The case of Hithium Energy Storage Co. shows how growth stories can mask vast operational weaknesses
The new energy sector has become one of the most lucrative industries in the global economy over the past few years. Worldwide efforts to transition from hydrocarbons to renewable resources have spurred a clean technology “gold rush”, pouring billions into solar panels, wind turbines, electric vehicles (EVs), and battery energy storage systems (BESS). As one of the fastest-growing and most celebrated sectors, new energy has also been exposed to overinflated narratives to meet heightened expectations of investors. This increases the value of both institutional and private investors’ due diligence efforts – if they are to avoid witnessing yet another economic bubble bursting in the near future.
As companies enter high-value and high-growth sectors, demonstrating strong economic performance must go hand-in-hand with projecting opportunities for growth. As promising enterprises join the global market, investors’ perceptions of their future potential are just as important in attracting funding as their current production and sales indicators. The two sides of this coin can, however, be separated from each other if promises of growth end up footing current bills.
The Hong Kong Stock Exchange (HKEX) has had to contend with a surge of weak applicants falling into the trap of this imbalance since 2024, when it first announced the relaxation of its regulations for new tech companies looking to be listed on the bourse for public trading. In this light, regulators at the HKEX recently issued public warnings about the increasing volume of sloppy initial public offering (IPO) applications.
A prime example has been Xiamen Hithium Energy Storage Co., whose most recent IPO application at the HKEX lapsed in late 2025, following the rejection of its A1 application by regulators who found it to be riddled with missing disclosures and inconsistencies. This signals several internal challenges that auditors flagged as unresolved, which might point to deeper operational issues. A high and ever-increasing reliance on government subsidies to prop up balance sheets – registering a 73% debt-to-asset ratio – is among such issues. In addition to this, Hithium’s turnover period for trade receivables keeps increasing year after year, indicative of a company struggling with profitability. Among the more puzzling transactions linked to the company is a 2025 sale of 5 million RMB worth of BESS products to a small beauty salon in Yunnan province, whose registered capital stood at just 50,000 RMB, raising immediate questions about the authenticity of demand.
All of this stands in contrast with Hithium’s self-advertised position among the top 2 companies for global energy storage battery and utility-scale battery production. It would not be the first time that such a divorce between narratives and operational realities misleads investors. EV startup Faraday Future was embroiled in a years-long investigation for allegedly misleading investors following its public listing and was only cleared of charges recently. Nikola presents a less fortunate case in which the company’s EV and hydrogen fuel capabilities were grossly overstated, resulting in an international scandal, the sentencing of its founder, and the loss of billions in value.
The overinflation of narratives is often accompanied by intellectual property entanglements, especially in high-growth tech sectors. EV battery startup A123 Systems faced multiple patent challenges in its early expansion phase. The previously mentioned Hithium and its CEO, Wu Zuyu, have also been accused of violating the intellectual property rights of their competitors. With Chairman Wu formerly sentenced to pay a fine, and Hithium facing an additional IP lawsuit, the lesson for investors is that inquiries into the credibility of company leadership should be a core component of risk management strategies. IP lawsuits are not unusual in sectors driven by research and development, but striking a balance between rapid expansion and attaining legal clarity and safeguards is still something that sensible investors look for. Repeated lawsuits that stretch well beyond the breakout phase of a company – as in the case of Hithium, which has been around since 2019 but is still attracting vast litigation suspiciously not mentioned in its A1 filing – certainly undermine both its reputation for reliability.
Ambiguous or erroneous submissions to stock exchanges can, at times, mask much deeper strategic issues in a company’s operations. Circular trading has been highlighted by business analysts as a specific concern in the tech field, whereby a company creates the appearance of much higher demand for its products or services, inflating its revenue streams on paper. Wirecard has been one of the most notorious high-profile cases, using phantom transactions to inflate its revenues, before the Financial Times exposed its trading practices.
The new energy industry is not immune to such practices either. The European Commission fined multiple automotive battery manufacturers for effectively forming a cartel to inflate prices. Via intermediaries and a loaning program, Hithium is also believed to engage in similar circular trading practices, although primarily for its own benefit. Concurrent with the overstatement of its potential for expanding its U.S.-based operations building on its recently opened Texas plant – which merely assembles batteries as opposed to Hithium’s claims in its IPO applications that it manufactures them, investors have multiple issues to contend with before engaging with the firm. Considering the variety of business management issues detailed above, it is not surprising that Hithium is also believed to engage in questionable sales as was seen in the 2025 Yunnan based beauty salon case. If investigated further, such practices would certainly undermine investors’ confidence in the company.
Rapidly growing sectors are often more susceptible to practices that present companies in an overly favorable light. This tendency is particularly pronounced in the emerging energy sector, where the substantial capital required to scale production further intensifies the pressure. Amid heightened hype and promises of exceptional growth, investors should apply a corresponding level of scrutiny, carefully evaluating the legal risks, financial soundness, and governance standards of any firm they consider for investment.
