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Li Auto warned that “supply chain constraint” would mean the company will deliver fewer cars than expected in the third quarter. Meanwhile, China has extended a tax exemption for new energy vehicles until the end of 2023 as it looks to spur growth for electric cars.
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Shares of Li Auto fell in pre-market trade in the U.S. on Monday after the Chinese electric carmaker cut its delivery guidance for the third quarter.

Meanwhile, rival electric car companies Nio and Xpeng jumped as Beijing announced an extension of tax breaks for electric car purchases.

Li Auto said that it now expects to deliver 25,500 vehicles in the third quarter down from a previous outlook of between 27,000 and 29,000 units. Shares of Li Auto were around 2% lower in pre-market trade.

“The revision is a direct consequence of the supply chain constraint, while the underlying demand for the Company’s vehicles remains robust,” Li Auto said in a statement. “The Company will continue to closely collaborate with its supply chain partners to resolve the bottleneck and accelerate production.”

China’s electric carmakers have faced a number of headwinds stemming from a resurgence of Covid-19 and Beijing’s continued strict policy of lockdowns to contain the virus. This “zero-Covid” policy has caused supply disruptions at factories across China and put pressure on the economy and consumer spending.

To help maintain growth for electric cars, China’s Ministry of Industry and Information Technology and Ministry of Finance extended the period that new energy vehicles will be exempt from a purchase tax until Dec. 31, 2023. New energy vehicles include fully electric as well as plug-in hybrid cars.

Beijing has on several occasions extended the purchase tax exemption since the policy was first introduced in 2014 in a bid to spur demand. Along with other incentives, the policy has helped make China the biggest electric vehicle market in the world.

Shares of Xpeng were more than 4% higher in pre-market trade while Nio was up around 1.6%.

Even as the market faces challenges, China’s electric car startups are continuing to launch new products this year to boost growth.

Last week, Xpeng launched the G9 sports utility vehicle, its most expensive car to date, to push into the higher end of the market. Li Auto will take the wraps off a new SUV called the Li L8 on Friday with deliveries expected to begin in November.