Grizzly Research says NIO is likely using an unconsolidated related party to exaggerate revenue, profitability

Written by Cláudio Afonso | | LinkedIn | Twitter

The research firm Grizzly Research posted on Tuesday a new report where the target is the Chinese EV maker NIO titled: “We Believe NIO Plays Valeant-Esque Accounting Games to Inflate Revenue and Boost Net Income Margins to Meet Targets”.

Full transcript of Grizzly Research Report

“Today, we reveal what we consider an audacious scheme by NYSE-listed NIO. Reminiscent of the Philidor-Valeant relationship, NIO is likely using an unconsolidated related party to exaggerate revenue and profitability.

Presumably, with these stellar operating results in mind, retail investors have bid NIO’s shares up >450% since 2020, making it one of China’s most valuable EV companies.

Allow us to introduce you to Wuhan Weineng (“Weineng”), the convenient difference-maker helping NIO exceed lofty growth and profitability estimates on The Street. Despite being formed by NIO and a consortium of investors in late 2020, this unconsolidated related party has already generated billions in revenue for NIO.

While this rapid growth is impressive on the surface, our investigation has found Weineng might be to NIO what Philidor was to Valeant. Just as Philidor aided Valeant in habitually making numbers, NIO has curiously exceeded estimates since establishing Weineng.


We believe sales to Weineng have inflated NIO’s revenue and net income by ~10% and 95%, respectively. Specifically, we find that at least 60% of its FY2021 earnings beat seems attributable to Weineng.

By transferring the burden of collecting monthly subscriptions to Weineng, NIO has accelerated its revenue growth. Instead of recognizing revenue over the life of the subscription (~7 years), Weineng allows NIO to recognize revenue from the batteries they sell immediately. Through this arrangement, we think NIO has juiced its numbers by pulling forward 7 years of revenue.

Considering Weineng’s recent disclosure of 19,000 battery subscriptions, we questioned why Weineng held 40,053 batteries as inventory on September 30, 2021. After careful investigation, we believe NIO flooded Weineng with up to extra 21,053 batteries (worth ~1,147M RMB) to boost its numbers. For Q4 2021, this number only gets worse and we estimate NIO oversupplied up to another 15,200 batteries. The effect of this action on NIO’s bottom line is enormous.

Of course, it would take a willing potential accomplice to pull off such a scheme… While NIO represents limited control over Weineng, we identified notable conflicts of interest between the two parties: Weineng’s top two executives currently double as NIO’s Vice President and Battery Operating Executive Manager.

NIO’s Chairman and CEO, Bin Li, is closely tied to Joy Capital and Erhai Liu, parties central to the Luckin Coffee Fraud. While he has been hailed as the “Elon Musk of China”, Li’s past ventures have seen their stocks collapse and been taken private at a fraction of their peak valuations.


In January 2019, Bin Li transferred 50M shares to the “NIO Users Trust”, an opaque BVI entity purportedly established to provide NIO Users with more influence over the Company’s governance. In an apparent violation of these “Users” trust, Li pledged these shares to UBS to secure a personal loan. With NIO’s stock declining 50+% since the pledge, we believe shareholders are unknowingly exposed to the risk of a margin call against the Users Trust shares.

Chinese government entities have redeemed US$2B from NIO and may collect another US$6.7B. With NIO’s cash balance of just US$8.2B. We believe shareholders risk being materially diluted in future periods”, the research firm says.

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On Monday, NIO‘s battery swap technology was featured in the British newspaper Metro enhancing the advantages of the Battery as a Service (BaaS) technology and also the Power Swap Stations that are arriving in Europe, after the debutant in Norway.

In the article, the newspaper mentioned that users can swap a “drained battery for a freshly charged one in as little as three minutes” and also NIO’s Battery as a Service system to avoid the purchase of the most expensive EV component.

Written by Cláudio Afonso | | LinkedIn | Twitter