Hesai Group Shares Tumbled Nearly 8% On Tuesday: Here's Why

Hesai Group HSAI shares traded lower on Tuesday after short seller Blue Orca Capital released a report accusing the company of misleading investors.

What To Know: Blue Orca Capital called Hesai a “Chinese scam” in a new short report, alleging the company has falsely claimed no involvement with the Chinese military despite evidence showing its lidar technology on military vehicles. The short seller pointed to images from Chinese state-owned CCTV and noted that the U.S. Department of Defense designated Hesai as a "Chinese military company" last year.

Hesai sued the DOD to remove its name from the list, but Blue Orca believes the company will lose the case, cutting it off from key U.S. autonomous vehicle contracts. The report estimates that Hesai could lose customers responsible for 40% of its revenue and 57% of its gross profit.

The short seller also questioned Hesai's reported profitability, suggesting it was inflated by an undisclosed $20 million break-up fee from its largest customer. Blue Orca also raised concerns about potential layoffs affecting up to 30% of Hesai's workforce and accused the company of inconsistent financial reporting, including unexplained margin expansion and discrepancies in purchase volumes.

Last week, Hesai shares surged over 50% after announcing a multi-year lidar supply deal with Mercedes-Benz. Blue Orca is skeptical about the legitimacy of the “exclusive” agreement, noting that Mercedes-Benz has not publicly confirmed the deal. The report also pointed out that Hesai executives sold $68.6 million in stock following the price surge.

Blue Orca believes U.S. regulators will not allow a company allegedly linked to the Chinese military to continue benefiting from American capital markets, adding further uncertainty to Hesai's future.

HSAI Price Action: Hesai group shares closed Tuesday down 7.8% at $20.56, according to Benzinga Pro.