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Why NIO, XPeng, and Li Auto Stocks Are Down Today

By John Rosevear - Nov 30, 2020 at 1:15PM

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A rival's woes are a sobering reminder to U.S. investors.

What happened

Shares of several up-and-coming Chinese electric-vehicle makers were trading lower on Monday, after a prominent short-seller accused another Chinese electric-vehicle company, Kandi Technologies ( KNDI -3.29% ), of recording revenue it hadn't earned.

Here's where things stood for these three companies as of noon EST, relative to their closing prices on Friday. 

  • Li Auto ( LI 6.42% ) was down about 7%.
  • NIO ( NIO 1.18% ) was down about 4.6%.
  • XPeng ( XPEV 0.49% ) was down about 9.7%.

So what

Hindenburg Research, the short-selling firm that blasted electric-truck start-up Nikola ( NKLA -2.20% ) in September, turned its sights on Kandi in a report released on Monday morning. 

Simply put, Hindenburg alleged that Kandi greatly exaggerated its sales over the last year by recording revenue from "sales" that were actually transfers to affiliated companies. Given that Kandi recently raised $100 million from U.S. investors who were relying on those revenue numbers, the allegations could have serious consequences if proven. 

A blue NIO EC6, a sporty upscale electric SUV.

NIO's sleek, upscale vehicles are a far cry from Kandi's small and cheap cars -- and NIO's finances are also much more solid. Image source: NIO.

As with its scathing report on Nikola, Hindenburg's report included enough evidence to ensure that its allegations would be taken seriously by investors, and they were: Kandi's stock was down about 20.4% as of noon EST.

What does that have to do with Li Auto, NIO, and XPeng? I think the allegations against Kandi might have reminded U.S. retail investors that they don't really know a whole lot about these other companies, all of which have seen their stocks run up sharply in 2020. 

Now what

While allegations of financial shenanigans are nothing new for Kandi -- among other things, the company had to write off about $3 million in government subsidies in 2016 after similar "sales" to affiliates -- those allegations don't necessarily reflect on the three companies here. 

It isn't easy for U.S. investors to follow Chinese companies like these, but all three do go to some lengths to provide information in English, in the usual formats for financial statements, and to make news and product information accessible. 

The allegations against Kandi should be a reminder to auto investors that one should know what one owns, even when the companies are Chinese -- but there's no direct reason for concern about any of these three companies in today's news.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

NIO Inc. Stock Quote
NIO Inc.
NIO
$40.46 (1.18%) $0.47
Kandi Technologies Group, Inc. Stock Quote
Kandi Technologies Group, Inc.
KNDI
$3.82 (-3.29%) $0.13
Nikola Corporation Stock Quote
Nikola Corporation
NKLA
$10.23 (-2.20%) $0.23
Li Auto Inc. Stock Quote
Li Auto Inc.
LI
$34.48 (6.42%) $2.08
XPeng Inc. Stock Quote
XPeng Inc.
XPEV
$51.36 (0.49%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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