The Chinese electric car manufacturer Nio (9866.HK) plans to take some factory assets from its partner Anhui Jianghuai Automobile Group (600418.SS) (JAC), as it approaches the production of cars independently to reduce manufacturing costs. In October, state-owned JAC put the manufacturing assets known as F1 and F2 up for sale, where Nio was producing its electric vehicles. Nio announced in an information exchange report on Tuesday that it would acquire some fixed assets and equipment from the factories from JAC for 3.16 billion yuan ($442.19 million).
Impact of Acquisition on Joint Production with JAC
Nio did not clarify how the acquisition would affect its joint production with JAC in the future. The company’s founder and CEO William Li confirmed to analysts in a late Tuesday conference call that Nio’s manufacturing costs would decrease by 10% if the company fully brought all production in-house. He explained that Nio had independently designed the production lines and developed manufacturing technologies at the factories, while the joint venture with JAC had managed and operated the factories since 2019, with JAC mainly responsible for hiring assembly workers.
Restricting Production Capacity in China’s Automotive Industry
The Chinese government planning agency is restricting growth in automotive production capacity and is hesitant to approve new players entering the crowded market. Regulators allowed Nio to produce and sell electric vehicles in China through collaboration with JAC in 2018, where Nio paid JAC a commission for every car it produced. The nine-year-old company was recently added to the database of the Chinese Ministry of Industry, allowing companies to manufacture vehicles in the country.
Nio’s Ranking in Electric Vehicle Sales in China
Nio ranked ninth in electric and hybrid vehicle sales in the first ten months in China, with 126,067 units sold, according to data from the China Passenger Car Association. Manufacturing costs for Nio are expected to decrease by 10% if the company brings all production in-house, which will help the company achieve further success in the growing electric vehicle market in China.
($1 = 7.1415 Chinese yuan)
Source: Reuters
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