High-Flying Chinese EV Stocks Hit Roadblock Amid Domestic Regulatory Scrutiny

The buoyancy seen in the Chinese electric vehicles stocks faces risk in the wake of regulatory scrutiny by China.

What Happened: Chinese EV makers Nio Inc – ADR NIO, Xpeng Inc – ADR XPEV and Li Auto Inc. LI, which were all in record territory ahead of Tuesday's modest pullback, are trading notably lower Wednesday morning.

The weakness is attributable to negative regulatory tidings out of China, which dragged China-listed new energy vehicle stocks sharply lower in the afternoon session.

The National Development and Reform Commission has sought that its local branches submit production and investment information for electric vehicle projects in their respective territories over the past five years, Nikkei reported, citing Chinese business publication Yicai, which in turn quoted a government document.

The commission specifically demanded details on projects of China Evergrande New Energy Vehicle Group and Baoneng Group, a conglomerate based out of Shenzhen.

Related Link: How The Biden Administration Could Benefit EV Players In The US

"Looks like China is making an effort to regulate" the EV sector, Nikkei said, quoting Cui Dongshu, secretary-general of the industry body China Passenger Car Association.

EV companies have mushroomed in China, capitalizing on the subsidiary support. Some of these companies have managed to acquire land at cheap prices, on the grounds that they are promoting EV projects, the Nikkei said.

Why It's Important: Just as the U.S.-listed Chinese EV stocks are getting back their mojo after the COVID-induced weakness, this regulatory scrutiny has come as a setback.

It should be noted all these companies have their manufacturing facilities in China and sell cars domestically. A regulatory clampdown in China could impede the growth prospects in the hot-and-happening domestic EV market.

Stocks Lower: Nio shares were slumping 9.14% to $48.62, down from their record high of $57.20 hit Tuesday. Xpeng was plunging 11.81% to $62.29 and Li Auto is retreating 13.83% to $37.88.

Related stocks like Kandi Technologies KNDI and Blink Charging were also down about 10% and 13%, respectively. The best-known EV stocks, Tesla Inc TSLA, was down about 2%.