NIO and Tesla EV stocks are falling again. Here’s why.

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High electric vehicle stocks are falling again. A recent recession has been rare, leaving investors scrambling for answers. Little has changed, however, in the industry. That is not to say that there is no good reason for the declines. There is. It is just outside the control of the companies.

Tesla

(ticker: TSLA) stock is down almost 33% from its 52-week high and down about 23% over the past two weeks. American investment receipts of Chinese EV manufacturers

NIO

(NIO),

XPeng

(XPEV), and

Li Auto

(LI) is down about 42%, 52%, and 43% from their highs.

The reason is inflation. Or more specifically, the fear of inflation. Higher inflation means higher interest rates. Higher interest rates are toxic for valuable, high-growth stocks that will generate most of the future earnings.

Futures are always discounted at a flat rate because $ 100 is worth five years from now less than, say, $ 90 a year from today. The discount for future currencies depends on the interest rate. With low rates, the penalty for waiting is small. When rates rise, investors can earn a lot of interest in today’s money, making stable businesses that pay shares a little more attractive, virtually speaking.

Gary Black, and a Tesla bull were captured

Twitter

(TWTR) to explain what was going on.

The yield on 10-year Treasury bonds, a crude surrogate for inflation expectations, is up around 1.4% or 1.5%. But that is only at pre – Covid-19 levels on the global economy. Black expects Tesla to kick back as inflation fears subside and Treasury yields stabilize.

Black was a Wall Street analyst with a long history as a professional money manager. Now he has over 60,000 Twitter followers listening to him about stocks.

Black’s price target for Tesla stock is $ 960 per share. He let it down a bit, and got out of stock, shortly after Tesla announced a $ 1.5 billion bitcoin investment. It is back in proportion now after the recent recession.

Barron’s Tesla stock has not picked up or picked up in recent years. However, we announced in December the three Chinese EV stocks, not because they are not influenced by our technology, but because they were expensive. That article now seems to be, at last, most notable, especially after the action of Fed Chairman Jerome Powell. On Thursday, he said the Fed was not changing its current policy, spitting out more investors.

This is not a winning breast, more like falling off a roller. At points since our article appeared in December, ADRs of the three Chinese EVs were up anywhere from around 20% to 50%. Now all three are on average about 25% off prices when the story was published.

ADRs are still expensive, but less so. The three Chinese ADRs have outperformed Tesla stock in the past few days. ADRs of NIO, XPeng, and Li are all around 30% over the past two weeks.

Some of the recent declines were caused by February delivery figures. All three said there was less delivery in February than in January. That deterred investors in the ADRs. But all three were affected by the Lunar New Year holidays, as industry typically slows down in China.

Investors in the ADRs may not have realized the potential impact of the Chinese holidays. And there is little history for trust. These were the first delivery releases in February that both XPeng and Li reported as U.S.-listed companies; ADRs of both companies went public last summer.

If delivery accelerates from February levels and January eclipse numbers, the Chinese ADRs should make up some of the recent underperformance compared to Tesla.

Growth investors will be happy if that happens. Value investors will continue to struggle with EV valuations no matter what happens.

Tesla stock traded at around 13 times estimated 2021. NIO and XPeng ADRs trade at around 12 times estimated sales, while Li Auto ADRs traded at around 7 times. The

Russell 1000 growth index,

for comparison, trading at around 4.4 times estimated 2021 sales.

Shares of Tesla, NIO, XPeng, and Li are down 6% on Thursday, on average. The

S&P 500

and

Dow Jones business average

both are down about 1.5%.

Write to Al Root at [email protected]