NIO Gets Regulatory Approval to Build Third Factory in China
NIO. Inc. NIO has received regulatory approval to build a third factory in China, boosting its total production capacity to one million cars, bringing it closer to Tesla's TSLA Shanghai plant, per Reuters.
Tesla can produce 1.1 million vehicles annually from Shanghai plant. The approval for a plant with a 600,000-unit annual capacity is a significant win for NIO, given China’s state planner's cautious approach to new EV production plans since 2022 due to overcapacity concerns and slowing demand. NIO obtained an auto manufacturing license late last year.
Currently the eighth largest EV maker in China by sales, NIO has commenced construction of the third plant, known as F3, in Huainan city, Anhui province. The plant will primarily produce vehicles for NIO's new affordable car brand, Onvo.
While the starting date for mass production remains unclear, the company has confirmed that the plant will initially have a capacity of 100,000 units on a one-shift basis. This expansion is aimed at meeting the growing demand for NIO and Onvo-branded cars and producing newly launched vehicles.
Per NIO, the capacity of its existing plants will not be sufficient to meet market demand, rejecting any notions of overcapacity within the company. However, the automaker did not comment on whether the F3 plant's capacity would eventually expand to 600,000 units.
NIO launched the Onvo brand in May 2024 and introduced the Onvo L60 SUV with a starting price of 219,900 yuan compared to Tesla's Model Y starting at 249,900 yuan in China.
The company is aiming to broaden its customer base and boost sales with more affordable models amid intense price competition in China, which has led the company to trim its workforce and delay long-term projects not contributing to immediate financial performance.
Navigating Overcapacity Concerns in China's EV Market
The approval for new EV capacity comes amid global concerns about overcapacity in China's EV industry, often attributed to state-led subsidies.
Per William Li, founder and CEO of NIO, the overcapacity issue is affecting foreign brands whose market share in China has dropped from 60% to 40% due to uncompetitive products and services. The foreign brands are expected to have more than five million units of idled annual capacity in China due to their market share losses.
Per the data from China Merchants Bank International, factory utilization rates of major China-based firms producing plug-in hybrids and pure EVs ranged from 33% to 111% in 2023 on a double-shift schedule, with BYD operating at 95% and Li Auto at 106% by adding shifts. NIO had the lowest utilization rate at 33%.
In May 2024, NIO delivered 20,544 vehicles, representing a 233.8% increase year over year. This included 12,164 premium smart electric SUVs and 8,380 premium smart electric sedans. The growth is driven by a refreshed lineup, with orders for seven updated models, including the 2024 ET5, ET5T, EC6, ES6, EC7, ES8 and the ET7 added in April.
Zacks Rank & Key Picks
NIO currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the auto space are Blue Bird Corporation BLBD and Oshkosh Corporation OSK, each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for BLBD’s 2024 sales and earnings suggests year-over-year growth of 17.29% and 155.14%, respectively. The EPS estimates for 2024 and 2025 have improved 63 cents and 69 cents, respectively, in the past 30 days.
The Zacks Consensus Estimate for OSK’s 2024 sales and earnings suggests year-over-year growth of 9.86% and 11.92%, respectively. The EPS estimates for 2024 and 2025 have improved 12 cents and 10 cents, respectively, in the past 30 days.
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