Why Nio Stock Is Plunging Today

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What happened

Nio (NIO -14.39%) stock crashed on Thursday and was trading down 12.3% as of 11:15 a.m. ET. It has just been named by the U.S. Securities and Exchange Commission (SEC) as one of the many stocks that could get delisted from the U.S., and the market is freaking out.

This development shouldn’t have come as surprise as Nio had already forewarned it, but the stock is plunging nonetheless.

So what

For several months now, foreign stocks have come under the scrutiny of the SEC. Under its Holding Foreign Companies Accountable Act (HFCAA), foreign companies listed in the U.S. whose audit reports are inaccessible for inspection by the U.S. authorities are liable to get their shares delisted. The SEC recently started identifying and naming such companies publicly, and it named 88 companies, including Nio, on its latest list updated just yesterday.

Image source: Getty Images.

To be sure, Nio had already warned investors about the risk on April 29 when it filed its annual 20-F report and stated it expects to be identified by the SEC shortly after the filing of the report.

The market is feeling nervous about what a potential delisting could mean for the electric vehicle (EV) stock, however. Worse yet, the SEC news has come on a day when the broader market, and growth stocks in particular, are facing the heat amid inflation fears now that the Federal Reserve has hinted it may not increase interest rates as much as expected.

Now what

Nio already provided an update this morning, stating that it’s aware of the SEC’s identification and understands that its American depository shares in the U.S. could stop trading if the company’s audit reports can’t be inspected for three consecutive years beginning in 2021. Put simply, if Nio cannot file the documents as required by the SEC within three years, its stock will get delisted right after it files its 2023 annual report.

The company, however, tried to dispel fears by stating that it was “actively” exploring “possible solutions” to protect shareholders’ interests, and it said it is keen to remain listed in the U.S. and will comply with rules and regulations.

This update from Nio, though, isn’t exclusive as several other companies that were named by the SEC have come out with a similar update, some exactly worded. One difference between Nio and those many other companies, though, is that it already listed its shares on the Hong Kong stock exchange in March in anticipation of such action by the SEC.

Yet, investors are dumping Nio shares as they see the SEC’s action as an overhang on the company at a time when its production and deliveries have slowed down because of COVID-19 lockdowns in China. Its deliveries slumped 49% sequentially in April, and it’s yet to resume production to full capacity.