Nio falls after short seller says the Chinese EV maker plays 'accounting games' to boost financial figures

• Nio shares fell as much as 5% Wednesday after a short seller said the EV firm was playing "accounting games".
• A report by Grizzly Research claims that Nio had a fraudulent relationship with its partner Weineng, accounting for 60% of 2021 revenue.

Nio shares slid Wednesday after a short seller accused the Chinese electric vehicle maker of artificially inflating its financial figures.

Shares were down as much as 5% before paring losses. The stock was trading at $22.00 as of 10:20 a.m. ET.

In a report, Grizzly Research said it believed Nio was running "an audacious scheme" and playing a "Valeant-esque accounting game" to inflate company financials, referring to the pharmaceutical company Valeant, which paid $45 million to the SEC after using a subsidiary company to commit financial fraud, the Wall Street Journal reported.

Grizzly accused Nio of a similar relationship to Wuhan Weineng, a firm established in 2020 between Nio and other investors, according to Yahoo Finance. Customers can purchase an electric vehicle from Nio and lease the battery, the priciest part of the vehicle, from Weineng, whom Nio supplies batteries to.

By offering seven-year battery subscriptions through Weineng, the report accuses Nio of falsely accounting for seven years' worth of future revenue. It also alleges that Nio has oversupplied batteries to Weineng to further pump its revenue figures, as the company sold over 35,000 batteries in the last two quarters of 2021 that remained in Weineng's inventory.

Grizzly's report claims that Nio's fraudulent relationship with Weineng has artificially boosted the company's revenue by around 10% and the company's net income by 95%. It also claims that the company's fraudulent relationship with Weineng accounts for 60% of Nio's revenue in 2021, a value of over $21.7 billion.

Nio denied the claims in a press release issued Wednesday morning.

"The report is without merit and contains numerous errors," the company stated, claiming the report was filled with "unsupported speculations" and "misleading conclusions" regarding company operations. The allegations are currently being reviewed by the Nio's board and audit committee.

The EV maker was has been seen as a rival to Tesla, gathering significant attention from investors in the past few years. Nio went public in 2018, pricing its initial public offering at $6.26 per share. The stock hit a high of around $61 in January 2021.