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Chinese Electric Car Maker NIO Inc. Faces Post-IPO Class Action Over Abandoned Factory Plans

(CN) - Chinese electric vehicle manufacturer NIO faces a class action alleging the company misled investors about a new manufacturing facility during its billion dollar 2018 initial public offering.

Filed in New York Supreme Court by investor Sumit Agarwal, the complaint names NIO Inc., CEO Bin Li, and the company’s other senior officers as defendants. The suit also names numerous underwriters including Morgan Stanley, Goldman Sachs, and Merrill Lynch who collectively earned more than $40 million in fees since the IPO.

According to the lawsuit, NIO sold 160 million shares at $6.26 per share in September 2018. Shareholders claim the company filed an incomplete registration statement with the Securities Exchange Commission, deemed effective by the SEC, the day prior.

The lawsuit says NIO executives, through the SEC statements, led investors to believe the company planned to build its own manufacturing facility in Shanghai, to be completed by 2020, boasting it would expand manufacturing capability for one of its current vehicles and future models. However, NIO instead planned on keeping a “little-known Chinese state-owned auto manufacturer, Jianghuai Automobile Group Co. Ltd. or JAC Auto, to manufacture its electric vehicles.”

The suit also alleges that NIO failed to tell investors that the Chinese government’s decision to reduce subsidies to purchasers of electric vehicles would affect company’s sales.

On March 5, 2019, NIO publicly announced the termination of its agreement with the Shanghai government to build the facility to continue to rely on JAC Auto, and that delivery of its vehicles fell from over 3,000 in December 2018 to 1,805 in February 2019, blaming the slowdown on the government subsidy reduction.

Following the announcement, NIO shares, which traded above $8 in early March, fell over 37 percent to close at $6.39 per share on March 12, 2019. The stock has since fallen further, closing just below $5 a share on March 26.

Investors are represented by Phillip Kim and Laurence M. Rosen of the Rosen Law Firm in New York.

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