NIO swiftly responds to fraud allegations.

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Author | Chai Xuchen

Editor | Zhang Xiaoling

Recently, news that Singapore's sovereign wealth fund (GIC) is suing NIO has attracted market attention. GIC accuses NIO of inflating revenue and profit through Wuhan Weineng Battery Asset Co., Ltd, a joint venture with its partner, misleading investors and causing GIC to suffer investment losses.

In response to this accusation, NIO told Wallstreetcn that this case is not a new event, but stems from a short-seller report published by Grizzly Research LLC in June 2022. NIO emphasized that the report itself is groundless, filled with errors, unfounded speculation, and misleading conclusions.

In fact, the core of this lawsuit is a dispute over the accounting treatment of NIO’s BaaS business model.

BaaS, or “Battery as a Service,” is a business model pioneered by NIO in the new energy vehicle industry. Under this model, consumers can choose not to purchase the power battery when buying a NIO car, but pay a monthly service fee to lease it instead. This lowers the initial car purchase threshold for consumers and, via NIO’s vast power swap station network, addresses issues like range anxiety and battery degradation.

To support this power swap system, NIO and industry partners such as CATL jointly founded Weineng in 2020. Weineng operates by purchasing battery packs produced by NIO, holding them as a separate “battery asset” entity, then leasing these batteries to end users who opt for the BaaS program, and charging users a monthly service fee.

This is precisely the focus of both Grizzly’s short-seller report and the GIC lawsuit.

Grizzly believes that by selling batteries one-off to its “related party” Weineng, NIO recognized years’ worth of future battery lease revenue in advance. The report alleges that NIO inflated its revenue and net profit in fiscal 2021 by selling batteries to Weineng. Grizzly attempts to depict Weineng as an unconsolidated off-balance-sheet entity established by NIO to “embellish” its financial statements, essentially “robbing Peter to pay Paul” by turning future subscription revenue into current one-off sales revenue.

In response to the short-selling accusation, in August 2022, NIO announced that its board had established an independent internal committee and engaged top international law firms and forensic accounting firms to conduct a comprehensive, independent internal investigation into Grizzly’s claims.

The investigation’s conclusion clearly stated: “The relevant allegations in the short report are without factual basis.” NIO reiterated this conclusion in its latest response to GIC’s lawsuit, emphasizing: “As a company listed in the U.S., Hong Kong, and Singapore, NIO always strictly abides by compliance and corporate governance requirements in all three markets.”

It’s worth noting that after Grizzly’s report was released in 2022, almost all major international investment banks sided with NIO, believing that Grizzly’s allegations were a severe misreading of the BaaS innovation model.

Deutsche Bank noted: “Concerns about NIO’s battery asset management business are unfounded, and the commercial model’s elements are seriously misunderstood.” Morgan Stanley, J.P. Morgan, Daiwa Capital, and other authoritative institutions also publicly spoke out, not supporting Grizzly’s conclusions.

These investment bank analysts generally believed that spinning off battery assets into an independent entity for professional operation is a common financial and operational strategy in heavy-asset industries, not a “financial trick” unique to NIO. This asset securitization model can optimize corporate cash flow, diversify risk, and enable specialized teams to manage specific assets.

Weineng, as an independent company with multiple shareholders including NIO and CATL, has a clear business logic, and its transactions with NIO follow fair accounting standards. Treating batteries as commodities sold one-off to Weineng is appropriate in accounting, as ownership of the batteries has genuinely transferred.

Since NIO already has internal investigation conclusions and Wall Street mainstream opinion recognizes the compliance of the BaaS model, why did GIC, as a long-term investor, choose to file a lawsuit two years later?

Market analysis suggests there may be multiple factors behind this. Legally, if investors suffer losses due to a stock price decline and believe past disclosures were problematic, they have the right to sue. GIC’s action can be seen as a standard operation to seek legal remedy after investment loss, with Grizzly’s report providing ready-made legal “ammunition.”

Based on currently available information, NIO has substantial grounds and professional institutional support. However, uncertainties from the lawsuit itself and short-term market sentiment disruptions remain challenges the company needs to actively address.

For NIO, the best response is to continue to demonstrate the value of the BaaS model through steady operations, ongoing technology innovation, and open, transparent communication. Only when the BaaS business continues to create tangible value for users and the entire industry chain, ultimately reflected in healthy financial statements, will all suspicions be dispelled.

This new wave triggered by the “old case” may become an essential test for NIO on its path to maturity.

Risk Warning and DisclaimerThe market involves risk, and investment should be cautious. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any views, opinions, or conclusions in this article are suitable for their specific situations. Investments made accordingly are at your own risk. ```