(Bloomberg) — Nio Inc. rejected a shortseller’s claim that it has inflated financial results, saying the report contains “numerous errors.”
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Grizzly Research alleged that Nio has used a related company that supplies batteries to boost its revenue and net income by about 10% and 95%, respectively. The electric-car maker is being propped up by “financial shenanigans” and is littered with corporate governance red flags, it said.
Wuhan Weineng, formed in 2020 by Nio and other investors including Contemporary Amperex Technology Co. Ltd., has “already generated billions” for the electric-vehicle company, the shortseller said.
“The report is without merit and contains numerous errors, unsupported speculations and misleading conclusions,” Shanghai-based Nio said in a statement Wednesday. The board is reviewing the allegations and considering the appropriate course of action to protect shareholders’ interests, the company added.
Nio shares fell as much as 13% in Hong Kong on Wednesday, the biggest intraday decline since May 10. Its US-traded shares slipped 2.6% Tuesday but are up almost 30% this month.
Through Weineng, Nio customers can buy the shell of a vehicle and then rent the battery, the most expensive component of an electric vehicle, thereby lowering purchase costs. They can also replace the battery with a newer, improved one in the same car shell.
Buy an Electric Car, Lease the Battery. Now You Can in China
“Instead of recognizing revenue over the life of the subscription (about seven years), Weineng allows Nio to recognize revenue from the batteries they sell immediately,” Grizzly Research said. “Through this arrangement, we think Nio has juiced its numbers by pulling forward seven years of revenue.”
The shortseller said Nio has been oversupplying Weineng with thousands of extra batteries.
Grizzly Research didn’t immediately respond to a phone call and email outside regular US business hours.
Among other notable targets, Grizzly Research questioned the results of Chinese online education company GSX Techedu Inc., one of the stocks at the center of the collapse of Bill Hwang’s Archegos Capital Management, calling it the “worst publicly traded education company.”
It has also issued negative reports on other China-linked companies, including ReneSola Ltd. and autonomous driving technology developer TuSimple Holdings Inc., which it claimed was an “empty box that was nicely packaged and irresponsibly dumped on US investors.” The stock has plunged 80% since the report was released in August last year.
(Updates with more information on Wuhan Weineng.)
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