American depositary shares of Chinese electric vehicle (EV) maker Nio (NIO 8.72%) have fallen sharply so far in 2022. The stock is down 55% year-to-date, and its decline accelerated in recent weeks. This comes as the company has worked to expand its sales footprint into Europe and to increase its production capacity.
But Nio has had four consecutive months of decreasing vehicle deliveries, due in part to the supply chain issues that have been affecting most automotive companies globally. Most recently, however, a new operational challenge has been added to its list of them.
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Nio is getting hit hard again Monday as U.S.-listed Chinese companies are looking more at risk of being delisted. In December 2020, the Holding Foreign Companies Accountable Act (HFCAA) became law, allowing the Securities and Exchange Commission to delist foreign companies that fail to meet U.S. accounting and audit standards for three straight years.
Last week, five Chinese companies were specifically named as being in danger of meeting that criterion, meaning they could be delisted in 2024 if they fail to comply. Neither Nio nor any other EV maker was on that list. But that hasn't stopped investors from selling shares based on the perceived risk. Nio also completed a successful listing on the Hong Kong Stock Exchange last week. Investors may believe that move was in preparation for a potential delisting of its American depositary shares.
The geopolitical climate isn't helping with investor confidence either. There are added uncertainties regarding the prices and availability of many commodities as Russia's invasion of Ukraine continues. Investors may also be weighing how Europe, the U.S., and others will view China's position during and after that conflict.
Investors need to balance short-term news and uncertainties with long-term plans and potential. There are always risks when investing in equities. While what appears to be panic selling may provide an opportunity for investors to buy Nio shares at lower valuations, they should also be sure to weigh the potential risk of delisting. That means allocating funds for any position appropriately, knowing the investment could be lost in a worst-case scenario.
