NIO under fire from short-seller for playing ‘accounting games’

After a test crash causing two deaths and now being accused of malpractice, it has been a more-than-terrible week for the electric vehicle company.

Photo from CFP

Photo from CFP

By LIU Zeran, ZHOU Shuqi


Shares of electric vehicle maker NIO plummeted by up to 11 percent on Wednesday after Grizzly Research published a report the previous day, claiming NIO “plays Valeant-Esque accounting games to inflate revenue and boost net income margins to meet targets.”

NIO said Grizzly’s report was filled with false information and misinterpreted the company’s disclosure, stating that it would take action to counter the report.

The Grizzly report targeted NIO’s BaaS (battery as a service) business. In 2020, NIO and battery maker CATL founded a joint venture Wuhan Weineng Battery Asset, with NIO holding 20 percent of stock rights. Since Q4 2020, NIO has achieved growth beyond expectations.

Grizzly said the electric vehicle company had “used Wuhan Weineng to inflate its revenues and boost margins.”

“If Weineng did not exist, NIO would have to recognize subscription revenue from customers over the lifetime of their subscription,” Grizzly said in the report.

“Normally, it would take NIO approximately 7 years (inflation-adjusted) to generate the full subscription revenue, but with Weineng, they can recognize the revenue immediately.”

An analyst who asked not to be named told Jiemian News that NIO might have sold batteries to Weineng in advance to boost its revenue. Later Weineng would be the one to provide BaaS to customers.

“In that case, NIO doesn’t even have to actually give Weineng the batteries,” the analyst said. “They could be laying in a warehouse now or not even exist at all.”

Grizzly said sales to Weineng inflated NIO’s revenue and net income by 10 percent and 95 percent, respectively.

“Specifically, we find that at least 60 percent of its FY2021 earnings beat seems attributable to Weineng,” the report said.

Grizzly expected NIO’s net loss to be 95 percent higher for the 9 months to September 2021.

Li Bin, CEO of NIO, expects the company to turn a profit by 2024. But judging by its sales, the plan is optimistic.  While its rivals Li Auto and XPeng delivered over 30,000 units in Q1, NIO only delivered 25,768.

To make matters worse, an NIO test car crashed to the ground from the third floor of a parking lot in Jiading, Shanghai, last week, killing two people in the car.

NIO quickly issued a statement claiming the accident “had nothing to do with the car,” a response which infuriated the public.

Last year, NIO had a net loss of 10.5 billion yuan (US$1.56 billion), which was almost double compared with 2020.

After it released its Q1 report, which failed to meet market expectations, both Morgan Stanley and Citibank downgraded NIO.