After soaring higher and higher, a handful of Chinese electric vehicle names are slipping on Wednesday. Beloved Nio (NYSE:NIO) stock is joined in the red by Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI). Is it just a change in sentiment? Or is something else plaguing these EV stocks? Dive in below.
Well, it may very well be that a change in investor sentiment is responsible for the slump in Chinese EV stocks. To be fair, NIO stock led the way higher for the last several weeks. Smaller rivals Xpeng and Li Auto also continued to rally, powered by impressive delivery numbers and third-quarter earnings. However, things started to change in the United States, making domestic EV stocks more appealing to U.S. investors.
What do I mean? Well, after a tense process, President Donald Trump agreed to launch the transition process. This means that President-elect Joe Biden finally gets to start working his way to the White House. And once there, Biden has big promises to fulfill. He says he will invest $2 trillion in sustainable infrastructure, including in EV charging stations. That should go a long way to boost consumer adoption and jazz up EV stocks.
Additionally, General Motors (NYSE:GM) gave U.S. EV stocks a boost yesterday. After siding with Trump, GM decided it was time for some new politics. Just as the legacy automaker ramps its own all-electric plans, it has decided to align itself with California. Remember, California Gov. Gavin Newsom has set a lofty zero-emissions goal for 2035. Under this plan, the state would get to set its own emissions standards and have all new vehicle sales in 2035 be electric.
While this argument holds up, there is one more pressing catalyst that could be weighing on Chinese EV stocks…
Is Regulation About to Hit Chinese EV Stocks?
Importantly, investors should know there is some level of concern on Wall Street right now about NIO stock and its peers. Why? Well, a new report details how the Chinese National Development and Reform Commission has asked its local branches to submit details about all electric vehicle projects in their territories. Essentially, this has investors worried that the Chinese government is about to levy a set of regulations against high-flying companies like Nio.
However, before you panic, here is what you need to know.
The report singles out two companies, Evergrande Auto and Baoneng Group. Perhaps more importantly, this means the report did not single out Nio, Xpeng or Li Auto. However, the news definitely hits close to home. As electric vehicle companies continue to boom in China, it seems that there is exponential growth in available models. U.S. investors are familiar with models that boost NIO stock, but Evergrande Auto unveiled six models in August 2020 alone. Clearly, there is a lot going on with EV stocks in China.
What does this mean for the future? Well, industry insiders in China do think that this report smells of regulatory efforts. And if China does regulate the booming industry in a meaningful way, it could weigh on the skyrocketing success of NIO stock and its peers. However, it may be too soon to tell. Additionally, you should remember that the Chinese government is also bullish on electric vehicles.
For right now, this report is just a roadblock for an otherwise red-hot industry. Do your own research, and keep your eyes on the news.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer for InvestorPlace.com.