June 15, 2024


The ideal Automotive

Why Shares of XPeng, Li Auto, and JD.com Are on Fire Today

What happened

The rebound in Chinese stocks has been as stunning as their fall. On Friday, most Chinese stocks jumped yet again and kept soaring higher and higher as the day progressed, with most trading up double digits around midday. Here’s how come popular stocks were faring as of 1 p.m. ET:

  • XPeng ( XPEV 15.22% ): up 17.4%.
  • Li Auto ( LI 12.31% ): up 14.7%.
  • JD.com ( JD 5.15% ): up 10.7%.

The latest updates from China triggered frenzied buying activity in these stocks, and rightfully so.

So what

Among the several factors that sent Chinese stocks crashing of late, two that stood out were China’s stance on the Russia-Ukraine conflict and the threat of delisting of U.S.-listed shares of foreign companies. Last week, the U.S. Securities and Exchange Commission (SEC) named and warned five Chinese companies after their failure to comply with audit rules. Although XPeng, Li Auto, and JD.com were not on the list, investors panicked at the prospects of these companies coming in the SEC’s line of fire.

To make matters worse, China is grappling with its worst coronavirus outbreak yet, and the nation’s stringent “zero COVID” policy has threatened to crimp growth for business, especially in hot industries like electric vehicles (EVs) that are only just getting started. China’s no-tolerance COVID-19 policy can push major manufacturing hubs and millions of workers into a lengthy lockdown overnight even if its costs the economy billions.

On Friday, for the first time since the pandemic struck in 2020, Chinese President Xi Jinping hinted at some flexibility and said that, while China will still strive to maximize prevention of a spread in coronavirus cases, it will do so at the least cost to “minimize the impact of the epidemic on economic and social development.”

In another major development, as of the time of this writing Friday, talks were underway between presidents Biden and Xi for the first time since Russia’s invasion into Ukraine. The U.S. is trying to understand China’s stance on the ongoing war after the nation reportedly expressed openness to offer Russia military and financial aid.

A businessperson checking data on a tablet in front of a stock market display board.

Image source: Getty Images.

As per live updates coming in from Chinese media, Xi has reportedly told Biden how conflicts like the one unfolding in Ukraine are in no one’s interest. Earlier this week, China’s foreign minister said the nation is “not a party to the crisis, nor does it want the sanctions to affect China.” The U.S. has threatened sanctions on China if it helps Russia.

Meanwhile, Chinese media has reported that China supports the listing of its stocks overseas, and its regulators are working with the U.S. on a plan to avoid the delisting of Chinese stocks by the U.S. China is also looking to end its crackdown on technology stocks. This is particularly noteworthy as the regulatory crackdown so far has had far-reaching consequences, including not just fines but also forced delisting and blocking of initial public offerings.

So with China reportedly making efforts to please U.S. regulators and Biden while easing its COVID-19 policy to support the economy, investors in Chinese stocks had their plates full today.

Now what

For EV manufacturers like XPeng and Li Auto that are already battling cost and supply chain headwinds, any move by China that throttles their operations or growth is bound to hit investor sentiment hard.

In fact, XPeng even announced price increases for all its models today to combat rising costs, according to CnEVPost. Li Auto, meanwhile, is preparing to launch its flagship SUV L9 at the upcoming Beijing auto show.

E-commerce behemoth JD.com, meanwhile, should have one big threat to worry less about if China officially ends its tech crackdown and it’s able to focus on growing its business.

There’s no dearth of growth opportunities for these Chinese companies, but they’ve been caught in a myriad of macro headwinds of late. Friday was an exception as it brought with it some encouraging news, and that reflected in the stock prices.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.