The scuffle between the U.S. market and the Chinese market is picking up once more. After a rollercoaster year of regulation fears and crypto crackdowns, both entities are doing a lot to govern their own economies. But they’re also doing a lot to influence trade overseas. One of the hottest industries, electric vehicles (EVs), stands to be one of those most affected by a recent comment made by the Securities and Exchange Commission (SEC). As such, Chinese EV stocks are trending down.
Gary Gensler, chairman of the SEC, is taking aim at U.S.-listed Chinese stocks. Through the SEC’s YouTube account, Gensler has been educating investors on aspects of the stock market and the economy. These “Office Hours” videos see Gensler take on cryptocurrency, climate-risk disclosures and, most recently, Chinese stocks.
In the newest video, Gensler discusses China’s tight trading regulations, which prevent foreigners from buying stocks from the country. As such, these companies must make workarounds in order to raise money overseas. They do this, according to Gensler, by contracting with shell companies. Those shell companies then list in the U.S. under the contractee’s name and raise funds. “So when you think you’re investing in a Chinese company,” he says, “you’re more than likely actually investing in a shell company in the Caymans or another part of the world.”
This video isn’t just an educational warning on the nature of Chinese stocks. Rather, it’s a warning to these companies themselves; the SEC is already taking actions to get these shell tickers off Wall Street. In fact, the body is now instituting more strict disclosure rules for foreign companies looking to list in the U.S. with the intent of targeting China.
Chinese EV Stocks Take a Beating in Pre-Market From SEC Comments
The comments made through the SEC’s social media funnel have left Chinese EV stocks downtrodden in premarket trading. One of the best known Chinese EV plays, Nio (NYSE:NIO), was down 6% before the opening bell. Meanwhile, XPeng (NYSE:XPEV) traded down nearly 7% and Li Auto (NASDAQ:LI) was down 3.5%. In the time since the market’s open, NIO has continued down an additional 2%. LI and XPEV are trading up at a fraction of a percent apiece.
This comes at a time of great scrutiny for EVs globally as Tesla (NASDAQ:TSLA) deals with fallout regarding a series of crashes in which drivers are using the cars’ autopilot features. Nio is under the same knife following a fatal autopilot crash involving one of its vehicles.
The judgmental eye over major EV players is also making the market ripe for jumpstart companies with their own innovative ideas and less regulatory scrutiny. InvestorPlace’s Joanna Makris spoke with Arcimoto (NASDAQ:FUV) CEO Mark Frohnmayer about the state of autonomous driving and the company’s own long-term plans for its fleet of light electric vehicles.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.