Why Li Auto Stock Got Stuck in Traffic Friday

Key Points

• Life is about to get tougher for Chinese EV companies that sell their wares outside the country.

• The Chinese government will require them to obtain a special license starting next year.

• 10 stocks we like better than Li Auto ›

Friday wasn't a good day to be an investor in Chinese electric vehicle (EV) stocks. Among the prominent decliners in that asset class was Li Auto (NASDAQ: LI), which, along with the others, fell in price because of the latest pronouncements of that country's government.

Li Auto's American Depositary Receipts (ADRs) dipped by almost 5% that day, during a session when the S&P 500 index managed a 0.6% gain.

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New export license requirement

The Chinese commerce ministry announced that it is mandating export permits for domestic companies that want to sell their wares abroad. This requirement will kick in on Jan. 1, 2026, which at this point is only months away.

Image source: Getty Images.

The ministry said that its move was aimed at curbing the activities of unregulated traders. It also wants to protect the reputation of the country's industry, specifically the thriving EV segment of the auto sector.

The licenses will only be available to EV makers and their authorized companies. The Chinese government has already placed similar restrictions on makers of traditional internal combustion engine (ICE) vehicles and EV/gasoline hybrids.

The EV market has exploded in China, and manufacturers in the country are also enjoying considerable success in foreign markets. It is currently the largest car exporter on the planet and likely to stay that way, with sales of roughly 5.5 million units in 2024. Not surprisingly, about 40% of this total consisted of EVs.

A watchful eye

Li Auto is a member of this club, and has fully taken advantage of the Chinese consumer's zeal for EVs (it also sells a form of hybrid). The government's announcement of the licensing regime is a clear attempt at gaining some control over EV makers in what's rapidly turned into a robust export environment.

Investors surely fear that the activities of these companies will end up being curtailed one way or another.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.