Nio‘s Hong Kong-listed shares plunged by more than 9% as the EV maker, its CEO William Li, and the former CFO Steven Feng were sued in the US by a major sovereign wealth fund.
Singapore’s sovereign wealth fund, GIC Private Ltd., lodged a securities fraud lawsuit against the company and its management in a US court last August.
The lawsuit is connected with the report published in June 2022 by the short-seller firm Grizzly Research, where the company claimed Nio was inflating revenue via a separate firm named ‘Wuhan Weineng.’
Known as Weineng, the firm was created in August 2020 and has been described by the EV maker as its ‘Battery Asset Company.’
Nio introduced its Battery-as-a-Service (BaaS) program in August 2020 in China, two years after it began deploying battery-swap stations across the country.
The service allows drivers to exchange depleted batteries for fully charged ones within minutes.
By separating the battery cost from the vehicle purchase, Nio enables customers to buy its cars at a lower upfront price while paying a monthly fee to lease the battery — a model the company promotes as a key financial advantage over conventional EV ownership.
GIC, represented by Kirby McInerney LLP, said it purchased 54.5 million American depositary shares between August 11 2020 and July 11 2022 at prices “that were inflated artificially by Defendants’ fraud.”
The fund argues that had it known the truth, “it would not have purchased Nio ADSs at the artificially inflated prices which Plaintiff paid.”
In the 2022 report from Grizzly Research, the firm claimed the EV maker was “likely using an unconsolidated related party to exaggerate revenue and profitability,” comparing the case to the Philidor-Valeant relationship.
Back then, the short-seller firm accused Nio of having founded Weineng in August 2020 to “pull forward several years of revenue to help meet ambitious estimates,” “provide a willing counterparty to sell more batteries than their required network needs” and “shift depreciation costs off their financial statements.”
“According to NIO’s filings, Weineng is the entity that owns the batteries used in the BaaS business and is responsible for managing the subscriptions. Thus, when a user subscribes to the BaaS program, Weineng is the recipient of all subscription payments. Where does Weineng get the batteries it provides? None other than NIO…,” Grizzly Research stated in its report.
The firm claimed in its report that net income for the full year of 2021 had been inflated by nearly 100%.
“We believe sales to Weineng have inflated NIO’s revenue and net income by ~10% and 95%, respectively,” the firm said. “Specifically, we find that at least 60% of its FY2021 earnings beat seems attributable to Weineng.”
As first reported by the Chinese outlet Caixin on Wednesday, GIC’s lawsuit marks the first case in which a sovereign wealth fund sues a US-listed Chinese firm.
In the lawsuit — and also claimed by Grizzly Research — GIC says the EV maker “unlawfully” recognized revenue throught the Weineng firm.
“In FY2021 [full year 2021] alone, Defendants caused NIO to unlawfully recognize over $600 million of leased battery revenue through Weineng,” according to the lawsuit. “Defendants’ conduct violated GAAP in several ways.”
According to the filing, Nio’s management “was determined to dig out of [a] liquidity crisis by orchestrating an unlawful end run around GAAP.”
It alleges that after Nio created Weineng, the company “began recognizing the full sale price of the electric vehicle batteries immediately,” even though GAAP required revenue to be recognized over the five-to-six-year lease term.
The complaint further says Weineng’s asset-to-liability ratio was 0.36 as of December 31 2021, showing it was financially incapable of paying Nio, yet the automaker still booked the revenue.
“GAAP required Nio to only recognize revenue that was probable of collection, but Defendants caused Nio to recognize hundreds of millions of dollars in revenue from Weineng that was not likely collectible,” the lawsuit says.
GIC also echoes the 2022 report by short-seller Grizzly Research, which accused Nio of using Weineng “reminiscent of the Philidor-Valeant relationship” to exaggerate profits.
The lawsuit claims the automaker’s actions violated Sections 10(b) and 20(a) of the US Securities Exchange Act of 1934 and seeks compensatory damages “in an amount to be proven at trial.”
“Defendants were motivated to commit fraud to address Nio’s liquidity crisis and fund the highly capital-intensive battery-swap business model,” the complaint adds.
Hong Kong-listed shares closed 9.44% lower on Thursday at HK$49.28.
As of press time, Singapore-listed shares are falling 8.2% and US-listed shares by 6.2% during Thursday’s pre-market session.
Back in August 2022 — two months after Grizzly Research claimed the allegations — Nio announced that the Independent Committee had “concluded that these allegations were not substantiated.”
“The Internal Review was performed by the Independent Committee with the assistance of third-party professional advisors including an international law firm and forensic accounting experts from a well-regarded forensic accounting firm that is not the Company’s auditor,” Nio said at the time.
Approached by EV on Thursday, Nio said there were no immediate comments on the matter.
Nio and several other US-listed Chinese stocks sold off last Friday following a post by President Donald Trump’s Truth Social account threatening “massive tariff” increases on Chinese goods.
The post reignited fears of a renewed trade war after weeks of apparent progress in negotiations between Washington and Beijing.
