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EV Stocks Close in the Red: What is to be Blamed?

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Yesterday was a rough day for investors in the electric vehicle (EV) market, with various stocks closing in the red. While a couple of EV stocks were dragged down by company-specific news, the broader sell-off in the industry could be attributed to regulatory concerns, rising COVID-19 cases, shortage of microchips and geopolitical worries.

Tesla Down Amid NHTSA Probe

Shares of EV behemoth Tesla (TSLA - Free Report) declined more than 4% yesterday amid the U.S. National Highway Traffic Safety Administration’s (NHTSA) probe into the firm’s Autopilot system. NTHSA has opened a formal investigation to evaluate the extent to which Autopilot or related self-driving features have resulted in crashes. The NHTSA report identified that Tesla EVs using Autopilot have caused 11 crashes in nine states since 2018. The series of crashes have left at least 17 injured and one dead. The agency has notified that around 765,000 Tesla vehicles (including Model 3, Y, S and X) built between 2014 and 2021 could be impacted by a possible future recall. In addition to the scrutiny by the nation's top auto safety watchdog, investors are also weighing the impact of chip shortage and supply chain disruptions, which may act as a near-term obstacle to Tesla’s production growth plans.

Other EV Pure-Plays Also Dip

Various other pure-play EV startups including Nikola (NKLA - Free Report) , Hyliion (HYLN), ElectraMeccanica (SOLO - Free Report) , Workhorse (WKHS - Free Report) , Canoo and Arcimoto slipped 4.2%, 5.5%, 0.8%, 2.7%, 6.4% and 0.7%, respectively, yesterday. Most of these companies dipped yesterday in the absence of any direct news. It seems that rising COVID cases, increasing supply chain issues and the underlying fundamental weakness of the stocks relative to their stretched valuations have put investors on edge.  

After wreaking havoc across the globe for more than a year, the COVID-19 virus has resurfaced with its highly-contagious Delta variant. For the week ended Aug 14, this new strain accounted for 40% of hospitalizations in the United States, with Texas and Florida experiencing the worst outbreak in months. Surge in Delta variant cases is also dampening the enthusiasm in the labor market and worsening the shortage of semiconductor supply.

Like TSLA, NIO Also Tumbles on Regulatory Issues

NIO Inc. (NIO - Free Report) , dubbed as the “Tesla of China”, closed the session 5.87% lower yesterday amid regulatory concerns, following the death of a noted entrepreneur Lin Wenquin in a NIO’s ES8 SUV. The car’s Navigate on Pilot hands-free driving system was active at the time of the crash. This news comes on the heels of another fatal incident involving a NIO vehicle in China. These accidents are indeed calling for stringent safety regulations for smart and driverless cars in China. The need for heightened safety regulation has led to the sell-off of several other China-based EV stocks yesterday. NIO’s close peers, XPeng (XPEV - Free Report) and Li Auto (LI - Free Report) declined 3.5% and 6.5%, respectively.

Expect More Volatility From China EV Stocks

The Asia-Pacific stocks slid yesterday amid Taliban tremors and weaker-than-expected economic data from China. The data revealed that retail sales, factory output and urban investment in China missed estimates amid spike in Delta variant cases. China is dealing with the most widespread COVID-19 outbreak and has been forced to impose fresh lockdown measures. Rising coronavirus cases and fresh lockdown measures including closure of major ports are aggravating supply chain concerns.

With the Delta variant having the potential to slow down the China economy further and escalate shortage of battery components and microchips, investors are rather weighing the prospects of China EV stocks like NIO, XPeng, and Li Auto. While NIO and Li Auto carry a Zacks Rank #4 (Sell), XPeng is a Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Considering the latest NIO accident, a regulatory crackdown on advanced self-driving technology will intensify, thereby impacting the China EV makers. Just last week, China doubled down on smart vehicles automated driving functions. Per the newly proposed regulations by the Ministry of Industry and Information Technology, carmakers should enhance safety measures for their vehicles and rev up cybersecurity efforts to ward off system vulnerabilities as well as standardize software upgrades. While the up-and-coming EV companies can revolutionize mobility landscape, overcoming the safety concerns related to autonomous driving will be a daunting task for them.