Nio Inc. Faces Lawsuit Over Alleged Factory Claims Misinformation

Chinese electric vehicle producer, Nio Inc., is under scrutiny. A U.S. judge has given the green light for Nio investors to pursue a class action lawsuit. They claim that Nio misled them about constructing its own factory in Shanghai during the company’s 2018 initial public offering (IPO), Reuters reports.

Behind the Accusations

The heart of the issue is the change in Nio’s plans. In March 2019, the carmaker admitted abandoning their previously announced factory plans. The twist? This factory was said to be “under construction” during the IPO. U.S. District Judge Nicholas Garaufis, issuing a statement late Tuesday, certified a group of investors who acquired Nio’s American Depositary Shares (ADS) during the IPO in September 2018. Another set of investors who made purchases between October 8, 2018, and March 5, 2019, were also recognized.

For the investors, the factory was seen as Nio’s ticket to self-sufficiency, moving away from dependence on a Chinese state-owned manufacturer, considered by some as “third tier.” Yet, as the lawsuit points out, the factory’s construction had “never started”, highlighting a lack of construction permits and statements from former employees.

Moreover, investors allege negligence from notable underwriters like Morgan Stanley and Goldman Sachs. They believe these institutions failed to rigorously check the veracity of Nio’s declarations.

The Impact on Share Prices

The aftermath? When Nio revealed the factory’s cancellation in March 2019, their ADS value plummeted 30%, sinking from roughly $10 to $7 a share. As of Wednesday, Nio ADS traded at approximately $13.50 per share, showing a slight decrease of 3.9% from Tuesday’s close.

While Nio’s representatives and the underwriters deny the claims, the upcoming trial will reveal more. Typically, cases like this settle before reaching trial, but the outcome remains to be seen. For now, the legal battle intensifies for Nio Inc.