Nio shares rebound 7% from initial plunge after GIC lawsuit alleges inflated revenue

[SINGAPORE] Shares of Nio recovered on Friday (Oct 17) after diving to a one-month low a day earlier, when a lawsuit filed by GIC against the China electric vehicle (EV) maker wiped billions off the group’s market value.

The counter pared down its losses on Friday morning, after closing Thursday 9.5 per cent or US$0.66 lower at US$6.30 on the Singapore Exchange – its secondary listing. Its primary listing is on the New York Stock Exchange.

Shortly after the market opened on Friday, it rose as much as US$0.45 or 7.1 per cent above Thursday’s closing price to US$6.75 as at 9.10 am. By 11.52 am, it was trading 3.3 per cent or S$0.21 higher at S$6.51, with some 285,920 shares transacted.

Nio’s shares fell as much as 13.8 per cent or US$0.96 to a one-month low of US$6 on Thursday after news broke that Singapore’s sovereign wealth fund GIC lodged a lawsuit against it.

GIC is suing top executives of Nio – including its current chairman and CEO Li Bin (also known as William Li) and its former chief financial officer Feng Wei – for allegedly inflating revenues of at least US$600 million.

The sovereign fund is seeking damages incurred from its purchase of some 54.5 million Nio American depository shares (ADS) between August 2020 to July 2022 at prices that it alleges to be “inflated artificially”.

Nio is accused of having pulled forward over US$600 million in revenue from a battery asset and leasing joint venture – Weineng Battery Asset (Weineng) – and of unlawfully recognising it as immediate revenue. The lawsuit also alleges that Nio did not disclose that it controlled Weineng.

According to the lawsuit, Weineng was owned by Nio and “several of its cronies” and designed to advance the company’s interests by taking over Nio’s battery subscription business to “allow Nio to unlawfully pull forward the revenue from the leased batteries immediately”.

On the Hong Kong Stock Exchange, Nio’s other secondary listing venue, the counter similarly closed Thursday lower by 9 per cent or HK$4.87, at HK$49.28, but had rebounded on Friday. It traded as high as HK$52.30 on Friday morning, up 6.1 per cent or HK$3.02.

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Notwithstanding Nio’s share price retreat in Hong Kong on Thursday, Morningstar senior equity analyst Vincent Sun said that the group’s vehicle sales and an improvement in profitability “would likely support near-term share prices”.

Sun said that the group could suffer reputational damage from the lawsuit, but maintained his fair value estimate for the company at US$5.30 per ADS or HK$41.60 per share.

Pointing to the ADS price having climbed up more than 50 per cent year to date, Sun noted that Nio shares are “fairly valued in the three-star territory”.

“While the allegation makes a dent in Nio’s corporate governance, we do not expect it to have a material impact on its (operations) with the ramp-up of new ES8 and Onvo L90 car production,” Sun said.

He remains “conservative” on Nio for now, citing uncertainty about the group’s ability to grow its sales and narrow losses.

Morningstar’s base case scenario forecasts Nio posting a loss of 7.7 billion yuan (S$1.4 billion) in 2026 and turning profitable in 2027, which is later than management’s guidance, Sun said.