Morgan Stanley says investors are betting hard against one high-flying electric car stock

Published Thu, Jun 24 20217:30 PM EDT

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

Investors have ramped up their bets that just one of three high-flying Chinese electric car stocks will see its share price drop. That's based on Morgan Stanley's 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 is a trading strategy that allows investors to profit if a stock price drops. In this process, investors borrow shares, sell them and then buy them back later at a lower price. If the share price ends up rising, the short seller will try to minimize losses by buying back shares, which now cost more than when they were borrowed. The June 22 report listed 10 names that investors increased their bets against. Here are the top three, in descending order of greatest increase in short interest: Li Auto — The Chinese automaker went public on the Nasdaq in July 2020 and its stock has held onto 170% gains since then. However, the company's only model on the market, the Li One SUV, is not purely an electric car since it comes with a fuel tank to charge the battery and extend its driving range. Monthly deliveries have failed to exceed those of Nio , another U.S.-listed electric car start-up, and fell below that of Xpeng in May. Li Auto shares have climbed 8% so far this year, versus declines of nearly 3% and 7% for Xpeng and Nio, respectively. Shares of all three companies surged last year. Cosco Shipping — The company has seen its shares double so far this year, with the stock trading in the last few weeks at highs not seen since 2008. The state-owned conglomerate is listed in Hong Kong. Ports in the southern province of Guangzhou have faced major shipping delays after a local outbreak of the coronavirus in May stemming from the delta variant, first detected in India. JD Health International — The pharmaceutical business of e-commerce giant JD has held gains of about 55% from its IPO in Hong Kong in December . But the stock is down about 27% for the year so far. In late April, the company published its annual report for 2020 that showed its revenue — up nearly 79% to 19.38 billion yuan ($3.03 billion) — grew primarily as a result of greater sales of pharmaceutical and health-care products rather than online health-care services. Selling and marketing expenses nearly doubled to 1.43 billion yuan, for a 0.5 percentage point increase in their share of revenue to 7.4%. The company attributed the increase to greater spending on business promotions. Investors were more optimistic about at least one other electric car company, according to the Morgan Stanley report. Nio ranked among the three Chinese stocks that saw the greatest drop in short interest versus last month, the report said. — CNBC's Michael Bloom contributed to this report.

A charging station for electric cars in Tianjin, China, on Nov. 26, 2018.

Zhang Peng | LightRocket | Getty Images