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Why Nio Stock Dropped Today

What happened

Chinese regulators have ramped up their involvement in several sectors recently -- most notably the tech sector as well as Chinese education companies. But that's beginning to spread, and investors don't like uncertainty. The stock of electric vehicle maker Nio (NYSE: NIO) took a hit earlier this week when the EV sector got mentioned. Today, Nio shares are dropping again, as another industry comes under scrutiny. After dropping as much as 2.5% earlier, as of 1:25 p.m. EDT the stock was down almost 1%.

Image source: Getty Images.

So what

Most of the news regarding Chinese regulators clamping down on public companies was related to the big tech and adult education sectors. But on Monday, China's industry and information technology minister implied the government will work to consolidate the electric vehicle industry, too. He specifically said the country has "too many" EV makers.

That potential consolidation brings uncertainty for investors in Nio and other Chinese EV companies. What comes of it could be good or bad for Nio. What is more certain is that the government can determine the fate of companies at will.

Now what

That is why more news today that casino operators in Macao may have to undergo changes in their business plans may also be impacting Chinese stocks in other sectors. The government clampdown seems to be spreading, which can be unsettling for investors.

The crackdown on public companies in China should be a good reminder for investors building out a portfolio. Diversity and allocation are important factors. For those with adequate diversification and the right risk tolerance, there's no need for knee-jerk changes to their holdings based on news out of their control.

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Howard Smith owns shares of NIO Inc. The Motley Fool owns shares of and recommends NIO Inc. The Motley Fool has a disclosure policy.


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