Issues around U.S.-China relations are once again bleeding into financial markets. Today, company-specific concerns around Tesla (NASDAQ:TSLA) have surfaced. This comes as the Chinese government announced it would restrict the use of Tesla vehicles by military staff and employees of state-owned companies. Unsurprisingly, TSLA stock dropped on the news. However, investors in rival Chinese EV maker Nio (NYSE:NIO) saw NIO stock rise more than 3% on the news.
Here’s more on why investors seem to be shifting their sentiment in the EV sector.
NIO Stock: One With Less Political Risk?
Recent acrimonious talks between the U.S. and China led to observers noting it appears U.S.-China trade relations aren’t likely to get better anytime soon.
Importantly, some see the move by China as retaliation over previous moves made by the U.S. to restrict purchases from China-based providers of telecom equipment and other technologies which could pose a national security threat. It appears the two countries will likely stand at odds for some time, with corporations being caught in the crossfire.
Accordingly, it appears investors are becoming increasingly bullish on NIO stock, and other domestic plays in China. Tesla’s grandiose goals of dominating the Chinese EV market seem much more farfetched today on this news than previously. Political risk appears to be high in the Chinese EV sector. Investors looking to invest in the global EV market may be more likely to gravitate toward domestic Chinese players such as NIO.
President Joe Biden is reportedly planning to approve Trump-era regulations aimed at protecting national security interests at the expense of Chinese technology firms. Such a move could result in further retaliation in other sectors.
For now, NIO stock provides Chinese EV investors with an interesting ownership thesis. Lower political risk matters, and investors seem to be factoring this in today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
