In a proposed class action lawsuit out of New York federal court, a NIO Inc. shareholder alleges the electric car maker and its CEO and CFO deceived investors by misrepresenting the company’s business prospects and financial health.
In a proposed class action lawsuit out of New York federal court, a NIO Inc. shareholder alleges the electric car maker and its CEO and CFO deceived investors by misrepresenting the company’s business prospects and financial health between September 12, 2018, and March 5, 2019. According to the lawsuit, the prices of NIO’s American Depositary Shares (ADSs), i.e. negotiable securities that represent shares in a non-U.S. company that trades in U.S. financial markets, were artificially inflated during this time due to allegedly false statements regarding a new manufacturing facility and a reduction in government subsidies for electric cars.
The case traces the defendants’ alleged misrepresentations to September 11, 2018, when NIO reportedly announced in a registration statement filed with the SEC that the company would be developing its own manufacturing facility in Shanghai by the end of 2020. This was material news to investors, the case says, as NIO currently does not manufacture its own vehicles but instead contracts with JAC Auto, a little-known Chinese automaker, to build its cars.
Importantly, the lawsuit notes that the Chinese government, which since 2010 has issued subsidies to purchasers of electric cars, planned to reduce electric car subsidies beginning in 2019. In November 2018, however, NIO’s CEO allegedly assured investors that the anticipated reductions in subsidies for electric cars “would not have an impact on NIO’s business.”
The lawsuit alleges that these representations made to investors were false and served only to inflate NIO’s stock prices. In fact, in March 2019, the suit says, the company released its earnings report for the fourth quarter of 2018 wherein the defendants reportedly admitted that the plans to build a manufacturing facility in Shanghai had been terminated and that NIO’s deliveries of electric vehicles had been slowing since December 2018 due to “anticipation of subsidy reductions for electric vehicles in China in 2019.” Upon this news, NIO share prices allegedly fell over 30 percent over the next two trading days, injuring stockholders.