Shares of Nio (NIO 4.16%) are tanking Monday morning. There are two things contributing to the move, its seems. Nio American depositary shares were down nearly 9%, and remained 7% below Friday's closing price as of 10:28 a.m. ET today.
The first news that has investors spooked might actually end up being good news for Nio. But the report that the company is forming an independent committee to investigate prior allegations made by a short-seller invoked a negative reaction today.
There is also pressure on Nio shares today from another COVID-19 increase in China. Hong Kong's Hang Seng index lost 2.8% Monday after it was announced that Macao would be closing all its casinos for one week to try to stop further spread. That is hitting Chinese automaker stocks as they have only recently ramped production back up from previous lockdowns that hurt both production and sales.
In late June, short-seller Grizzly Research claimed Nio has been inflating reported revenue by booking battery sales improperly for its battery-as-a-service (BaaS) offering. That option allows customers to pay a monthly subscription fee for battery exchanges. This effectively deducts the battery from the vehicle price, keeping the up-front cost of the EVs lower.
Today, Nio's board of directors said that at the request of management, it has formed an independent committee that "has retained independent professional advisors to assist with the Independent Investigation, including an international law firm and a well-regarded forensic accounting firm."
After the allegations were published, management said the claims were without merit and contained numerous errors. The report essentially said Nio books all sales of batteries in its BaaS service, while a third-party company that is owned by Nio, large EV battery maker Contemporary Amperex Technology, and others are tasked with collecting the monthly subscription revenue.
Investors are selling in something of a panic this morning as any allegations of impropriety raise a cautionary flag. But if management's support is an indication that the new committee will clear the company of any wrongdoing, today's stock drop will likely be reversed. For now, investors holding shares will have to wait for those results.