The question mark of $600 million: Why does GIC bring up the old accounts of NIO again?

NIO (NIO.US, 9866.HK), which is striving to achieve the previously set goal of breaking even, has recently encountered new complications.

In August 2025, Singapore's sovereign wealth fund GIC filed a lawsuit in the U.S. District Court for the Southern District of New York, accusing NIO of inflating revenues and profits by approximately $600 million through Wuhan Weina Battery Asset Co., Ltd. between 2020 and 2022, which constitutes securities fraud.

The core dispute of this lawsuit lies in whether NIO, under its innovative BaaS (Battery as a Service) model, recognized revenues in advance through a seemingly independent related - party. As of mid - October 2025, the lawsuit has entered a "stay of proceedings" status, pending the outcome of another class - action lawsuit (Saye v. NIO). In response to market discussions, NIO stated that the relevant accusations are not new events, and the company has already responded and clarified them.

Beyond the disputes, NIO has long shifted its development focus to achieving break - even. Its founder, Li Bin, has set the goal of achieving a single - quarter Non - GAAP break - even in the fourth quarter of 2025 as a "must - achieve" target. However, facing a cumulative sales volume of only about 201,200 vehicles in the first three quarters and a comprehensive gross profit margin of 10%, NIO has a long and thorny road ahead to reach the monthly average sales volume of 50,000 vehicles and a comprehensive gross profit margin of 16 - 17%, which are the profit thresholds.

The Legal Storm Triggered by the BaaS Model: From Grizzly's Short - Selling to GIC's Lawsuit

The relationship between NIO and Wuhan Weina Battery Asset Co., Ltd. (hereinafter referred to as "Wuhan Weina") has been the focus of the capital market since June 2022. At that time, a report released by short - selling institution Grizzly Research accused NIO of recognizing future battery subscription fees as current revenues in advance through this unconsolidated related - party, thereby inflating the company's current revenues and profits.

According to official disclosures, Wuhan Weina was established in August 2020, jointly founded by NIO and industrial investors such as CATL. The company mainly operates the BaaS business. Under this model, NIO sells battery packs to Wuhan Weina, and users pay battery rental fees to Wuhan Weina. The Grizzly report argues that NIO recognized revenues at the moment of selling batteries to Wuhan Weina, while in fact, this revenue should be recognized in installments over the next approximately 7 - year usage period through the BaaS service fees paid by users.

In response to the short - selling accusations, NIO established an independent committee for an internal investigation. The investigation report stated that "no substantial facts supporting the accusations in the short - selling report were found." The company insists that it and Wuhan Weina are two independently operated entities, and the battery sales transactions are real and fair, complying with accounting standards.

In August 2025, Singapore's sovereign wealth fund GIC officially filed a lawsuit in a U.S. court, bringing up the matter again and accusing NIO of securities fraud between 2020 and 2022, which caused significant losses to its investment. GIC's lawsuit directly quotes and relies on the arguments in the early Grizzly short - selling report and demands compensation from NIO for the losses.

Currently, the GIC v. NIO case is in a "stay of proceedings" status. The court ordered a suspension of the case, mainly to wait for the outcome of another class - action lawsuit (Saye v. NIO) filed by U.S. investors. The court believes that certain procedural or substantive issues in the previous class - action lawsuit may affect this case.

The core dispute of this lawsuit lies in the application of the principle of "substance over form." If NIO can actually control the operations and financial decisions of Wuhan Weina, it should consolidate it. Those who support NIO believe that as an innovative business model, the accounting treatment of BaaS may have ambiguous areas under existing standards; while those who support GIC emphasize that if the accounting treatment results in a substantial misrepresentation to investors, it may still be regarded as securities fraud.

In response to the discussions, NIO still refers to the previous independent investigation results and believes that GIC's accusations are unfounded. The market generally believes that as Singapore's sovereign wealth fund, facing the losses of its investment, GIC may have filed the lawsuit against NIO to save "face" and relieve its managers of responsibilities.

Accounting Disputes in the Global Capital Market: The Battle over the Boundaries of Ambiguous Areas

Actually, the dispute over NIO's BaaS revenue recognition is not an isolated case. In the global capital market, similar disputes regarding the applicability of new business models and accounting standards are not uncommon.

For example, there was a long - term service agreement (LTSA) dispute at General Electric in the United States. The power and aviation service departments of General Electric used to adopt the "front - end recognition" accounting method for a long time, that is, the company recognized part of the expected profits of long - term service contracts in advance when delivering equipment. Under the pressure of ASC 606 standards and regulations, General Electric finally revised its revenue recognition method, resulting in retroactive adjustments of billions of dollars, and the company also admitted that it needed to recognize long - term service revenues more conservatively.

Although General Electric was not ultimately determined to have committed financial "fraud," this accounting policy adjustment directly led to a sharp decline in the company's stock price and a change in management. This case shows that even if the transactions are real, disputes over accounting treatment methods can have a significant impact on a company's value.

There was also a dispute over VMware's software revenue recognition. VMware had a disagreement with the SEC regarding the recognition and allocation of revenues from perpetual - license software and subsequent software - and - support (SnS) services. The focus of the dispute was whether the company advanced revenues from future periods to the reporting period by adjusting the allocation of transaction prices to meet performance expectations.

