U.S.-listed shares of several Chinese electric vehicle makers traded lower on Wednesday after the Chinese government imposed restrictions on the ride-sharing giant. DiDi Global (NYSE : DIDI) following its IPO in New York.
Here’s where the U.S. custodian shares of those three companies were at 1 p.m. EDT, relative to their closing prices on Tuesday.
- Li Auto (NASDAQ : LI) was down about 4.6%.
- NIO (NYSE : NIO) was down about 6.9%.
- Xpeng (NYSE : XPEV) was down about 5.9%.
The Chinese government said earlier this week that it had launched cybersecurity reviews on DiDi and several other Chinese companies listed on U.S. markets in 2021, including Complete Truck Alliance (NYSE : AMM) and Kanshun Limited (NASDAQ : BZ). The government is apparently concerned that the required audits and oversight of companies listed in the United States could compromise the information security of Chinese consumers.
The short-term consequences are not insignificant: at this time, DiDi is not allowed to register new users – a restriction that will significantly limit its growth potential until (and unless) the company resolves them. things with regulators.
It is not yet clear what this means for Li Auto, NIO and Xpeng, all listed in the United States before 2021. I currently think the companies themselves are unlikely to be hit with significant fines or penalties. But if they are no longer able to offer new shares in the United States, a major funding channel will be closed.
As any auto investor knows, automotive manufacturing requires large capital commitments upfront, capital commitments that must be maintained throughout business cycles. While all three of these companies took advantage of last year’s bull market to bolster their balance sheets and cash reserves through offers to U.S. investors, they may not be able to do so in the future.
It’s a concern here, and if you own any of these three stocks, it’s something to watch out for.
We may have to wait until these companies release their second quarter results to better understand how China’s enforcement actions might (or not) affect their business. None of the three have yet announced a date for their earnings reports, but I expect all three in mid-August.