Stocks in Chinese electric vehicle (EV) companies Nio (NYSE:NIO), Li Auto (NASDAQ:LI) and Xpeng (NYSE:XPEV) fell as investors turned thumbs-down on the country’s Communist Party congress.
The fear is that President Xi Jinping, given considerably more control of the nation, will not be good for the economy. China is losing ground in manufacturing to other East Asian countries. Additionally, President Joe Biden’s administration’s moves against its chip sector could hamper supplies to the auto industry.
What’s Going on With Chinese EV Stocks?
Western money has been flowing out of China ever since Xi launched his crackdown on high tech companies in late 2020. Xi’s plan is to make China self-sufficient in key sectors, but that takes talent, and talent is draining away.
China’s international reputation could also hurt EV sales in Europe, a focus of Chinese EV makers’ attention. Li Auto lost more than 9% of its value over the weekend, while Nio and Xpeng fell nearly 10%.
The stocks are still neither profitable nor cheap. Nio and Li are valued at more than 3 times their annual revenue, while Xpeng trades at about 1.7 times revenue. China’s currency, the Yuan, isn’t helping. It traded at 6.38 to the dollar in January. It was recently trading at 7.26. This means sales and profits, translated to foreign investors, are both worth less.
The good news is the falling Yuan makes these cars more competitive in export markets. The Yuan’s fall against the Norwegian Krone, for instance, could drop the base price of Nio’s ET7 in Norway. The country is important for the EV maker because its car market is dominated by high-end electrics.
China’s domestic market may also hold up. China’s economy grew at a 3.9% annual rate in the third quarter, topping estimates.
What Happens Next?
In the short term, there’s a lot of politics in China’s EV stocks, which could be great for those looking to buy the dip. Electric vehicles are still the coming thing, the high-end of the market is dominating and all three Chinese companies participate in it.
The danger is that increasing tension with China could lead to these stocks being delisted from U.S. exchanges, making them more expensive to trade.
On the date of publication, Dana Blankenhorn 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.
