Chinese electric vehicle company Nio and its contract manufacturer JAC will create a joint venture to build intelligent EVs, among other products, according to a letter of intent JAC filed with the Shanghai Stock Exchange on Friday.
Nio is contributing RMB 245 million (USD 37 million) in registered capital to take a 49% stake in the JV called Jianglai, while JAC will control 51%. Nio will appoint two directors to the board, in which JAC will take the remaining three seats.
“Our two companies will deepen the cooperation in manufacturing and supply chain management,” Nio told KrASIA on Friday. “The joint venture will be in charge of the daily management and operation of JAC’s advanced manufacturing plant for Nio.”
All of Nio’s current vehicle models, including ES8, ES6, and EC6, are being produced by JAC since Nio itself does not have a manufacturing license from the Chinese government. Unlike Nio, its peers WM Motor and Li Auto acquired automakers with production licenses to be able to manufacture the vehicles on their own. WM Motor in 2017 acquired a Dalian-based automaker for RMB 1.18 billion and Li Auto bought into a Chongqing-headquartered manufacturer, spending RMB 650 million in 2018.
“It indicates that Nio is strengthening its management of the production, since Jianglai allows Nio to have a greater say in their alliance,” Zhang Xiang, an auto analyst with a government-affiliated think tank, told KrASIA. Zhang added that it also means that Nio will have better control over the vehicle quality and supply chain.
Nio founder and CEO William Bin Li told analysts on the company’s Q4 earnings call that the production could be limited to about 7,500 units per month in the second quarter due to chip and battery shortages, at a time when sales are picking up quickly. The company delivered 7,225 vehicles in January and another 5,578 in February, representing 352% and 689% year-over-year growth, respectively.
Taking back control
“It is an inevitable choice for Nio,” commented Ke Yan, lead analyst at DZT Research. “At first, Nio outsourced its production since it was risky to build a plant, which is capital intensive, without market proven products,” adding that even Tesla once called into question having its own production plants.
“Now, Nio needs to start to in-source,” Ke added, viewing the Jianglai JV as a tentative first move before fully bringing the plant under its control.
Prior to Jianglai, Nio formed joint ventures with the automakers GAC and Changan, when the company was trying different approaches to enter the mass market with different brands, founder Li told analysts earlier this week. He said back then that the Nio brand would remain focused on the premium market in China to compete with Mercedes Benz, BMW, and Audi.