环球微头条丨NIO Accused of Inflating Net Income by 95%, CEO's Close Relationship to Key Player in Luckin Fraud

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BEIJING, June 28 (TMTPOST)— The U.S.-listed shares of NIO Inc sank as much as 4% in Tuesday’s early trading following a short report’s accusing the Chinese electric vehicle (EV) maker of accounting fraud.

Source: Visual China

In a short seller report titled “We Believe NIO Plays Valeant-esque Accounting Games to Inflate Revenue and Boost Net Income Margins to Meet Targets”, Grizzly Research compared NIO to Valeant, a Canadian drug maker which fell amid the Enron-like fraud in 2015. Just like Valeant’s relationship with the defunct mail-order pharmacy Philidor, NIO is likely exaggerate revenue and profitability by using an unconsolidated related party Wuhan Weineng Battery Asset Co. Ltd, (“Weineng”) a company formed by NIO and a consortium of government entities and private investors like CATL, the report said. Holding a 19.8% stake in Weineng, NIO was said to spin off the company to help artificially boost its battery swapping business and overall performance, and it did have curiously exceeded estimates since Weineng’s establishment in August, 2020.

The following chart showed how Grizzly report believed Weineng’s sales had inflated NIO’s revenue and net income by 10% and 95% respectively for nine months ended September, 2021, as NIO had sold batteries far more than Weineng’s actual requirements.

Source: Grizzy Research

Grizzy found that at least 60% of NIO’s 2021 fiscal year earnings beat seemed attributable to Weineng, and claimed that NIO gave Weineng up to an extra 21,053 batteries to boost its financials in the nine months and the fourth quarter of last year saw another oversupply of 15,200 batteries, which had significant impact on NIO’s bottom line.

Besides selling more batteries than Weineng’s needs, another key part of NIO’s complicated arrangement for overstatement is to pull forward several years of revenue to help meet ambitious estimates.The report noted Weineng allowed NIO to recognize revenue from the batteries they sell immediately, rather than recognizing revenue over the seven-year subscription life, which enabled NIO to effectively generate sales seven years ahead of time.

More notably, the report alleged NIO chairman and CEO William Li, or Li Bin, had close relationship with Joy Capital and its founding partner Erhai Liu, a key role in Luckin Coffee accounting scandal in 2020. It lists Erhai Liu’s previous involvement with Li or his ventures as followed: Liu served as one of board directors at a Li-controlled company BITA since 2005 and independent director since 2011; Liu was appointed as one of the independent directors for the special committee to evaluate BITA’s go-private transaction in September 2019; Liu was reported to be an early investor of NIO and Mobike, which Li used to be chairman; NIO Capital and Joy Capital jointly invested up to $315 million in UXIN, a U.S.-listed Chinese online used car company that was exposed by another short report from JCap in 2019.

Grizzly’s report was filled with untrue information and misunderstandings of our disclosure, NIO later responded to Chinese digital newspaper The Paper. NIO said it always abided by the related rules of listed companies and has initiated relevant procedures in response to the report. Stay tuned for further statements, it added.

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