By Tomi Kilgore
Shares of NIO Inc. were knocked down by a short-seller report on Wednesday, alleging exaggerated financial results, even as the China-based electric vehicle maker said the report is without merit and contains “numerous errors.”
The stock /zigman2/quotes/204905836/composite NIO +4.34% fell 2.5% in morning trading, putting it on track for a third-straight loss. It was down as much as 2.9% earlier in the session, and was down as much as 9.0% in premarket trading, according to FactSet’s time-and-sales data.
At Wednesday’s intraday high of $22.28, it was down just 0.4%.
Grizzly Research, which has bet that NIO’s stock will fall, said it believes that sales to Wuhan Weineng Battery Asset Co., which Grizzly says was formed by NIO and a consortium of investors in late 2020, has helped NIO inflate revenue by about 10% and net income by 95%.
“The [Grizzly Research] report is without merit and contains numerous errors, unsupported speculations and misleading conclusions and interpretations regarding information relating to the Company,” NIO said in a statement. “The Company’s board of directors, including the audit committee, is reviewing the allegations and considering the appropriate course of action to protect the interests of all shareholders.”
NIO said in its most-recent annual report that “affiliate” Wuhan Weineng is an “equity investee” of the company. As part of NIO’s “Battery as a Service” (BaaS) offering, which allows customers to buy an EV and subscribe for the use of the battery separately, the company sells a battery to Wuhan Weineng and the customer can subscribe with Wuhan Weineng for use of the battery.
“Today, we reveal what we consider an audacious scheme by NYSE-listed NIO,” Grizzly Research said. “[N]IO is likely using an unconsolidated related party to exaggerate revenue and profitability.”
Grizzly said it believed the fact that Weineng held 40,053 batters as inventory as of September 2021, after disclosing that it had only 19,000 battery subscriptions, suggests NIO “flooded” Weineng with extra batteries to inflate revenue.
“Instead of recognizing revenue over the life of the subscription (~7 years), Weineng allows NIO to recognize revenue from the batteries they sell immediately,” Grizzly said.
NIO said in its response that it emphasizes its “continued and unwavering commitment” to maintaining high standards of corporate governance and internal control, as well as “transparent and timely” disclosures.
NIO said it will make additional disclosures, “in due course,” and consistent with rules and regulations of the U.S. Securities and Exchange Commission and the New York Stock Exchange (NYSE).
NIO’s stock, which has now shed 9.5% amid a three-day losing streak, has tumbled 31.2% year to date, while the iShares China Large-Cap exchange-traded fund /zigman2/quotes/208670743/composite FXI +1.69% has declined 7.6% and the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.05% has fallen 19.8%.