By Sam Boughedda
Short-seller Grizzly Research released a negative research report on Chinese electric vehicle maker Nio (NYSE:NIO) Tuesday.
In the report, Grizzly states they believe Nio "plays valeant-esque accounting games to inflate revenue and boost net income margins to meet targets."
Despite their significant fall from all-time highs during the Covid pandemic, Nio shares are still up considerably from pre-pandemic levels, making it one of China's most valuable electric vehicle 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," Grizzly said. "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."
Grizzly believes 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."
In further claims, the report states NIO gave Weineng up to an extra 21,053 batteries to boost its numbers, Weineng's top two executives double as NIO's Vice President and Battery Operating Executive Manager, and NIO's Chairman and CEO, Bin Li, is closely tied to parties central to the Luckin Coffee (OTC:LKNCY) Fraud.
"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," wrote Grizzly.