Tesla Inc TSLA, rival Chinese EV maker Nio Inc NIO, refuted short-seller bearish claims on its stock that alleged the company of inflating its revenue and profitability.
What Happened: On Tuesday, Grizzly Research published a report that claimed Nio is likely using an unconsolidated related party, Wuhan Weineng, to exaggerate its revenue and profitability.
Grizzly Research titled the report: "We Believe NIO Plays Valeant-esque Accounting Games to Inflate Revenue and Boost Net Income Margins to Meet Targets."
Nio's Response: Denying Grizzly's claims, Nio said that it "is without merit and contains numerous errors, unsupported speculations and misleading conclusions and interpretations."
Nio said it will make additional disclosures required by the stock exchanges in the U.S. and Hong Kong, adding that "the Company's board of directors, including the audit committee, is reviewing the allegations and considering the appropriate course of action to protect the interests of all shareholders."
Why It Matters: The Grizzly research report pointed out that "NIO has curiously exceeded estimates since establishing Weineng." It added that Weineng is believed to have inflated Nio's revenue by about 10% and net income by 95%. At least 60% of the company's 2021 earnings seem attributable to this related party, according to the report.
Price Action: The Hong Kong-listed stock of Nio crashed nearly 10% during the trading session on Wednesday, while its peers Xpeng Inc XPEV and Li Auto Inc LI cracked about 8% each. According to data from Benzinga Pro, Nio shares closed 2.66% lower, paring early gains in the U.S. on Tuesday.
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