On the evening of June 29, a shorting report from the overseas agency Grizzly Research (Grizzly Research) came out, pouring cold water on the rising secondary market.

The target of the agency sniper this time is NIO, which is facing negative public opinion ($NIOLAI-SW (09866.HK) $/$NIO (NIO.US) $). In fact, the core allegation of this 56-page report is that revenue is inflated and profitability is exaggerated; the focus of Firepower is targeting the power exchange service system that NIO is proud of.

The short selling report is full of flaws and has been “educated” by many major international banks

Although this has caused quite a stir in market sentiment, this seemingly fierce report is actually full of flaws, so it didn't take long for a clear reversal story to be staged. Many major international banks collectively criticized it, and reiterated their optimism for NIO.

In fact, let's not talk about irrelevant accusations such as NIO's weak sales volume, fast vehicle delivery cycle, Baidu index showing that NIO is not popular, etc. Core questions such as the transfer of capital investment for charging network construction, overselling battery packs to related parties, and confirming revenue in advance actually cannot stand up to scrutiny on the logic and evidence chain, and there is no value or need for too much discussion.

Here, I will just list a few points. The market is paying more attention to and discussing more accusations and responses to experience the confrontation between the two sides:

1) Capital investment for charging network construction was transferred off the table, and the depreciation period for charging and switching infrastructure and equipment (including batteries) was extended (from the previous 5 years to the latest 5-8 years), thereby further reducing annual depreciation costs;

On the one hand, the deployment of a charging network involves administrative approval for land use in many places, power grid access, etc. It is basically unrealistic for NIO to build all its own. It is a very reasonable practice to do it through leasing or introducing partners. Of course, it is not surprising that capital investment is not included in the list. It is also normal for related depreciation not to be included in the table. Simply put, even if depreciation expenses are not included in the table, they will probably be reflected in other forms of expenses.

In fact, many companies involved in asset-heavy businesses have similar practices. For NIO, this not only reduces pressure on cash flow and reduces operating risks, but also allows them to focus more on operating asset-light businesses with power exchange services.

Regarding the issue of reduced depreciation and depreciation costs due to longer service life, anyone with a bit of common sense knows that whether from technological development or market demand, extending battery life is a key breakthrough direction, and with the passage of time, batteries and related management systems have gradually improved, and the service life of batteries has indeed been extended.

2) Overselling battery packs, thereby exaggerating revenue or profitability. According to the report, as of the end of September 2021, NIO held more than 40,000 batteries, but only 19,000 BaaS orders were placed during the fund-raising period of the recently issued Green Battery Asset Backed Notes (ABN).

In response, many major banks, such as Komo, Daiwa Capital, and Citi, agreed that Ni Neng's basic assets (19,000) when ABN was issued were only part of the total underlying assets (over 40,000), and that every battery owned by Nio had a corresponding basic user.

This is actually a typical act of confusing concepts. That is, Grizzly misunderstood ABN's underlying assets as equal to the total number of users, confused the ratio between battery inventory and users, thus drawing misleading conclusions about oversales and inflated revenue.

At the same time, Citi further pointed out that as of September 2021, NIO had 40,000 BaaS users. Given the 84,000 sales volume from Q4 2020 to Q3 2021 and the high BaaS subscription rate (currently close to 50%), this figure seems achievable, but the report did not accurately reflect these details.

3) Confirm revenue in advance: NIO shifts the burden of charging monthly subscription fees to NIO to accelerate revenue growth; NIO allows NIO to immediately confirm revenue from the batteries they sell instead of confirming revenue during the subscription period (about 7 years). Revenue, which was supposed to be confirmed gradually during the subscription period (within about 7 years), was confirmed immediately after NIO completed the sale of batteries to NIO. Through this arrangement, we believe that NIO inflated its revenue 7 years ahead of schedule.

Xiaomo believes that there are indeed similarities between OEM and auto finance. OEMs record all revenue when they sell cars to customers, and AFC (Car-based Asset/Collateral) confirms the mortgage fees that customers pay each month.

Fundamentally speaking, Grizzly's accusation was based on a misinterpretation of NIO's business model and power exchange model, and was even called “brainless” by analysts based on linear thinking.

The “return” of delivery volume in June has been favored by many major banks for a long time

The Grizzlies probably didn't expect this trip to be so unhappy. Apart from being collectively educated by international investment banks, they were immediately punched in the face by NIO for their strength.

Also yesterday, a number of NEV companies' June delivery reports were released. Among them, NIO announced a strong comeback with deliveries of around 13,000 units, a monthly high since this year. Among them, the number of ET7 vehicles delivered reached 4,349.

The answer given by NIO is that at present, the supply chain and vehicle production have been fully restored, and delivery work in Shanghai and other places is on the right track. Next, NIO's second production base located in the Shinbashi Smart Electric Vehicle Industrial Park will also be officially put into operation in Q3.

It seems that this “return to delivery” shows that supply chain concerns are being resolved. Among them, ET7 delivery is quite strong. Among NIO's current four delivery models, it already accounts for more than one-third of the monthly delivery volume.

Meanwhile, delivery of the ES7 smart electric medium and large SUVs and the ES8, ES6, and EC6 equipped with the Alder Chiyang intelligent system is expected to begin delivery in August.

This also means that the restoration of the supply chain and the intensive delivery of various new models in the second half of the year, helped by automobile consumption stimulation in many places, combined with a concentrated decline in the prices of tourist commodities, are expected to usher in a sharp rise in “quantitative profit.”

Meanwhile, in the second half of new energy vehicles dominated by intelligence, the driving experience driven by high-end intelligent software and hardware configurations became one of the core selling points. Whether it's the iteration of technology or the rapid launch of a new model equipped with advanced technology, it all depends on the underlying technological capabilities and the support of the R&D innovation platform. However, after years of accumulation, NIO has built a relatively comprehensive technical landscape, building a relatively complete independent R&D system for core components such as motors, electronic controls, battery packs, and intelligent systems.

As NIO's latest generation technology platform, NT2.0 is equipped with more advanced technology and can achieve more than 200 new functions, etc. Currently, three models have been launched based on this platform, including the ES7, ET5, and ET7, which have all entered an intensive launch period one after another. With technology upgrades and intensive delivery of new models, the competitiveness of NIO products will be further enhanced, thereby ensuring certainty and sustainability of future growth.

Based on core technological innovation and continuous improvement of infrastructure, NIO's previous investment and layout has now shown results and is a prerequisite for accelerated development. Major investment banks are also optimistic about NIO's “future”. They expect rapid growth in sales in the medium to long term, and believe that its fundamentals will continue to improve. Among them, CICC believes that as a leader in high-end intelligent electricity, NIO has reshaped the business model with excellent service, and that this model has scarce value. High quality services and smart electric vehicle technology based on independent research will strengthen NIO's competitive advantage.

Currently, new energy is still booming, and as long as there is sufficient performance support or signs of improvement, it is more likely that it will regain the favor of capital. NIO, which continues to improve, made the Grizzlies a bit “disgraced”, but the “pit” they were frightened out of has instead created a favorable opportunity for investors to step in.