U.S.-listed Chinese electric vehicle startups Nio, Inc. (NYSE:NIO) and XPeng, Inc. (NYSE:XPEV) have traded down alongside the stocks of Chinese tech giants that have been pulled up by regulators based on anti-competitive practices.
Despite market fears, the EV makers are unlikely to be caught in the regulatory crosshairs, according to Ark Invest founder Cathie Wood.
What Happened: In line with the Communist regime's "common prosperity" goals, Chinese regulators are clamping down on high-margin companies, Wood said in an interview with Yahoo Finance.
With common prosperity, China is aiming to cut the margins of these companies to increase access to their products and services, she said.
"So, we are looking for very low margin companies, not what we normally look for, but are going to increase the access to transportation," Wood said.
Both Nio and XPeng are going for autonomous driving, the money manager said. Tesla may be operating in China, but the government may not be keen on allowing the U.S. company to lead in the autonomous race, she added.
XPeng, for one, is modeling itself after Tesla, and this was the reason for Ark Invest picking it up, Wood said.
Nio, she said, is "absolutely fabulous" on the design side and has higher end products.
Ark Invest is therefore splitting its bets, and one of those companies or two of them will be the "autonomous" champion(s), Wood said.
Related Link: Here's Why Nio Is Suspending Production And Asking For 'Understanding From Customers'
Why It's Important: Shares of Nio and XPeng are trading at depressed levels. The war in Ukraine has sent input prices spiraling and rendered components in short supply.
Unable to absorb the higher input costs, most EV makers, including market leader Tesla, Inc. (NASDAQ:TSLA), have chosen to pass through the price increases to customers.
To make matters, a renewed outbreak of COVID-19 in China has forced these companies to suspend production.
Alleviation of regulatory risk could come as a relief for Nio and XPeng.
Wood's Ark Invest holds shares of Nio, XPeng, and Warren Buffett-backed BYD Company Limited (OTC:BYDDF) in its ARK Autonomous Technology & Robotics ETF (BATS:ARKQ).
Ark Invest first opened a position in XPeng in early December, and Nio was a late addition to its portfolio.
ARKQ holds 922,864 XPeng shares, valued at $25.53 million, 478,831 shares of BYD valued at $28.6 million, and 417,431 Nio shares valued at $8.52 million.
NIO, XPEV Price Action: Nio shares were down 3.31% at $19.74 Wednesday afternoon, according to data from Benzinga Pro. XPeng shares were down 1.84% at $27.15.