallen to 19.5, signalling heavily oversold conditions.

The stock's downward trajectory reflects a confluence of factors that have eroded market confidence. One of the most significant blows came in October, when Li Auto announced a recall of 11,411 MEGA 2024 electric vehicles.

The recall was initiated due to the use of coolant with insufficient corrosion resistance, potentially leading to thermal runaway of the power battery under extreme conditions, posing serious safety risks. This action followed a fire incident involving a MEGA EV in Shanghai, further amplifying concerns. This recall has undoubtedly impacted how markets are viewing the stock.

Adding to the pressure, J.P. Morgan downgraded Li Auto's stock from “Buy” to “Hold” in August 2025, reducing the price target from $33 to $28. The downgrade was attributed to an increasingly competitive landscape and more conservative volume assumptions for the latter half of 2025 and beyond.

The analyst reduced estimates for Li Auto's 2025 and 2026 volume and earnings by 10-20% due to intensifying competition. Downgrades of this nature can severely impact market sentiment and subsequently, stock performance.

Further exacerbating the situation, Li Auto adjusted its second-quarter delivery outlook in June, expecting to deliver around 108,000 vehicles, down from the previously anticipated range of 123,000 to 128,000 vehicles. The company cited the temporary impact of its sales system upgrade as the reason for this adjustment. Revisions of this kind can create concern about a company's growth trajectory and signal operational challenges.

The broader Chinese electric vehicle market is becoming increasingly competitive, and Li Auto's Q1 2024 results reflected these pressures. Profits experienced a 36% year-over-year drop, which was attributed to mounting competition. The company's average selling prices declined by approximately 14% year-over-year to around RMB 300,000 as of Q1 2024.

Furthermore, China's economic growth has been sluggish, with GDP rising by about 4.7% in the second quarter of 2024, down from 5.3% in the first quarter. These macroeconomic factors contribute to the overall market sentiment surrounding Li Auto.

Despite these challenges, Li Auto has taken strategic steps to enhance its market position. In April, the company launched the Li L6, a five-seat premium family SUV priced competitively to challenge Tesla's Model Y. The L6 is an extended-range electric vehicle (EREV) offering a range of 212 km on a single charge and up to 1,390 km when using the combustion engine to extend the battery's range.

While the heavily oversold RSI suggests the potential for a rebound, the numerous challenges facing Li Auto, including safety recalls, analyst downgrades, delivery outlook adjustments, and competitive pressures, warrant caution. The markets will be closely watching to see if bulls step in to provide support, or if the downward trend will persist.