Is the BAAS model exaggerating financial data? How to understand Nio's lawsuit

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

On October 15, Nio's Hong Kong stock plummeted 9% in a single day, triggered by a lawsuit filed by a regional sovereign fund in August, accusing the company of inflating financial data through its unique battery leasing business model (BaaS).

According to Wind Information, JP Morgan stated in its latest research report that this accusation is not new—similar concerns were raised in a short-selling report in 2022, but an independent investigation at that time confirmed that Nio's accounting practices complied with US Generally Accepted Accounting Principles (US GAAP). More importantly, the Hong Kong Stock Exchange conducted due diligence on Nio's finances when the company applied for a Hong Kong listing in 2022, and the relevant accounting practices were formally disclosed at that time.

JP Morgan maintains an "Overweight" rating on Nio, with a target price of $8.00, while Nio's current stock price is $6.82. Analysts believe that this incident does not change the company's fundamentals, focusing instead on the 3Q25 performance, the launch of the new model L80, and the possibility of the company achieving breakeven in 2Q26 or 2H26.

Old Case Revisited? Nio's Accounting Practices Have Been Concluded

According to JP Morgan, this lawsuit is not the first time Nio has faced such financial accusations.

As early as 2022, a short-selling report raised similar concerns, directly pointing out that Nio was prematurely recognizing revenue through related-party transactions in its BaaS business.

Based on information previously disclosed by Nio, the company quickly established an independent committee to conduct an investigation after the short-selling report was published. The investigation concluded that Nio's accounting practices complied with US Generally Accepted Accounting Principles.

JP Morgan pointed out that when Nio applied for a Hong Kong listing in 2022, its financial details and accounting methods underwent rigorous scrutiny by the Hong Kong Stock Exchange and were approved, with the relevant practices made public at that time.

Analysts believe that, given the precedent of independent investigations and regulatory reviews, this lawsuit revisiting an old case may pose limited substantive legal risks to the company. However, the disclosure of the news itself is sufficient to shake market sentiment in the short term, raising investors' concerns about the company's transparency and governance.

Dissecting BaaS: Financial Innovation or Financial Magic?

To understand this controversy, the core lies in analyzing the operational mechanism of the BaaS model. Under this model, consumers purchasing Nio vehicles can choose not to buy the battery, thereby lowering the purchase threshold by about 25% to 30%, but must pay a monthly battery rental fee.

Specifically, the transaction process is as follows:

Consumers pay about 75% of the vehicle price to Nio.

The battery asset management company—Wuhan Weineng—pays Nio the remaining approximately 25% of the battery price.

Nio recognizes the total vehicle sales revenue upon delivery of the vehicle.

Consumers then pay a rental fee ranging from 900 to 1300 RMB per month to Weineng, which owns the battery.

Data shows that Nio holds a 19.4% stake in Wuhan Weineng, with other major shareholders including Wuhan Optics Valley (10.7%) with a background in state-owned assets from Hubei and CATL (10.7%) JP Morgan analysts liken this model to the relationship between traditional automakers (OEMs) and automotive finance companies (AFCs): OEMs recognize all revenue upon vehicle sales, while AFCs that provide loans recognize customer monthly repayments in installments.

From this perspective, Nio is an automaker whose revenue comes from the production and sale of vehicles; while Weilai Energy is an asset management company whose revenue comes from monthly subscription fees for batteries and asset residual values.

This structure is similar to asset-backed securities (ABS), which involves securitizing financing with batteries as the underlying assets, a mature model in the financial sector. Therefore, most analysts believe that BaaS is an innovation in business and financial models, rather than a tool aimed at manipulating financial reports.

What the market is more concerned about: Profitability path and new vehicle cycle

Although the lawsuit has brought short-term noise, for long-term investors, the market's focus will still return to Nio's core fundamentals—namely its profitability and product cycle.

JP Morgan's report predicts that, thanks to the launch of new models and cost control, Nio's losses are expected to narrow significantly by the fourth quarter of 2025. The report estimates that the company's quarterly capital expenditures and R&D expenses will decrease from the previous level of over RMB 3-4 billion to about RMB 2-2.5 billion. If business planning is executed smoothly, Nio could potentially approach breakeven again in the second quarter of 2026 or the second half of the year (under non-GAAP).

The future product line is key to achieving this goal. Analysts expect that Nio's ONVO (LeDao) brand's volume model, the L80 SUV, will be launched by the end of the first quarter of 2026 and begin deliveries in the second quarter. Considering that about 70% of Nio users choose the BaaS plan, the starting price of the L80 under the BaaS model is expected to be highly competitive, around RMB 170,000. Additionally, Nio plans to launch two high-end pure electric SUVs, the ES7 and ES9, in the second half of 2026 to further support sales and profit margins