Core Viewpoint - The report by Grizzly Research accuses NIO of financial fraud, claiming that the company inflated its revenue and profitability through accounting manipulations, particularly involving its battery-as-a-service (BaaS) model [1][2]. Financial Manipulation Allegations - Grizzly Research claims that from January to September 2021, NIO inflated its revenue and profits by 10% and 95%, respectively, by over-supplying batteries to its affiliate, Wuhan Weining Battery Asset Co., Ltd. (Weining) [1][2]. - The report suggests that without Weining, NIO would only have received approximately 19.84 million yuan in monthly battery rental income, while it reported 2.796 billion yuan in battery sales revenue during the same period [2]. BaaS Model and Revenue Recognition - NIO's BaaS model allows customers to purchase vehicles without batteries, which are rented from Weining, enabling immediate revenue recognition for NIO [1][2][5]. - Under ASC 606, revenue recognition is based on the transfer of control of goods or services to customers, which NIO argues it complies with by recognizing revenue when the battery control is transferred to Weining [5][6]. Discrepancies in Revenue Calculations - Grizzly's calculations regarding NIO's revenue and profit inflation are deemed flawed, as they assume that battery sales revenue should impact profits fully, disregarding the necessary revenue recognition principles [7][10]. - The report's assumption that NIO's battery sales should have been recognized as monthly income rather than at the point of sale is contested by NIO's accounting practices [7][10]. Control Over Weining - Grizzly questions whether NIO has significant control over Weining, citing that key management personnel are shared between the two companies [11][12]. - However, NIO's ownership of only 19.8% of Weining does not provide sufficient evidence of control under U.S. accounting standards [12]. Implications of the Short Selling Report - The report highlights the need for companies to maintain transparency in financial reporting, especially when innovative business models are involved [13]. - It raises concerns about the timing of the report's release, coinciding with a decline in NIO's sales and market reputation, suggesting potential motives behind the short selling [13][14]. Recommendations for Companies Facing Short Selling - Companies should proactively clarify their financial positions and enhance transparency to counteract misleading claims from short sellers [15][16]. - Engaging in share buybacks or securing positive endorsements from reputable financial institutions can help restore investor confidence [15][16].