Shares of Uxin (Nasdaq: UXIN), China’s largest used car e-commerce platform plunged 36% on Tuesday April 16 after a US-based short seller published a report accusing the company of exaggerating its auto sales numbers and calling the company a “cheat.”
J Capital Research analyst Anne Stevenson-Yang made the serious allegations against Uxin in her report. On inventory numbers, she claimed that J Capital’s own software showed the company inflated the number of autos under management greatly. She accused Uxin’s founder, Dai Kun, of taking a total of USD280 M before and after the company went public in the US. Further, she said that there were a number of stories, blog posts, and lawsuits alleging that Uxin is a cheat.
Uxin issued a statement on the same day saying “the allegations in the report are completely without merit, and we strongly condemn the publishing of false and misleading information.” Dai, the founder of Uxin, also confirmed that he had never voluntarily sold any Uxin shares as alleged in the report.
J Capital has a history of making serious accusations against US-listed Chinese companies. However, the results have been short-lived. In June 2015, Stevenson-Yang told Barrons that China’s second largest e-commerce platform, JD.com, was not even an e-commerce platform, claiming the company lured customers by free-shipping, thus making their sales volumes unsustainable. Unlike in the US, delivery labor costs are low in China, and almost every Chinese e-commerce platform competes to offer the best services and discounts. In JD.com’s Q1 2019 unaudited financial report, the company said that its annual active customer accounts had increased to 305.3 million by the end of 2018. This figure is almost three times larger compared to the 118.0 million annual active customer accounts that JD reported in its 2015 Q2 financial report that August. This January, J Capital accused fintech company Fanhua (Nasdaq: FANH), by publishing a report saying that it “moved at least USD136 M in 2017 revenues off the books but still under executive control.” Fanhua’s stock price closed at USD 25.89 per share on April 16, an increase of 11.1% compared to the USD 23 share price that plummet one day after the release of the report.
After the Chinese stock market crashed in 2016, middle-sized Chinese companies tended to go public in the US due to its transparent financial policies and clear SEC guidelines. Because these companies operate in China and are reported on mostly in Chinese, there’s an information gap between the US and Chinese markets. This has given short sellers the chance to mark Chinese companies as easy targets.
Uxin’s stock price popped 51.282% on April 17 and closed at USD 2.95 per share.
(Top photo from Pixabay)