The savvy investor would have, in hindsight, demanded positive cash flow or profits from NIO Limited (NYSE:NIO) before investing in the company. So, when the stock rallied to $57.20 in Nov., the top proved short-lived. Nio took advantage of the market’s folly by selling shares. XPeng (NYSE:XPEV) also sold shares.
The short-term selling pressure will pull shares lower. Value investors will not bother looking for XPEV or NIO to find a bottom before entering. Because the Tesla (NASDAQ:TSLA) inclusion to the S&P 500 triggered manic buying for NIO and XPEV, buying pressure will moderate. After ETFs and index mutual funds blindly add Tesla stock, no other buyers will emerge for EV stocks. Risks are high that the electric vehicle sector enjoyed a bubble that practically popped.
In the next quarter, strong delivery numbers may lift China EV companies again. Until then, sellers will pressure the stock as stock buyers wait it out.
The U.S. is seeking delisting of all Chinese firms. Chances are low that it will succeed. This is still a minor risk factor for the two EV stocks and is another reason not to buy them at this time.
Your Takeaway
Investors who sold at the peak in the last month should be relieved they locked in gains. Momentum stocks typically lose lots of steam after the tremendous run-up.