Short Seller Says Hesai Group Stock Is A 'Chinese Scam'

Hesai Group HSAI stock is under pressure Tuesday after short seller Blue Orca Capital targeted the company in a new report alleging Hesai Group is actively lying to investors.

What To Know: Blue Orca Capital released a short report on Tuesday, calling Hesai group a “Chinese scam.” The short seller believes the company is lying by insisting it has no involvement with the Chinese military. Blue Orca also raised concerns around the company’s financial disclosures.

“In short, we think Hesai is full of lies, from its suspect financials to its denials made to the government and in court regarding its LiDAR and the Chinese military. In our opinion, it is completely untrustworthy as a business and uninvestable as a stock,” the short seller said.

Benzinga has reached out to Hesai Group for comment on the report.

Blue Orca alleged that Hesai has lied to investors and U.S. authorities about the use of its lidar technology for military purposes. The short seller provided images that it uncovered from Chinese government owned CCTV that appears to show a Chinese military vehicle equipped with a Hesai lidar system.

The Department of Defense (DOD) placed Hesai Group on a list of companies designated as “Chinese military companies” in January 2024. Hesai sued the DOD in an attempt to be removed from the list. The short seller believes Hesai will lose the case and in turn become effectively blocked from any lucrative deals in the U.S. autonomous vehicles market.

“As such, we believe that Hesai will soon lose a customer cohort which historically accounted for 40% of its revenues and an estimated 57% of its gross profit,” the short seller said.

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Blue Orca also noted that Hesai Group shares surged late last year after the company reported that it became profitable. The short seller believes the profitability was a result of a $20 million break-up fee from its largest customer that was undisclosed to investors. Blue Orca also indicated that the company appears to be laying off up to 30% of its workforce.

Hesai Group shares surged again last week after the company secured a multi-year deal with Mercedes-Benz to supply lidar sensors, closing the day up more than 50%. The short seller poked holes in the notion that the deal is “exclusive.” Blue Orca is also skeptical given that Mercedes was unwilling to publicly confirm the deal. The short seller noted that Hesai Group founders sold $68.6 million of stock following the spike.

Blue Orca went on to raise concerns about inconsistent purchasing volumes with reported sales, “inexplicable” margin expansion and the withdrawal of the company’s IPO in China.

“Ultimately, we do not think that U.S. authorities will permit a Chinese military company whose products are equipped on Chinese military vehicles to take advantage of the privilege of American capital markets,” the short seller said.

HSAI Price Action: Hesai Group shares are up nearly 300% over the past year. The stock was down 8.5% at $20.39 at the time of publication Tuesday, according to Benzinga Pro.

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