The spin-off could take place as early as the end of this year, after which the battery unit will seek external investors, according to Reuters.

(Image credit: CnEVPost)

Nio (NYSE: NIO) plans to spin off its battery manufacturing unit as part of the efforts by the company to turn profitable, reduce costs and improve efficiency, Reuters said in a report today, citing two people familiar with the matter.

The spin-off could take place as early as the end of this year, after which the battery unit will seek outside investors and a valuation will be decided at a later date, according to the report.

The spin-off underscores Nio's efforts to turn profitable sooner, as the company's previous plan was to develop and manufacture some batteries on its own and outsource the production of the rest to other suppliers, one person familiar with the matter said.

Under the plan, top engineers from Nio's battery division will join the new company, while some employees will be merged into Nio's other divisions, according to the report.

Nio hired the engineers to mass-produce large cylindrical batteries similar to the Tesla 4680 in a planned plant in China's eastern Anhui province in 2025 at the earliest, a person familiar with the matter said.

Assets to be divested could include the planned factory, some test equipment and intellectual property, the person said.

For the in-house manufacturing of batteries, Nio doesn't see the possibility of the business helping to improve gross margins in three years, so the company has opted for other approaches, its founder, chairman, and CEO William Li said in yesterday's Nio third-quarter earnings call, without giving further details.

Nio will continue to work on battery cells, materials, and packs, but will commission production to reduce costs, Li said on the call.

Nio will continue to invest in its core technologies to ensure a competitive edge, he added.

Nio has always wanted to develop and manufacture key components in-house, and batteries are one of them. In the earnings call on June 9, 2022, Li confirmed that the company would develop its own batteries.

Nio had a battery team of more than 400 people to research areas including battery materials, cells, and battery management systems to fully establish battery system development and industrialization capabilities, Li said in the call last year.

Beijing-based Cbea.com, which focuses on the battery industry, reported on February 27 that Nio held a battery partner forum in Hefei, Anhui province, on February 24, where the company announced the start of construction of the first phase of its battery base.

Li said at the time that Nio's battery R&D team had surpassed 800 people, and annual R&D investment was expected to exceed RMB 1 billion.

On February 24, Reuters reported that Nio planned to build its first battery factory to produce large cylindrical batteries similar to those used by Tesla.

The new plant would have an annual battery capacity of 40 GWh, which could power about 400,000 long-range electric vehicles, the report said.

On July 12, local media outlet 36kr reported that Nio had slowed down its plans to develop its own batteries, and that construction of the battery plant was still underway, but equipment purchases have been put on hold.

The investment in the production line was divided into two parts, with the construction of the facilities, including the plant, largely funded by the Hefei government, while the equipment was being procured by Nio, according to 36kr's report in July.

On November 3, Li released a plan for organizational and business optimization within the company, including a reduction of around 10 percent of positions.

A subsequent report by 36kr said that most of Nio's businesses would see layoffs, but the percentages would vary, with the battery and smartphone businesses being the most likely to be restructured.

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