Famed Short Seller Predicts a Downfall for the ‘Tesla of China’s Soaring Stock

Nio emerged from a near-bankrupt company to a $60 billion startup in less than six months.

A Nio ES6 car is on display during 2020 Shanghai Pudong International Automotive Exhibition (Auto Pudong 2020) at Shanghai New International Expo Centre on October 3, 2020 in Shanghai, China. Gao Yuwen/VCG via Getty Images

The Wall Street short seller who made his name by betting against then-struggling Tesla (TSLA) in two years ago has found a new electric vehicle target: Tesla’s dashing Chinese rival, Nio.

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The six-year-old EV startup, which went public on the New York Stock Exchange in September 2018, was on the brink of bankruptcy just five months ago. But since summer, Nio shares have been on a meteoric rise, shooting up 1,000 percent from under $5 to $53 as of Thursday’s close, so much so that alarmed analysts say it’s now a full-blown bubble.

“Anyone buying Nio stock now is not buying a company or its prospects, rather you are buying three letters that move on a screen,” short seller Andrew Left said in a note to investors on Friday through his investment firm Citron Research.

Left was bullish on Nio in 2018 upon the company’s IPO. But with the startup valued at over $60 billion, he’s no longer a fan. Citron has a $25 price target for Nio stock, which is 50 percent lower than its market price.

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Nio stock plummeted Friday on the news. Shares fell 15 percent in intra-day trading, erasing two weeks’ gains in half a day.

Left specifically took issue with Nio’s new hatchback model ES6, a key mass-market bid marking Nio’s shift from niche luxury electric cars to affordable utility cars.

Left said the model faces a serious threat from Tesla’s Model Y, which is quickly ramping up production at the Shanghai Gigafactory. China-made Model Y has an estimated price of 488,000 yuan ($73,895) and could see price cuts once it rolls off the assembly line.

“After a rocky road of trading, Nio has found itself in uncharted territory that can never be justified by its current standing in the China EV market or its near-term prospects,” Left wrote in the Citron report.

Left isn’t the only short seller betting against Nio. According to New York-based financial analytics firm S3 Partners, short sellers who have placed financial bets on Nio shares falling have logged a total of $3.5 billion in paper losses this year so far.

Famed Short Seller Predicts a Downfall for the ‘Tesla of China’s Soaring Stock