Shares of U.S.-listed Chinese electric-vehicle producers were tumbling again Monday, leaving shareholders reeling. A couple of issues seem to loom larger in investors’ minds than others, but there is a lot going wrong right now, and most of it is beyond the control of the companies.
Shares of NIO (NIO), XPeng (XPEV) and Li Auto (LI) were down 6.7%, 8% and 16%, respectively, in trading Monday. The shares fell down despite a U.S. stock market rally. The S&P 500 was up 0.4%. The Dow Jones Industrial Average has added almost 1%.
That’s only part of the pain investors have felt lately. Shares of NIO, XPeng and Li each are down sharply since the beginning of February.
Deutsche Bank analyst Edison Yu characterized the trading action as a “fire sale” in a report on Monday. “We believe these big declines represent delisting fear and aggressive selling by prominent large holders,” added the analyst.
The Securities and Exchange Commission named five companies this past week — none were the EV companies — that didn’t meet U.S. accounting and audit standards. That puts the five at risk of delisting from U.S. exchanges in 2024. While not directly related to the EV firms, the move seems to have sapped investor willingness to hold U.S.-listed Chinese stocks.
That isn’t the only problem for the EV sector these days. “China’s apparent implied support of Russia in the current conflict” is another reason for selling pressure, added Yu.
Then there are inflation concerns for every global auto manufacturer that investors have to consider when evaluating recent stock performance. Tesla (TSLA) CEO Elon Musk tweeted Sunday that his company was seeing inflationary pressures. That has unnerved investors a little Monday. Tesla shares were down 2.8% on Monday.
The pressure is significant. A basket of metals, including cobalt and nickel, that go into EV batteries has jumped about 70% year to date. That can add, perhaps, $2,000 to a sticker price of an EV. Increases in steel and other raw materials could increase the price another $500 per unit. Those are just rough approximations to give a sense of how bad inflation has gotten for EVs and the auto sector at large.
The performance of other EV startups can’t be helping the Chinese shares either. Rivian Automotive (RIVN) stock fell 5.1% on Monday. Shares are down more than 13% since the company gave disappointing 2022 production guidance on March 10. That’s a Rivian-specific issue, but the valuation of one EV startup can matter for any other startup.
Rivian’s valuation multiple has gone from roughly 30 times estimated 2022 sales to 16 times sales since the beginning of the year.
When the selling in Chinese EV stocks stops is anyone’s guess. Yu, for his part, still feels good about the shares fundamentally. He rates NIO and XPeng stock Buy and Li stock Hold. But his Li price target is still about 70% above where shares are trading.
Yu’s NIO and XPeng price targets imply gains of 360% and 170%, respectively.
Those implied gains are huge and another way to show just how far and how fast the stocks have fallen. Yu’s price targets were set when all three shares were trading at much higher levels.
Write to Al Root at [email protected]
