Grizzly Research released a report on Tuesday claiming that NIO, a Chinese new energy vehicle company, is likely using an unconsolidated related party to exaggerate its revenue and profitability. Regarding the matter, NIO said that the report is full of false claims and is a misreading of information disclosed by the EV maker.
Grizzly Research said that in August 2020, Wuhan Weineng Battery Asset Co. Ltd. was formed by NIO and a consortium of government entities and private investors like CATL. NIO holds a 19.8% stake in Weineng. Since Q4 2020, NIO has surprised net income expectations. For FY2021 NIO was expected to lose 5,947 million yuan. Instead, NIO posted a net loss of 3,007 million yuan.
Regarding these figures, Grizzly Research thinks the secret lies in Wuhan Weineng. According to NIO’s filings, Wuhan Weineng is the entity that owns the batteries used in the BaaS business and is responsible for managing the subscriptions. Under the BaaS, NIO sells batteries to Wuhan Weineng, and the user subscribes for the usage of the batteries from the asset company. In just four months of operating in 2020, NIO generated 290 million yuan from sales to Wuhan Weineng. Revenue attributable to the entity ballooned even further in 2021 to 4.14 billion yuan.
Grizzly Research believes that the arrangement between Wuhan Weineng and NIO has helped them in three ways: pulling forward several years of revenue to help meet ambitious estimates; providing a willing counterparty to sell more batteries than their required network needs; shifting depreciation costs off their financial statements.
Grizzly Research accused NIO of exaggerating revenue and profit margin. Through the Weineng scheme, NIO has pulled forward over 1.147 billion yuan in revenue resulting in an equal improvement in the first quarters of FY2021. Grizzly Research estimates NIO’s true net income for the period to be a loss of 3.02 billion yuan.
According to NIO, the lifespan of charging and battery swapping infrastructure and equipment (including batteries) is five years. Strangely, NIO recently changed the lifespan to five to eight years, meaning batteries on the balance sheet depreciate by about 15% per year. As of the nine months ending September 2021, NIO’s reported a net loss of 1.874 billion yuan. Coupled with the revenue inflation outlined in previous sections, Grizzly Research estimates that NIO’s net loss would nearly double to 3.690 billion yuan.
In the rest of the report, Grizzly Research also attacked NIO‘s senior executives’ past history of entrepreneurial failure, and their indirect connection with Luckin Coffee at the investor level.
In response to this report, NIO said on Wednesday that the company has strictly abided by the relevant standards of listed companies, and has started relevant procedures for this report.
Affected by the report, NIO‘s US stock price fell to $22.36 on Tuesday, down 2.57%, with an overall market value of $37.353 billion.