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Why NIO, XPeng, and Li Auto Stocks Are Trading Lower Today

By John Rosevear - Feb 23, 2021 at 11:06AM

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Here's what's behind the big EV sell-off.

What happened

Shares of three widely followed Chinese electric-vehicle makers -- NIO (NIO -4.81%), XPeng (XPEV -3.80%), and Li Auto (LI -1.39%) -- were all down on Tuesday morning. The companies' shares were caught in a wave of selling triggered in part by signs that U.S. interest rates may be on the rise. 

Here's where things stood as of 10:30 a.m. EST, relative to Monday's closing prices:

  • Li Auto was down about 6.9%.
  • NIO was down about 7.1%.
  • XPeng was down about 7.6%.

So what

When stocks across a sector (or across the market) are down sharply, it's sometimes hard to point to one single factor driving the sell-off. I think there are a few contributing factors here.

First, the $1.9 trillion COVID-19 relief package moving through the U.S. Congress has some economists and investors worried about inflation, simply because it's a lot of money to dump into the economy. That's almost certainly having an effect.

Second, and likely related, the rate on the benchmark 10-year U.S. Treasury bond has risen to 1.37%. That's still quite low by historical standards, but it hasn't been that high since early 2020. 

10 Year Treasury Rate Chart

10 Year Treasury Rate data by YCharts.

Generally speaking, investors tend to reduce risk exposure when interest rates are rising. The fact that all three of these stocks (and most other EV stocks) have been bid up quite high in recent months by eager investors hoping to replicate the gains posted by Tesla (TSLA -6.80%) makes them prime sell candidates for investors aiming to reduce portfolio volatility now. 

Third, and also related, Tesla has fallen quite a bit over the last few days. It's the category leader, so it's not surprising to see other electric-vehicle stocks falling as well. 

All that said, nothing about these external events changes the longer-term fundamentals of any of these companies. If you believed in them a month ago, and you plan to hold long-term, there's no urgent reason to sell. (In fact, some investors will take advantage of the lower prices to increase their positions.) 

The front entrance of NIO's technical center in California.

The long-term fundamentals of NIO, XPeng, and Li Auto haven't changed. Image source: NIO.

Now what

All three of these companies will provide updates to auto investors soon, when they report fourth-quarter and full-year 2020 earnings. Li Auto will report this Thursday, Feb. 25, before the U.S. markets open; NIO will report next Monday, March 1, after the U.S. markets close; and XPeng will report on the following Monday, March 8, in the morning. 

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Stocks Mentioned

Nio Inc. Stock Quote
Nio Inc.
NIO
$15.83 (-4.81%) $0.80
Tesla, Inc. Stock Quote
Tesla, Inc.
TSLA
$709.81 (-6.80%) $-51.80
Li Auto Inc. Stock Quote
Li Auto Inc.
LI
$23.41 (-1.39%) $0.33
XPeng Inc. Stock Quote
XPeng Inc.
XPEV
$23.04 (-3.80%) $0.91

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

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