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Nio Inc. shares plunged after Singapore’s Government Investment Corporation filed a lawsuit in a U.S. court, alleging the Chinese electric-vehicle maker and its executives inflated revenue through a battery asset company set up with partners including CATL.
The complaint, filed in August in New Jersey federal court, names Nio CEO Li Bin and former CFO Fang Wei, accusing the company of using Wuhan-based Mirattery, a battery-as-a-service (BaaS) venture, to artificially boost revenue and mislead investors. The lawsuit marks the first time a national sovereign wealth fund has sued a U.S.-listed Chinese company, raising questions about cross-border trust and corporate governance.
In Hong Kong trading on Thursday, Nio’s shares dropped as much as 13% intraday before closing down 8.99% at HKD49.28, valuing the company at HKD121.9 billion. Nio’s stock had previously fallen from a 2021 high of US$62 to below US$10 this year, amplifying GIC’s claimed losses.
In response, a representative from the Shanghai-based company said on Friday that the case is unrelated to Nio's recent operations and stems from false claims in a short-selling report published by Grizzly Research in June 2022.
An independent board committee, supported by an international law firm and a forensic accounting firm, investigated the Grizzly report in August 2022 and concluded it lacked factual basis, contained numerous errors, and included unfounded speculation and misleading interpretations, the representative said.
Nio also responded to a U.S. Securities and Exchange Commission inquiry regarding the Grizzly report in September 2022. After the company’s response, the SEC took no further action, the representative added.
GIC acquired roughly 54.4 million American depositary shares of Nio between August 2020 and July 2022. During this period, Nio’s stock saw wild swings, rising above US$19 in August 2020, peaking at US$66.99 in January 2021, and falling below US$20 by July 2022.
On the day the Grizzly Research report was published in June 2022, Nio’s New York shares fell only 2.6%. They began a gradual decline in September 2022 amid weaker-than-expected deliveries and unfavorable macroeconomic conditions, reaching an annual low of US$9.80 on Dec. 28, 2022.
As Nio is listed in New York, Hong Kong, and Singapore, all accounting practices and related content have been reviewed by three different regulators, according to sources familiar with the company.
BaaS Under Scrutiny
The lawsuit centers on Nio’s 2020 BaaS program, which separates battery ownership from vehicles. Under the model, car buyers purchase the vehicle chassis, while the battery is owned by Mirattery and leased to users, generating recurring income for Nio.
GIC alleges Nio recognized the full revenue from battery sales upfront rather than on a subscription basis in line with U.S. accounting standards (ASC 606). For instance, a five-year battery lease should be recognized monthly, but Nio booked the entire amount immediately, creating a short-term spike in revenue.
Nio reported revenue of more than US$900 million in Mirattery’s first quarter of operations, up from under US$410 million in the previous quarter, which GIC claims misrepresents the company’s performance.
Nio counters that control over the battery had been transferred and obligations fulfilled at sale, justifying immediate revenue recognition under ASC 606. The company also notes that PwC, its auditor, raised no objections and that transactions were disclosed as related-party deals.
Alleged Hidden Control
Mirattery’s ownership structure shows Nio holding 19.84%, with CATL, Guotai Junan, and Hubei Science & Technology Investment among other shareholders. GIC contends this “sub-20%” stake was deliberately set to avoid consolidation under accounting rules, while Nio retained effective control through accounts receivable guarantees, lease buybacks, and operational dependencies, granting it roughly 55% economic interest.
GIC argues that Mirattery’s dependence on Nio—ranging from battery procurement and lease terms to maintenance and user operations—means it functions as a variable interest entity. If upheld, Nio would need to consolidate Mirattery’s financials, potentially reversing tens of billions of yuan in previously recognized revenue.
Founded in 1981, GIC manages nearly US$800 billion across global equities, bonds, real estate, private equity, and infrastructure. Traditionally a low-profile long-term investor, the fund has pursued litigation in past cases, including BP’s 2010 Gulf oil spill and Canadian pharmaceutical firms for disclosure failures.
Analysts view the timing of the Nio lawsuit as a strategic move: the Grizzly Research report alleging Mirattery-related accounting irregularities emerged in June 2022, but GIC waited until 2025 to sue, after substantial declines in Nio’s share price crystallized multi-billion-dollar losses. Reports estimate GIC bought roughly 54.4 million Nio ADS between August 2020 and July 2022, incurring paper losses of US$500 million to US$2 billion.
Since its 2018 U.S. IPO, Nio has posted cumulative net losses exceeding US$16.6 billion, making it the only major Chinese EV startup yet to achieve sustained profitability. The company has repeatedly tapped capital infusions—from Hefei municipal rescue funding to Abu Dhabi sovereign investment and a US$1 billion equity raise in 2025—to maintain operations, leaving analysts questioning the sustainability of its business model.
Nio has restructured internal cost centers and targeted a fourth-quarter vehicle gross margin of 17%, but the GIC litigation introduces new uncertainty that could affect future financing and market confidence in Hong Kong, New York, and Abu Dhabi.
Broader Implications
The lawsuit highlights three key trends: first, a clash between business model innovation and accounting standards, signaling limited tolerance from global investors for aggressive revenue recognition. Second, a shift in sovereign wealth fund behavior from passive, long-term investor to active governance participant. Third, potential erosion of trust in U.S.-listed Chinese companies amid tightening cross-border oversight.
As international regulators increasingly scrutinize financial disclosures, Nio’s case may set a precedent for how institutional investors hold Chinese ADRs accountable, underscoring the stakes for companies navigating both rapid innovation and global capital markets.
