Short seller report calls NIO, what’s next?

Andy Feng/iStock Editorial via Getty Images

By Pete Johnson

Leading electric vehicle company NIO (NYSE: NIO) is under pressure following the Grizzly Research report. The research firm says NIO is adjusting its financial results. With that in mind, is it time to sell, given the latest NIO stock news?

NIO’s Chinese name, Weilai, means “blue sky ahead”. The name describes NIO’s focus on building a clean and sustainable future. But is the company misleading investors?

If the report is true, we could see further fallout from the NIO stock. Again, NIO denies the report, calling it misleading.

How will this affect NIO’s stock price as we move forward?

Short seller report calls NIO

Grizzly Research released a report yesterday claiming that NIO is playing “accounting games” to improve top and bottom bottom lines. That said, the firm has been teasing the news since last week.

The company tweeted about Grizzly’s Twitter, “next week, we’ll bring you our biggest report yet.” They also added that the company is a “darling of Wallstreet” and a retail favorite. Then, two days ago, the company shared, “We believe the company benefits retail investors.”

Nonetheless, the report highlights a few key pieces of information to back up its claims.

  • NIO may use a third party to inflate sales and revenue results.
  • The third, Wuhan Weineng, is a battery exchange service.
  • By shifting the cost of collecting subscriptions to batteries, NIO immediately recognizes revenue.
  • Grizzly claims NIO is using Weineng to boost finances.

In particular, Grizzly highlights NIO’s 2021 earnings. The research firm claims that at least 60% of 2021 revenue is due to Weineng.

To clarify, NIO runs a drum program as a service. Consumers can choose to pay a monthly subscription for their EV battery, reducing the upfront cost. But Grizzly’s research team says NIO is increasing its seven-year revenue by doing so. With this in mind, NIO can sell batteries to Weineng when needed.

Not only that, but the research company also claims that NIO’s unique battery services are misreported. For example, Grizzly points to NIO’s supposed growth in battery charging and swapping stations. However, NIO’s CAPEX does not represent it in its balance sheet.

NIO’s response

NIO today responds to the report, calling it “baseless”, saying it contains numerous errors. The answer is short and precise.

The company says Grizzly is speculating with misleading conclusions. Additionally, NIO says it is investigating the allegations while taking steps to protect investors.

Meanwhile, NIO says it will make additional disclosures to comply with exchange rules. The EV Company maintains its commitment to high standards and business clarity.

So, who is right ? For one, in NIO’s annual report, the company names Weineng as its battery asset company. On top of that, the EV maker says it has a stake of around 19.8%. As a result, according to NIO, it has only limited control over the battery company.

Since the company is not public, there is a lack of regularity in its financial reporting. However, Grizzly notes that NIO claims to own and operate the Battery Network. Because of this, Grizzly believes NIO is using the battery company to exceed Wall St.

How it affects NIO stock price

So far, the report has not drastically affected NIO’s share price. After hitting a 52-week low of more than $11 per share, NIO shares rallied beginning around mid-May.

Prior to the release of the report, NIO stock was up more than 100% from its low around $24. Since then, the share price has fallen about 9%.

At the same time, many electric vehicle stocks are down this week. You’re here (TSLA) is down 8%, Rivian (RIVN) is down 12%, and Lucid (LCID) is also down 9%. With that in mind, NIO investors apparently aren’t bothered by the news.

Additionally, there are no volume spikes indicating selling pressure. For example, the average volume of NIO is around 70K. Yesterday the volume hit 76K, and today we’re at 70K.

NIO’s share price is already down more than 67% from its all-time highs in early 2021. That said, NIO peaked much earlier than most other EV stocks. The KraneShares EV & Future Mobility ETFs (KARS) peaked last fall, as did Tesla.

At present, NIO stock is trading below the 200D SMA. But the momentum that NIO created last month broke through the 20D SMA from the 50D SMA, which may signal near-term strength. But it may struggle to cross the 200D around $27, where it has been rejected several times this year.

Other Important NIO Stock News You Should Know

While the short sellers report is getting all the attention, other NIO stock news is more positive.

  1. May Delivery Update – NIO delivered over 7,000 electric vehicles in May, bringing the total to 37,866 since the start of the year.
  2. Product launch event – The company launched the highly anticipated ES7, its fastest SUV yet.
  3. First Quarter Results – Vehicle sales hit a record 25,768 in the first quarter, up 37% year-on-year.
  4. NIO Listed on the Singapore Stock Exchange – NIO expands its global footprint by listing on SGX-ST.

Overall, it was a productive quarter for the leading electric vehicle company. Despite China’s Covid lockdown, NIO has seen demand remain relatively high.

Although the company notes that battery costs are rising, it expects to squeeze margins in the next quarter. Will NIO continue its momentum? Or does the short seller report contain some truth?

Does the latest NIO stock news make it a buy or a sell?

NIO holds a strong position in the world’s largest market for electric vehicles. Electric vehicle production nearly doubled in China last year, while revenues hit a record $102 billion in the region.

Meanwhile, NIO is taking the lead with market leader Tesla. The company’s new ES7 will likely rival Tesla’s Model Y. Both models have a range of over 300 miles and cost around $65-70,000.

In addition, NIO is expanding overseas with launches in Norway and later in Europe. Although car sales are expected to remain stable, the company is spending heavily on R&D.

Not to mention that NIO is talking about building a mainstream EV in the years to come…

Between the growth of its battery business and its self-driving features, investments are expected to continue to turn negative this year. That said, investors should prepare for a year of ups and downs.

Raw material costs make batteries more expensive. As a result, NIO earns less per car. The trend is expected to continue, with commodity prices expected to remain high this year.

If the latest news on NIO shares from short-selling firm Grizzly Research is true, we could see some fallout later this year. For long-term investors, NIO still has a solid lead in one of the largest electric vehicle markets in the world. A growing market, government support and the NIO brand will help the company continue to expand into the electric vehicle market.

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.

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