China’s Major Electric Car Maker NIO Faces PR and Legal Trouble

China’s Major Electric Car Maker NIO Faces PR and Legal Trouble
Visitors look at a Nio ET Preview car on the opening day of the Shanghai Auto Show in Shanghai on April 16, 2019. (GREG BAKER/AFP/Getty Images)
By Nicole Hao

An SUV (sports utility vehicle) manufactured by Chinese electric car maker NIO spontaneously burst into flames on April 22, shocking Chinese netizens.

NIO is one of China’s largest electric car manufacturers and a main competitor of the U.S.-based Tesla.

While it faces scrutiny within China, the company is also in legal trouble stateside. It currently faces several lawsuits filed by its U.S. shareholders.

According to the lawsuit documents filed in March, NIO and its management team allegedly made false and misleading statements regarding its sales forecast and production plans, which caused the shareholders to mis-estimate NIO’s performance and lose out on their investments.

A Fire

NIO’s official account on Weibo, a Twitter-like social media platform, posted a message on April 22: “On the afternoon of April 22, an ES8 under repair caught fire at a NIO service [maintenance] site in Xi’an [of Shaanxi Province]…Nobody was hurt.”

The ES8 is a seven-seat SUV, that was available to consumers in June 2018. This is the first time an NIO car caught on fire.

From an onsite photo that began circulating online, one can see the car incinerated, with just its frame remaining.

Xi’an local newspaper Huashang reported on April 23 that the ES8 was parked in open air, beside a charging pole. When it combusted, workers at the maintenance site tried to extinguish the fire.

After local firemen and fire trucks arrived, the fire re-ignited several times due to the car battery short circuiting, according to the firemen. NIO said it is still investigating what caused the car to combust in the first place.

Hundreds of Chinese netizens commented negatively on electric cars after the NIO incident. Chinese media even used headlines such as, “your electric car is killing you,” “are you brave enough to own an electric car,” and “is there a future for electric cars” in their reports about the NIO vehicle fire.

Soon after, the state-run Beijing Daily reported on April 23 that 59 electric vehicles have spontaneously combusted in China between Jan. 2016 to Dec. 2018. Half of the accidents happened while the vehicles were charging.

The Chinese regime has highlighted developing its electric car industry as a national priority, offering government subsidies and state financing to Chinese automakers. But recently, there were signs that Beijing had pivoted to developing hydrogen fuel-powered vehicles instead. In late March, Beijing announced that it would reduce current electric car subsidies and eventually phase them out completely by 2020.

Lawsuit in US

NIO was founded in 2014. It manufactures two types of SUVs, the ES6 and ES8; one sports car EP9; and a soon-to-launch sedan ET7.

NIO became listed on the New York Stock Exchange (NYSE) on Sept. 12, 2018. The initial public offering (IPO) was 160 million American depositary shares (ADS) at a unit price of $6.26. At the time of writing, the price is $4.92.

Since late March, three separate class-action lawsuits against NIO alleging that the company made misleading or false statements to investors have been filed at the New York State Kings County Supreme Court; U.S. federal court in northern California; and U.S. federal court in Brooklyn, New York City. The plaintiffs are seeking financial compensation for NIO’s alleged violations of securities regulations.

The contents of the lawsuits are similar. In the New York State case, filed on March 14 by the Rosen Law Firm, defendants include 12 former and current NIO senior executives, and nine firms that provided financial services to NIO, including Morgan Stanley and Goldman Sachs.

“Defendants’ statements about NIO’s business, operations, and prospects were materially false and misleading at all relevant times,” the lawsuit read.

For example, the plaintiffs alleged, NIO stated in its registration statement for its U.S. IPO that the company was developing a manufacturing facility in Shanghai, to be ready by the end of 2020.

But on March 5, NIO announced via a press release that it terminated its agreement with the Shanghai government to build the facility. The company said that it will instead continue using its contract manufacturer, the state-owned JAC Auto.

The lawsuit also claims that NIO executives made false promises that “any change in Chinese government subsidies would have not have a significant impact on NIO because premium car buyers are less price sensitive,” during a conference call with U.S. shareholders on Jan. 30.

On March 5, NIO released its 2018 financial report, showing that it only sold 1,805 vehicles in January 2019, over 45 percent less than the 3,318 vehicles in December 2018. In February, sales dropped to 811 vehicles.

“On this news, shares of NIO fell $3.77 per ADS or over 37 percent from March 5, 2019 to close at $6.39 per ADS on March 12, 2019. NIO’s share price has fallen over 3.67 percent from its $6.26 IPO price, damaging investors,” the complaint read.

The other two class action lawsuits—filed at the New York federal court on March 12 and the California federal court on March 29—also charge NIO and two of the same senior executives, Li Bin, the company’s CEO, and Louis Hsieh, the company’s CFO.

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