NIO has accused a blogger of deliberately misleading readers by saying it discriminates against Chinese consumers.

This article by Doug Young was first published in The Bamboo Works, which provides news on Chinese companies listed in Hong Kong and the United States, with a strong focus on mid-cap and also pre-IPO companies.

(Image credit: CnEVPost)

Key Takeaways:

• NIO has sued a blogger, accusing him of writing an intentionally misleading blog post saying the company discriminates against Chinese consumers.
• The company is seeking a public apology and 2 million yuan in damages, but its stock has lost about two-thirds of its value since the story's publication last year.

We start our week with a spin into the electric vehicle (EV) realm, where NIO Inc. (NIO.US; 9866.HK), one of China's homegrown leaders, has sued a blogger for writing a misleading post about the company.

In this case, NIO accused the blogger, named Cheshiji, of deliberately writing the post to give the erroneous impression that it charges Chinese higher prices for its cars compared with consumers in other markets.

The story contains many elements about a risk that's relatively unique to China, namely the potential for falling victim to negative publicity, often with a hidden agenda, from media and key opinion leaders (KOLs).

In many instances, the hidden agenda is an effort by a rival to bad-mouth its competitor. Another underlying agenda could simply be efforts by Chinese nationalists to attack a company or individual whom they perceive as being too pro-foreign.

When something like that happens, there really aren't too many options for the company under attack. Contrition is always the easiest, especially when the negative publicity comes from official state-run media.

We've written about such instances involving names like retailer Miniso (MNSO.US; 9896.HK) and sportswear maker Li Ning (2331.HK), which both came under attack last year for doing things perceived as too pro-foreign.

Another option is to sue the person or media behind the story, though the damage awards in such cases are usually quite small. The most extreme step is to complain to police, and in a few cases such complaints have resulted in high-profile arrests of rogue writers. But by the time such arrests happen, the damage to a company's reputation has already been done.

The latest case involving NIO included many of these elements. It dates back to early June last year, when the blogger Cheshiji, who has 6.5 million followers, published a story on his account on the hugely popular short-video site Douyin, the Chinese version of TikTok.

In the story, Cheshiji accused NIO of discriminating against Chinese by selling its ES8 SUV model for 470,000 yuan ($68,000) to 630,000 yuan in China, compared with a range of 410,000 yuan to 460,000 yuan in Norway.

In its lawsuit, NIO called the story misleading, characterizing it as an apples-to-oranges comparison. It noted that the models sold in China include batteries, whereas the Norway models don't; and it said the blog post also ignored the fact that Norway exempts NIO's cars from import duties and value-added tax.

NIO said it believed the blogger was aware of the differences and deliberately wrote the story to create the impression the company discriminates against Chinese buyers.

NIO is seeking 2 million yuan in damages and a public apology.

It's impossible to precisely quantify how the story may have affected NIO's reputation. But the company's US-listed American depositary shares (ADSs) peaked at $24.08 shortly after the story came out and have moved steadily downward since then.

They now trade at about one-third of that, closing Monday at $7.81, meaning they have lost about $25 billion in market value since the original story was published.

Hired gun?

While NIO doesn't say it outright, its suggestion that Cheshiji's efforts were intentional raises the question of the blogger's motivation. In this case the implication is that the influential blogger was paid by someone to publish the story, almost certainly a rival EV maker that could profit from the damage to NIO's reputation.

Obviously, the loss of $25 billion in NIO's market value can't be attributed to a single negative blog post. And the fact that other Chinese EV makers like Li Auto (LI.US; 2015.HK) and BYD (1211.HK; 002594.SZ) peaked around the same time indicates a broader industry trend.

But the post-peak declines have been far milder for Li Auto and BYD, showing the post may have cost NIO billions of dollars in additional loses due to reputational damage.

Price discrimination against Chinese consumers is a touchy subject in China, and even has some foundation in truth. Major global luxury brands charged Chinese consumers much higher prices for their goods than in other global markets for years, justifying their policies by saying they were simply capitalizing on Chinese consumers' willingness to pay higher prices.

Starbucks (SBUX.US) faced similar allegations about a decade ago when China's main TV broadcaster came out with an investigative story showing how the chain was charging higher prices for an identical cup of coffee in China compared with most other global markets.

In that case Starbucks stayed mostly silent, and let China's online community come to its defense by calling the TV report petty and biased.

In terms of rivals paying for coverage to smear their competitors, another famous case, also about a decade ago, saw a reporter paid to write negative stories about construction equipment maker Zoomlion (1157.HK).

That case ultimately resulted in the reporter's high-profile arrest and jailing. Yet another similar case saw a rival of leading bottled water maker Nongfu (9633.HK) use the media to accuse the company of failing to meet certain quality standards.

And the list goes on.

The main point is that China is still a bit of a “Wild West” when it comes to the country's media, both official state-owned outlets and also hugely influential newer social media. Both types wield large influence over public opinion, and are often used by companies and other organizations to spread misinformation that works to their benefit.

China's court systems aren't very well equipped to punish the scoundrels, as reflected by the relatively small 2 million yuan that NIO is seeking for a case that may have cost the company billions of dollars in market value.

The criminal justice system could provide bigger deterrents to such behavior. But in this case, public prosecutors are playing an increasingly conservative role for what is really a matter of civil, and not criminal, offenses.

NIO sues vlogger for $290,000 for spreading false information

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