Morgan Stanley says investors are betting hard against 2 high-flying electric vehicle stocks

Published Sun, Apr 18 20219:17 PM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Key Points

Morgan Stanley released on April 13 an analysis of Chinese stocks listed in the U.S. and Hong Kong that have seen the greatest increase in short interest versus last month.
Short selling refers to a trading strategy that allows investors to profit if a stock price drops.
Two Chinese electric car start-ups topped the list.

Investors are stepping up their bets that two of China's high-flying electric car companies will see share prices drop. That's according to Morgan Stanley's analysis of the top Chinese stocks listed in the U.S. and Hong Kong that have seen the greatest increase in short interest versus last month. Short selling refers to a trading strategy that allows investors to profit if a stock price drops. The process involves borrowing shares, selling them and then buying them back later at a lower price. If the share price does not fall, the short seller will try to minimize losses by buying back shares, which now cost more. The April 13 report listed 10 names. Here are the top five, in descending order of greatest increase in short interest: Nio — While a leader among China's electric car start-ups with the most deliveries in the first quarter , the company's stock already soared more than 1,000% last year. It has fallen 24% so far this year. Research from Citi published April 12 also cited third-party insurance data that said Nio's retail sales in March stood at 6,911 units, lower than the company's reported deliveries of 7,257 units. For Li Auto , the data showed 5,058 car sales in March, in-line with the company's announcement of 4,900 car deliveries for the month, the Citi report said. Li Auto — The electric car start-up's only model on the market so far is actually a hybrid that comes with a fuel tank to charge the battery. Among the three U.S.-listed Chinese electric car start-ups, Li Auto released the fewest deliveries for the first quarter, although March figures beat guidance. The company's stock is up more than 80% since its IPO last year, but are down about 26% year-to-date. Xinyi Solar — Hong Kong-listed shares of the mainland China-based manufacturer of solar glass are down more than 35% this year. Bilibili — U.S.-listed shares of the short video company soared to record highs this year before pulling back, to hold 20% gains for the year so far. In late March, the company's dual listing in Hong Kong saw shares fall in the first day of trading. Yihai International — Hong Kong-listed shares of the hot pot condiment maker are down about 30% so far this year after climbing roughly 150% in 2020. Chinese stocks with declining short interest The Morgan Stanley report also listed the ten Chinese stocks with the greatest decrease in short interest versus last month. Some of the declines may be the result of investors covering their shorts, or buying back shares to minimize losses. U.S.-listed Chinese electric car company, Xpeng , ranked fifth. Citi analysts noted third-party insurance data for the start-up showed March retail sales of 4,748 units, versus the company's reported deliveries of 5,102 cars last month. Four others on Morgan Stanley's list are education company GSX, Ping An Insurance, video platform iQiyi and data center company GDS. By sector, technology remained the most shorted, the Morgan Stanley report said. — CNBC's Michael Bloom contributed to this report.

Beijing auto show in 2020

Evelyn Cheng | CNBC

Investors are stepping up their bets that two of China's high-flying electric car companies will see share prices drop.

That's according to Morgan Stanley's analysis of the top Chinese stocks listed in the U.S. and Hong Kong that have seen the greatest increase in short interest versus last month.

Short selling refers to a trading strategy that allows investors to profit if a stock price drops. The process involves borrowing shares, selling them and then buying them back later at a lower price. If the share price does not fall, the short seller will try to minimize losses by buying back shares, which now cost more.

The April 13 report listed 10 names. Here are the top five, in descending order of greatest increase in short interest: