Junheng Li: NIO is “an appetizing opportunity to short.”

In a note sent out to her well-heeled clients, noted China analyst Junheng Li slaughters Chinese electric carmaker NIO as a potentially fraudulent stock, saying that NIO’s “recent volatility is likely to be driven by manipulation to elevator the share price so that pre-IPO investors can make profitable exits upon the IPO lock-up expiration on March 12th.” Reading through the note, one gets the impression that NIO could not even deserve its “carmaker” moniker. “Note that NIO does not make anything. It is an internet marketing company,” writes Ms. Li, chief analyst of China-focused JL Warren Capital.

NIO’s cars are made by China’s JAC, characterized by Ms. Li as a “third-tier Chinese SOE truck manufacturer with limited experience in manufacturing passenger vehicles.” She reports that NIO cars induce nausea with the driver because of the strangely delayed response when accelerating and braking.

After NIO’s CEO William Li (no relation) was interviewed on “60 Minutes” on February 24, the stock popped by 30% in the 2 days after the show. It gave up some of its gains after Ms. Li’s note reached its subscribers.

NIO sold 7,980 of its electric cars in the last  quarter of 2018, more than doubling the sales in the preceding quarter. Ms Li says that was due to sales pulled-forward before the expiration of EV subsidies in the Chinese market. The subsidy expiration was later postponed, and it is now expected for April 1.

As for NIO CEO Bin “William” Li, Ms. No-Relation-Li reminds her readers that NIO looks a lot “like Bitauto, which NIO current CEO Li Bin founded in 2000 and listed on NYSE in 2010. In 2014, Li Bin hyped BITA’s grand plan to transition from an online media only to off-line to on-line e-commerce business to global investors, pushing stock from the $30s to $90s. He personally sold all his shares at close to the peak. Today BITA trades at $19 per share. This episode severely undermined management credibility.”

“Comparing to NIO, TSLA stock looks like a grand bargain,” writes Li, and cognoscenti of her usual stance on TSLA will immediately note a masterful damnation with false praise. She has a $3 price target on the  $10 NIO share, resulting in “an appetizing opportunity to short the stock.”

P.S.: Not convinced yet that NIO is a dud?  Alright: Cleantechnica loves the stock.

P.P.S: TSLA fans hoping for a level playing field once Tesla opers up its Shanghai plant should also hope that China gets rid of its EV subsidies. Says Junheng Li: “At the current EV subsidy policy, even if foreign OEMs make cars in China, they still lose ~30% in pricing competitiveness vs. domestic car makers, as their local rivals are purchase tax exempted (9%) and receive 60,000 RMB in cash subsidies.” 

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