Chinese electric vehicle stocks fell on Wednesday after Li Auto (NASDAQ:LI) and BYD Company's (OTCPK:BYDDF) earnings reports highlighted once again the pressure on vehicle margins from lower EV prices. "Fierce domestic competition is eroding Chinese EV makers’ profitability despite strong demand. This challenge, along with their desire to build scale, are driving them to expand to overseas markets," warned Moody's Rating analyst Gerwin Ho on the EV backdrop.

Li Auto (LI) reported a 52% year-over-year decline in Q2 net income to 1.1 billion yuan ($154.4 million), even as revenue increased 10.6% and deliveries met expectations. While the company said it expects margins to improve in the back half of the year, investors piled out the stock with Q3 revenue guidance falling short of expectations.

Morgan Stanley remained positive on the EV stock after taking in the Q2 earnings report. Analyst Tim Hsiao said vehicle margins and cost controls were actually better than feared. In terms of cost control paying off, Hsiao noted that Li Auto's (LI) R&D expenses fell 1% Q/Q amid organizational restructuring, and SG&A expense fell 6% Q/Q, despite the company adding 23 stores in the quarter. He also highlighted that investment income fell 65% Q/Q.

Meanwhile, BYD Company (OTCPK:BYDDF) disclosed that first-half profit was 13.6 billion yuan, which fell short of the consensus analyst estimate of 17.9 billion yuan. BYD's (OTCPK:BYDDF) Q2 gross margin rate was 18.7% in Q2 vs. 18.7% a year ago and 21.9% in Q1.

Tale of the tape: Li Auto (LI) tracked 15.8% lower on Wednesday, while XPeng (NYSE:XPEV) shed 9.7% and NIO (NIO) was down 6.9%. Polestar Automotive (PSNY) showed a loss of 14.9%, with investors also digesting a change of CEO at the company. ZEEKR Intelligent (ZK) was down 8.4%. BYD Company (OTCPK:BYDDF) was down 1.2%.

Electric vehicle stocks in general may also be seeing investors brace for Nvidia's (NVDA) earnings report later in the day, due in part to a high degree of correlation for the sector to NVDA on earnings day. EV stocks have moved directionally with NVDA on five of the last six earnings days, as part of a tech risk-on, risk-off sentiment wildcard. Tesla (TSLA) -2.3%, VinFast Auto (VFS) -2.1%, Lucid Group (LCID) -5.7%, and Rivian Automotive (RIVN) -4.9% were all lower in midday trading.