What happened
Shares of Nio (NIO 8.72%) crashed at the open Monday morning, as investors are fleeing many Chinese names, including this electric vehicle (EV) maker. The company's American depositary shares pared some of the initial 14% drop, but remained down by 2.6% as of 10:25 a.m. ET.
So what
Nio shares are getting hit from several different angles. First, investors are running from many Chinese stocks right now, fearing the potential delisting from U.S. exchanges. That possibility comes from the Holding Foreign Companies Accountable Act (HFCAA), which became law in December 2020. It came into focus for investors last week after the Securities and Exchange Commission (SEC) identified five U.S.-listed American depositary receipts of Chinese companies that failed to comply with the regulation.
Image source: Nio.
The law says that if foreign companies don't comply with proper auditing practices for three straight years, the shares can be delisted. While Nio wasn't one of the names listed, it highlighted the potential to investors. These fears have only exacerbated recent selling in Nio shares, which are down almost 40% in just the last month.
Now what
Nio stock listed on the Hong Kong stock exchange last week in what many investors saw as a way for the company to plan for a potential delisting from U.S. exchanges. Nio hasn't said if it will apply the proper auditing procedures to avoid being targeted by the SEC, but it would have three years if it is identified by regulators as needing to do so.
More immediate concerns are also impacting shares of companies doing business in China right now, as spreading COVID-19 cases are resulting in new lockdowns in some major cities. That seems to be causing more uncertainty, which is just adding to the flurry of selling. Nio management hasn't addressed its plans to comply with the HFCAA, and that's really what investors need to watch for.