In 2022, VMware reached a settlement with the SEC. The company paid a civil fine of $8 million to resolve the accusations of "misleading investors." It is worth noting that the SEC's accusations were not about "fraud" but about "insufficient disclosure" and "misleading," which belong to disputes over accounting judgment and disclosure.

There was a similar dispute over Tesla's accounting treatment of FSD prepayments. Tesla adopted a relatively conservative strategy in accounting for prepayments for its Full Self - Driving (FSD) feature. Although some analysts believe that part of the revenue can be recognized with each OTA upgrade, Tesla chooses to record FSD prepayments as deferred revenues and only gradually converts them into revenues when the feature is delivered and the service commitments are basically fulfilled. This treatment puts pressure on Tesla's short - term revenues and profits but complies with regulatory requirements for conservative treatment of undelivered features, avoiding regulatory risks caused by aggressive revenue recognition.

The common point of these cases is that disputes often occur in complex contract arrangements, transactions between related parties or seemingly independent entities, and accounting policy transitions. These situations leave a lot of room for accounting judgment and are prone to "aggressive accounting treatment within the legal boundaries," which may be suspected by the outside world as "circumventing disclosure" or "recognizing revenues in advance."

In the A - share market, the China Securities Regulatory Commission tends to clarify rules by issuing guidelines and punish acts that cross the line. For example, Feile Audio (600651.SH) was punished by the CSRC for revenue recognition issues in its smart - city projects. The company was found to have recognized revenues and profits in advance before the projects were fully delivered and without sufficient evidence.

The Hong Kong stock market deals with such disputes more through a principle - based regulatory approach. The focus of the work of the Hong Kong Financial Reporting Council is to supervise the auditors of listed companies. Its handling logic reflects "procedural justice," that is, it does not directly judge whether the accounting treatment is "correct" but examines whether the "procedure" for making the accounting judgment is reasonable.

The Profit Threshold: Double Challenges of Sales Volume and Gross Profit Margin

Beyond the legal risks, the market may be more concerned about the financial challenges NIO is facing. The company has set the goal of achieving a single - quarter Non - GAAP break - even in the fourth quarter of 2025 as a "must - achieve" target. Founder Li Bin even called it a "life - and - death commitment."

In terms of sales performance, NIO's vehicle sales volume in 2025 showed a quarterly upward trend; the company delivered 42,100 vehicles in the first quarter, 72,100 vehicles in the second quarter, and 86,900 vehicles in the third quarter, with a cumulative total of approximately 201,200 vehicles in the first three quarters. In particular, the company's sales volume in September reached a new monthly high. However, compared with the company's annual sales target of "doubling" to 440,000 vehicles set at the beginning of the year, there is still a large gap.

What is more severe is the gap between NIO and its competitors. As of the end of September 2025, XPeng (XPEV.US, 9868.HK) had a cumulative sales volume of 313,200 vehicles, Li Auto (LI.US, 2015.HK) had 297,000 vehicles, and Leapmotor (09863.HK) had 396,000 vehicles. NIO has fallen behind in the "Wei Xia Li" camp.

Financially, although NIO's comprehensive gross profit margin rebounded from 7.6% in the first quarter to 10.0% in the second quarter, showing an obvious improvement trend. It still falls short of the 16 - 17% gross profit margin required for profitability. NIO's executives have set the goal of achieving a 20% gross profit margin for the NIO brand and over 15% for the second brand, Le Dao.

According to NIO's internal calculations, to achieve profitability in the fourth quarter, three conditions need to be met simultaneously. First, the company's monthly average delivery volume should exceed 50,000 vehicles; second, the company's comprehensive gross profit margin should reach 16 - 17%; finally, NIO needs to control the selling and administrative expense ratio at around 10% and the R & D expense ratio at 6 - 7%.

Based on the current situation, NIO's delivery volume of 34,700 vehicles in September is still far from the monthly average target of 50,000 vehicles. And increasing the gross profit margin from 10% to over 16%, that is, requiring the company's gross profit margin to jump by 6 percentage points in the last two quarters of 2025, is a huge challenge in the current highly competitive market environment.

It is worth noting that NIO's continuous high - level period expenses are the main obstacle to the company's profitability. In the first quarter of 2025, the company's operating loss reached 6.418 billion yuan, and the net loss was 6.891 billion yuan. Although the company's operating loss narrowed to 4.909 billion yuan in the second quarter, high R & D investment, costs of sales networks, and battery - swapping station construction form a large fixed - cost base for the company, making it difficult for the company to reduce costs and improve efficiency. The continuous large - scale losses have put pressure on NIO's stock price, which may also be one of the main reasons for GIC to bring up the old matter again.

When legal risks and financial pressures hit simultaneously, the fourth quarter of 2025 for NIO may be an ultimate challenge. Regardless of the final outcome of the GIC lawsuit, NIO needs to make breakthroughs in sales volume, gross profit margin, and cost control to truly get out of the quagmire of losses, fulfill the "life - and - death commitment," and regain market confidence. The capital market is closely watching whether this Chinese high - end electric vehicle company can submit a convincing answer in the face of both legal and financial tests.

(This article is for reference only and does not constitute investment advice. The market is risky, and investment should be cautious.)

This article is from the WeChat official account "FUSE", author: Wu Wei, published by 36Kr with authorization.