Bad news across China is pushing financial markets down today. Many companies are facing an uphill battle. In particular, the electric vehicle (EV) sector is being pushed down by multiple negative forces.
As Covid-19 cases continue to spread, various cities in China are implementing more lockdown measures. Prominent cities like Wuhan and Xining are locking down entire districts, posing constraints for plenty of industries. This comes at a particularly bad time for EV producers. Positive sentiment toward the EV sector was already declining amid the volatile bear market. Now, Chinese EV stocks are falling in spades as investors ponder the future.
Does this mean that investors should count the EV sector’s prominent names among stocks to sell? Let’s take a closer look.
What’s Happening With Chinese EV Stocks?
Today marks a bad day for Chinese EV stocks after an already difficult month. Investor confidence is low — and for good reason. Right now, XPeng (NYSE:XPEV) is down more than 10% for the day. Its peers aren’t faring much better. As of this writing, Li Auto (NASDAQ:LI) and Nio (NYSE:NIO) are both down nearly 8%. Finally, sector leader BYD (OTCMKTS:BYDDY) is performing slightly better but still down more than 3%.
Current lockdown measures spell trouble for EV producers in China. These companies were already struggling after early 2022 lockdowns hindered their production goals. Now, they face an even more uncertain future as the winter months promise another wave of Covid-19 cases. But as Seeking Alpha notes, Chinese EV stocks have even more problems; the sector is facing selling pressure due to upcoming earnings reports and supply-chain concerns. Institutional investors have also been increasing their bets against NIO stock in particular.
This bearish energy is not unique to China, however. Supply-chain concerns are causing investors to approach EV stocks with caution in the States. Unstable companies have found themselves unable to remain competitive.
Still, the road ahead looks particularly difficult for China-based automakers, which may not be able to meet production goals by year end. Domestic Chinese automakers have already struggled to compete with industry leader Tesla (NASDAQ:TSLA) in their own market. Lockdowns will likely set them back even more.
The Road Ahead
As of now, almost every important macroeconomic headwind is blowing against China’s EV sector. Earlier this week, the recent reelection of President Xi Jinping pushed the sector down. Today, investors were reminded why. Government lockdown policies led to considerable turbulence for shares this year even while demand for EVs boomed. Even XPeng’s recent Tech Day has failed to generate long-lasting momentum.
Investor sentiment is likely to shift even more as the dust from today settles. Looking forward, these stocks may keep trending downward.
On the date of publication, Samuel O’Brient did not hold (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.
