United States federal judge, Nicholas Garaufis ruled late Tuesday to allow a class action lawsuit to proceed against Chinese electric vehicle maker, Nio Inc (NYSE:NIO).
The lawsuit, brought by a class of investors who bought Nio American Depositary Shares in the September 2018 IPO, claims that the automaker lied in 2018 about building its own factory in Shanghai, leading to a decline in share price after the carmaker said in March 2019 that it had scrapped the plans.
Nio has denied the allegations.
The investors anticipated the establishment of the factory would provide Nio with independent manufacturing capability, alleviating its dependence on a Chinese state-owned manufacturer that certain analysts considered to be “third tier.” However, the lawsuit cites statements from former employees, and a lack of required construction permits as proof that construction on the facility never began.
The investors further alleged that Morgan Stanley (NYSE:MS), Goldman Sachs (NYSE:GS), and other underwriters did not adequately assess the accuracy of the company's statements.
When Nio announced in March 2019 that the plant would not be built, its price dropped 30%, from around $10 to $7 per share.
Shares of NIO are down 4.34% in afternoon trading Wednesday.