The stock market pulled back on Tuesday morning after enjoying an extremely strong start to the month of March in Monday's session. Investors are still a bit nervous about the eventual fate of proposed stimulus legislation in Washington, with political wrangling stemming from the razor-thin control that Democrats currently have in Congress. Shortly before 11:30 a.m. EST, the Dow Jones Industrial Average (DJINDICES:^DJI) was down 88 points to 31,448. The S&P 500 (SNPINDEX:^GSPC) dropped 22 points to 3,880, and the Nasdaq Composite (NASDAQINDEX:^IXIC) fell 156 points to 13,433.

A lot of people have been following electric vehicle stocks closely, especially given the huge gains in industry giant Tesla (NASDAQ:TSLA). The rise of competition from the likes of NIO (NYSE:NIO) and XPeng (NYSE:XPEV) has only driven further interest in EV stocks, but both of these Chinese companies are seeing their share prices fall on Tuesday as investors reassess their future prospects.

NIO cools off

Shares of NIO were down more than 9% Tuesday morning. Investors got the latest financial results from the Chinese EV automaker late Monday, and they weren't entirely satisfied with what they saw.

NIO's numbers reflected the fast pace of growth for the company. Fourth-quarter vehicle deliveries totaled more than 17,350, more than double NIO's delivery volume in the year-earlier quarter and up by more than 5,000 vehicles just in the past three months. That brought the total for the year to 43,728, up 113% year over year. Those gains sent total revenue soaring 133% from year-ago levels.

Blue NIO EC6 in front of a green building.

Image source: NIO.

However, a couple of things were concerning to NIO shareholders. First, losses remained substantial at $229 million, working out to about $0.14 per share on an adjusted basis. Those numbers were higher than investors had expected. Moreover, total deliveries of just over 12,800 vehicles in the first two months of 2021 indicated a potential slowdown in sequential growth rates, and that seemed to give investors pause about the company's valuation.

NIO is coming out of its initial hypergrowth phase, and it'll be interesting to see how shareholders react. Often, it's difficult for growth investors to get used to slowdowns, especially when they've counted on the pace of expansion necessary to stand up to a huge competitor.

XPeng can't deliver the goods

Elsewhere, XPeng shares were down more than 8%. The fellow EV maker fell in sympathy with NIO and other Chinese electric car specialists, but it also had some discouraging news of its own.

XPeng reported February vehicle delivery numbers that missed the mark. The company delivered 2,223 vehicles, including 1,409 P7 sedans and 814 G3 SUVs. That was extremely disappointing coming after a record performance in January, when XPeng had more than 6,000 vehicles delivered.

The automaker blamed the decline on the Chinese New Year holiday, which is a week-long celebration in the world's most populous country. XPeng tried to reassure investors that it is still seeing strong demand from customers following the holiday.

Problems ahead for the industry?

One concern EV investors all share is the status of the supply chain for key components for automotive and EV-specific applications. NIO CEO William Li cited a shortage in both semiconductor chips and batteries in predicting that his company will have to start slowing down its production process in the second quarter of 2021. Shortages could hit XPeng and other players in the EV industry as well.

EV stocks have been red-hot, so any hint of bad news can be enough to cause substantial downward pressure on share prices. Investors need to be ready for ongoing volatility in companies like NIO and XPeng even if their long-term prospects are promising.

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.