What happened
Electric vehicle (EV) stock Nio (NIO 0.25%) was in free fall today, slumping as much as 10% as of 12:20 p.m. ET, on Wednesday. Nio is one of the many growth stocks crashing ahead of the Federal Reserve's policy, though investors in the EV manufacturer have been gripped by more than just inflationary fears.
So what
Investors are getting more skeptical about putting their money into shares of China-based companies after the U.S. Securities and Exchange Commission (SEC) recently decided to tighten its grip on foreign companies listed in the U.S. The SEC will accomplish this by implementing a law requiring companies to submit their accounts reports and other documentation for audit. If they fail to comply, they face the risk of being banned from trading on U.S. stock markets.
The threat is particularly big for Chinese stocks given China's persistent disregard for compliance with the disclosure rules in the U.S.
Image source: Getty Images.
This morning, on CNBC, David Loevinger from asset management firm TCW Group forecast "most" Chinese stocks currently listed in the U.S. will be delisted by 2024. Not surprisingly, cautious investors appear to be dumping their shares in Chinese EV maker Nio while they still can.
Meanwhile, Nio's rivals are gaining a foothold in China, with one even catching the attention of a popular institutional investor.
In an interview with Yahoo Finance yesterday, XPeng's (XPEV 2.87%) President Brian Gu spoke extensively about China's EV market and XPeng's growth plans. Among other things, Gu revealed XPeng will roll out a supercharger that can charge a car in five minutes as part of its fourth vehicle, the G9 SUV, that the company plans to start delivering by the second half of 2022. XPeng's G9 will likely compete with Nio's ES6 and Tesla's (TSLA 1.85%) Model Y. XPeng's new supercharger is expected to give its G9 an edge over its rivals' vehicles.
Interestingly, XPeng is also the only "Tesla rival" that has caught Cathie Wood's attention. Wood, the popular investor who runs ARK Invest, bought shares of XPeng earlier this month in one of ARK's exchange-traded funds (ETFs). In fact, Wood's choice may have even led some EV investors to switch from Nio to XPeng if the sharp slump in Nio shares in recent weeks is anything to go by.
Now what
There's no clarity yet about the implications of SEC's new law on Nio stock's U.S. listing. Moreover, XPeng faces the same risks as Nio when it comes to potential delisting. Some Chinese companies are already opting for dual-listing in Hong Kong, and I won't be surprised to see Nio take a similar route in the near future.
If you're an investor seeking exposure to EV companies, you'll want to keep an eye on Nio's upcoming crucial event, the annual Nio Day, on Dec. 18, when the company is expected to officially launch at least one new model, possibly its mid-size sedan, the ET5. I also expect Nio to announce launch and delivery plans for its much-awaited luxury sedan, the ET7, and lay out growth plans for international markets, particularly Europe, for 2022. If Nio can impress EV enthusiasts on Dec. 18, its shares could get a much-needed breather.
