BYD has been renovating its battery pack production lines in Anhui province and will supply smaller a battery pack for a version of Onvo's new EV, according to Reuters.

(Image credit: CnEVPost)

Nio (NYSE: NIO) has struck a deal with BYD (HKG: 1211, OTCMKTS: BYDDY) to source batteries for its less expensive electric vehicle (EV) sub-brand Onvo (Ledao in China), Reuters said in a report today, citing three sources with direct knowledge of the matter.

Nio currently buys most of its batteries from CATL. It filed for the use of batteries from another smaller battery maker, CALB, for a number of models last year, but those batteries are not yet in service.

BYD will supply a smaller battery pack for one version of Onvo's new EV, Reuters said in the report today, citing two people familiar with the matter.

One of the people said CALB would supply the brand with a larger battery pack with a capacity of 85 kWh.

BYD has been renovating its battery pack production lines at its plant in Wuwei city in eastern Anhui province to supply battery packs for Onvo, according to Reuters.

When contacted by Reuters, the EV maker said the information was "inaccurate" and did not elaborate, according to the report.

CALB declined to comment, while CATL and BYD did not respond to requests for comment, the report noted.

Onvo, Nio's sub-brand internally codenamed Alps, is seen as primarily targeting the market in the price range of RMB 200,000 ($27,710) to RMB 300,000.

Nio's main brand, on the other hand, is aimed at the RMB 300,000 to RMB 600,000 premium market, with the lowest-priced model to date being the ET5sedan, which has a starting price of RMB 298,000 including the battery.

Nio confirmed the Onvo name during a media Q&A following its March 14 long-life battery strategy launch event, and said the brand launch is expected in early-mid May.

Last month, the company's co-founder and president, Lihong Qin, said the Onvo brand would be unveiled in mid-May.

On May 5, an auto blogger said Onvo's management team would be unveiled on May 9, and that the brand's head, the meaning of the brand and logo, and information about the Onvo App are expected to be announced.

Yesterday, Onvo's official website went online at onvo.cn, and the text in the center of the page reads " Stay tuned for the first model, L60."

For an EV model, the power battery accounts for a major portion of the cost, up to 40 percent in some cases.

As Nio enters a lower-priced market, it will need to exercise stronger cost control in order for the models to be price-competitive.

Alps' first model will be one that competes directly with Tesla's (NASDAQ: TSLA) Model Y, with BOM (bill of materials) costs about 10 percent cheaper than Tesla's, Nio founder, chairman and CEO William Li said in a March 5 earnings call.

Nio's rumored sourcing of BYD batteries is no surprise.

On December 23, 2021, local media outlet 36kr reported that Nio was in deep contact with BYD, and that discussions between the two sides about a partnership for the former's sub-brand were in the works.

In March 2022, BYD chairman Wang Chuanfu appeared at a Nio House campus and was walking with Nio's Li.

On August 23, 2022, 36kr reported in another story that the Alps brand would use CALB's ternary One-Stop battery solution, and would also purchase battery products from BYD's battery arm FinDreams.

Unlike the Nio brand, Alps has adopted an open partnership stance, not only bringing in CALB and FinDreams, but also approaching suppliers including Eve Energy and Svolt Energy, the 36kr report said.

Nio had hoped to develop batteries on its own, and had assembled a team of several hundred people to do so. However, late last year, the company shrunk that business as part of an effort to improve operational efficiency.

For making the batteries in-house, Nio didn't see the possibility of the business helping to improve gross margins within three years, so the company opted for other methods, Li said in a December 5, 2023 earnings call.

On December 6, Reuters said that Nio planned to divest its battery manufacturing unit as part of the company's efforts to turn around, reduce costs and improve efficiency.

CATL and BYD are China's two largest battery makers, with shares of 44.87 percent and 26.79 percent respectively in China in March, according to the China Automotive Battery Innovation Alliance (CABIA).

($1 = RMB 7.2175)

Nio to use batteries from multiple suppliers including CALB and BYD in sub-brand, report says