Chinese electric vehicle (EV) maker Nio’s (NYSE:NIO) stock is down 20% today on news that President Xi Jinping has tightened his grip over the country’s Communist Party, and amid a spate of bad economic news from the nation of 1.4 billion people.
NIO stock briefly fell below $10 a share before rebounding in premarket trading today. However, after the market opened, it fell again back to about $8.88 and currently sits about 20% in the red for the day. Year-to-date, NIO stock was down 67% this year and trading at $11.21 per share prior to today’s move lower.
However, NIO stock is not alone in dropping sharply today. Chinese technology stocks fell more than 10% across the board on news of weak economic data out of China and as President Xi consolidates his grip on the world’s second-biggest economy.
Tech giants Alibaba (NYSE:BABA) and Tencent (OTCMKTS:TCEHY) each closed down more than 11% in Asian trading, while search engine company Baidu (NASDAQ:BIDU) fell 12% and food delivery firm Meituan dropped 14%.
The steep selloff comes after President Xi secured an unprecedented third term as China’s president and filled the Politburo standing committee, which forms the core of the ruling Communist Party, with his own loyalists.
At the same time, China’s third-quarter gross domestic product (GDP) rose 3.9% from a year earlier, beating the expectations of economists, but remains well below the country’s official target of 5.5% quarterly growth. Many economists are now forecasting a recession in China next year.
If all that wasn’t bad enough, shares of U.S. electric vehicle maker Tesla (NASDAQ:TSLA) fell 3% in premarket trading today on news that the company is cutting prices in China. Tesla has lowered the price of its Model 3 and Model Y vehicles in China, one of the company’s biggest markets.
The starting price for the Model 3 electric sedan has been cut to 265,900 Chinese yuan (US$36,615) from 279,900 yuan previously. The Model Y electric sports utility vehicle (SUV) now costs 288,900 yuan versus the previous price of 316,900 yuan.
Why It Matters
Investors see Xi’s strengthened grip on power as bad for Chinese stocks, notably those in the country’s technology sector. Under Xi, China has already implemented several policies that have tightened regulations related to the technology sector and hurt share prices. Some technology leaders, such as Alibaba’s Jack Ma, even went into hiding for an extended period as the Chinese government cracked down on publicly traded technology giants.
At the same time, President Xi continues to enforce a strict “zero-Covid” policy that has cities, including the financial center of Shanghai, locked down on a regular basis, hurting manufacturing and consumer spending. The Covid-19 policy has caused billions of dollars in losses among Chinese stocks and hurt the nation’s economy, potentially setting it up for a recession in 2023.
Add in news that Tesla is lowering prices on its electric vehicles to boost sales in China and the overall sentiment towards the country’s stock market, and its automotive sector, in particular, has turned extremely negative.
What’s Next for NIO Stock
U.S. investor sentiment towards China was already pretty bad before the developments that occurred this past weekend. But now, sentiment has gone from bad to worse as it appears that President Xi will remain in power indefinitely and the Chinese economy is continuing to decelerate.
How long this lasts is anyone’s guess. But for now, investors might want to avoid Chinese stocks like NIO stock until there are clear indications of a turnaround either politically, economically, or both.
On the date of publication, Joel Baglole 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.