Nio (NYSE:NIO) completed an internal review of a critical report by short sellers Grizzly Research and said it could not substantiate the charges. NIO stock was up 1.3% in overnight trading after gaining 6% on Aug. 25. It opened around $20.50 per share, a market cap of about $34 billion.
Nio is a Chinese electric vehicle (EV) maker that competes directly with Tesla (NASDAQ:TSLA) in its home market and, increasingly, in Europe. It delivered 10,052 cars in July.
What’s New With NIO Stock?
Grizzly charged that a company called Wuhan Weineng was inflating Nio results by buying its batteries, then renting them to Nio owners as a service. Subscriptions are sold over seven years, with the batteries swapped as needed. Wuhan Weineng collects the revenue from car owners, but Nio takes the full seven-year value of the subscription immediately, the report charged.
Nio announced its committee in July after shares were pummeled by the report. It did not comment on another charge in the report, that chairman Bin Li is close to people who committed the Luckin Coffee (OTCMKTS:LKNCY) fraud. Luckin was delisted after pulling revenue forward by counting coupons for coffee drinks as sales. It remains in business with more than 6,000 shops in its home market.
There are other clouds on the horizon for Chinese stocks. Five state-owned Chinese companies recently delisted from U.S. exchanges. There were reports August 25 on a deal that could save the listings of others, including Nio.
What Happens Next?
Nio is expected to report billions in revenue this year, but remains unprofitable. The recent fall by the yuan, from 6.72 to the dollar to 6.86, will reduce the value of Nio sales on its next report. The Yuan is also falling against the Norway Krone. Norway is Nio’s main European beachhead. Most the company’s sales are in China, where economic growth is sputtering.
Nio’s battery swaps make it intriguing for consumers, but the company needs to generate a profit to be of greater interest to this investor.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
