A lawsuit accusing NIO of exaggerating its financial data through its unique Battery as a Service (BaaS) model has again brought scrutiny to the electric vehicle manufacturer's accounting practices.

On October 15, NIO's stock plummeted by 9% in Hong Kong, following a lawsuit filed by a regional sovereign wealth fund in August, which claimed that NIO inflated its financial data through its distinct battery leasing business model (BaaS).

According to trading insights, J.P. Morgan stated in its latest research report that this allegation is not new—similar concerns were raised in a short-selling report in 2022, yet an independent investigation confirmed that NIO's accounting practices comply with U.S. Generally Accepted Accounting Principles (US GAAP). Moreover, the Hong Kong Stock Exchange conducted thorough due diligence on NIO's finances when the company applied for a Hong Kong listing in 2022, and these accounting practices were officially disclosed at that time.

J.P. Morgan maintains an "Overweight" rating on NIO, with a target price of $8.00, while NIO's current stock price stands at $6.82. Analysts believe this incident does not alter the company's fundamentals, focusing instead on Q3 2025 performance, the launch of the new model L80, and the prospects for breakeven in Q2 2026 or the second half of 2026.

Old Case Resurfaces? NIO's Accounting Practices Have Been Established According to J.P. Morgan, this lawsuit is not the first time NIO has faced such financial accusations. Back in 2022, a short-selling report raised similar concerns, directly accusing NIO of prematurely recognizing income through related-party transactions associated with its BaaS business.

Based on information disclosed by NIO previously, following the publication of the short-selling report, the company promptly established an independent committee to conduct an investigation. The investigation concluded that NIO's accounting practices conform to U.S. Generally Accepted Accounting Principles.

J.P. Morgan pointed out that, at the time of NIO's Hong Kong listing application in 2022, its financial details and accounting methods underwent rigorous examination by the Hong Kong Stock Exchange and were approved; these practices were publicly disclosed at that time.

Analysts believe that given the precedent of an independent investigation and regulatory review, this lawsuit, which resurrects old accusations, may pose limited substantive legal risks to the company. However, the disclosure itself is likely to shake market sentiment in the short term, raising investor concerns about the company's transparency and governance.

Dissecting BaaS: Financial Innovation or Accounting Trickery? To understand this controversy, the key lies in dissecting the operational mechanics of the BaaS model. Under this model, consumers can choose not to purchase the battery when buying a NIO vehicle, thus lowering the entry cost to purchase a car by approximately 25% to 30%, while agreeing to pay a monthly battery rental fee.

Specifically, the transaction process is as follows: - Consumers pay approximately 75% of the car's price to NIO. - The battery asset management company—Wuhan Weineng—pays the remaining approximately 25% of the battery price to NIO. - NIO recognizes the full sales revenue of the vehicle upon delivery. - Consumers then pay a monthly rental fee ranging from 900 to 1300 RMB to the battery ownership entity, Weineng.

Data shows that NIO holds a 19.4% stake in Wuhan Weineng, with other major shareholders including Wuhan Guanggu with a state-owned background in Hubei (10.7%) and CATL (10.7%).

J.P. Morgan analysts compared this model to the relationship between traditional automotive manufacturers (OEMs) and automotive finance companies (AFCs): OEMs recognize full revenue upon vehicle sale, while AFCs recognize monthly repayments from customers over time.

From this perspective, NIO operates as an automotive manufacturer with revenue derived from car production and sales; whereas Weineng acts as an asset management company, earning revenue from monthly battery subscription fees and asset residual value.

This structure resembles asset-backed securities (ABS), whereby batteries are securitized as underlying assets for financing—a mature model in the financial sector. Therefore, most analyses suggest that BaaS represents an innovative business and financial model rather than a tool aimed at manipulating financial reports.

What the Market is Focused on: Profitability Path and New Car Cycle Although the lawsuit introduces short-term noise, for long-term investors, the market's focus will return to the core fundamentals of NIO—namely its profitability and product cycle.

J.P. Morgan's report forecasts that thanks to the launch of new models and cost control, NIO’s losses are expected to significantly narrow in the fourth quarter of 2025. The report anticipates that the company's quarterly capital expenditures and R&D expenses will decline from previously surpassing 30-40 billion RMB to about 20-25 billion RMB. If the business plan is executed smoothly, NIO might approach breakeven again in the second quarter of 2026 or the second half of 2026 (under non-GAAP accounting).

The future product line is crucial for achieving this goal. Analysts expect that the volume model L80 SUV under NIO's ONVO brand will be launched by the end of the first quarter of 2026 and begin delivery in the second quarter. Considering that around 70% of NIO's users opt for the BaaS solution, the competitive starting price for the L80 under the BaaS model is projected to be approximately 170,000 RMB. Additionally, NIO plans to introduce two high-end pure electric SUVs, ES7 and ES9, in the second half of 2026 to further bolster sales and profit margins.