Nio Denounces GIC Lawsuit as 'Baseless' Amid Renewed Scrutiny

As Nio responds to the lawsuit brought by GIC, the electric vehicle manufacturer emphasizes that the allegations stem from a short-seller report by Grizzly Research dating back to June 2022. Nio asserts that these allegations were previously investigated by an independent board committee, which included a third-party international law firm and forensic accounting firm. The investigation, completed in August 2022, found no factual basis for the claims, according to Nio. Despite these assurances, the lawsuit has already had a tangible impact on Nio’s market performance. On October 16th, Nio's shares fell sharply by over 13% at the Hong Kong Stock Exchange market opening, though the losses narrowed to an 8.99% drop by the close of trading.

The roots of the dispute can be traced back to Grizzly Research's report, which accused Nio of financial impropriety related to its battery asset management business (BaaS). Nio has consistently denied these allegations, and the U.S. Securities and Exchange Commission (SEC) has also inquired into the matter without taking further action. Several prominent financial institutions have supported Nio’s stance, with reports from Deutsche Bank and others highlighting misunderstandings in Grizzly's analysis. These institutions have pointed out that Grizzly's concerns were based on a flawed understanding of Nio's business model.

The lawsuit filed by GIC adds a new dimension to Nio's challenges, as it is an independent legal action separate from the previous class-action lawsuits. GIC's case focuses on allegations that Nio, through its joint venture Wuhan Weineng Battery Asset Co., inflated revenue and profits, misleading investors and resulting in investment losses for GIC. This lawsuit has been stayed by the court until the resolution of the ongoing class-action lawsuits in the U.S.

Nio's unique BaaS model, which allows customers to purchase vehicles without batteries and rent them instead, is at the center of the controversy. GIC claims that Nio manipulated its financial statements by recognizing battery sales revenue upfront, which should have been recorded incrementally according to U.S. accounting standards. Nio, however, maintains that the control over the batteries was transferred to Weineng upon sale, justifying its accounting treatment.

At the heart of the lawsuit is the question of control over Weineng, with GIC arguing that the entity is effectively a shell controlled by Nio. If GIC's claims hold, Nio would need to consolidate Weineng's financial data, potentially invalidating its previous revenue reports. GIC supports its case with evidence of Nio's economic interest in Weineng, highlighting intricate equity structures and dependency of Weineng on Nio for its operations.

The ongoing legal battle poses a significant challenge to Nio's future, especially as the company works towards profitability. With over 100 billion yuan in losses, achieving financial stability has become crucial for Nio. The lawsuit from GIC, a formidable opponent given its stature as a sovereign wealth fund, introduces additional uncertainty. Industry experts note that such lawsuits often serve dual purposes for funds like GIC, being both financial claims and strategic tools for risk management in volatile markets.