Biplab Das 
Electric vehicle (EV) manufacturer Nio has secured approval to construct a third factory in China, significantly enhancing its production capabilities. This move will elevate Nio’s total approved production capacity to one million vehicles annually, putting it nearly on par with Tesla’s massive Shanghai plant, which has a capacity of 1.1 million vehicles per year. This approval marks a critical milestone for Nio, especially given the cautious stance of China’s state planner on approving new EV production projects since 2022 due to concerns over overcapacity and slowing demand.
Expanding production capacity
Nio’s new factory, referred to as the F3 plant, is situated in Huainan city, Anhui province. This facility will focus on producing vehicles for Nio’s recently launched affordable car brand, Onvo. Construction of the F3 plant has already commenced, and it is expected to have an initial capacity of 100,000 units on a one-shift basis. While the timeline for mass production at this site remains unclear, this expansion is part of Nio’s strategy to meet increasing market demand for its vehicles.
A spokesperson for Nio stated, “The capacity of our existing plants won’t be enough to meet market demand. There is no overcapacity with Nio.” This expansion reflects the company’s commitment to scaling up production to cater to the growing demand for both Nio- and Onvo-branded cars.
Addressing overcapacity concerns
The approval for Nio’s new plant comes amidst global concerns about overcapacity in China’s EV industry, driven by state-led subsidies. Chinese officials have previously issued warnings about overcapacity. However, in April 2023, Beijing dismissed these concerns, asserting that China’s EV production system is highly competitive. Nio’s founder and CEO, William Li, has also defended the industry, suggesting that the real overcapacity issue lies with foreign brands losing market share due to uncompetitive products and services.
Li stated, “Attacks on China’s industry with overcapacity are out of politics. Let’s do the maths!” He pointed out that foreign brands in China face over five million units of idled annual capacity due to their declining market share.
Nio’s strategic focus on affordable models
Nio, the eighth largest EV manufacturer in China by sales, launched the Onvo brand in May 2023. The brand aims to broaden Nio’s customer base and boost sales amid intense price competition in the Chinese market. The Onvo L60 SUV, priced starting at 219,900 yuan (USD 30,300), is a strategic response to this competition. In contrast, Tesla’s Model Y starts at 249,900 yuan in China, highlighting Nio’s attempt to offer more affordable options.
Nio, like many of its peers, is navigating a challenging market landscape, characterised by fierce price competition. This environment has prompted Nio to trim its workforce and defer long-term projects that do not promise immediate financial returns.
Utilisation rates and market dynamics
Data from China Merchants Bank International reveals that factory utilisation rates among major Chinese firms producing plug-in hybrids and pure EVs ranged from 33% to 111% in 2023. Companies like BYD and Li Auto reported utilisation rates of 95% and 106%, respectively, by adding additional shifts. However, Nio logged the lowest utilisation rate at 33%, indicating room for improvement in its production efficiency.
Despite these challenges, Nio remains focused on expanding its production capabilities to meet market demands. The company’s new F3 plant is expected to play a crucial role in achieving this goal, particularly as it aims to ramp up production of its affordable Onvo models.
Future outlook
Nio’s latest approval and subsequent expansion plans underscore its ambition to solidify its position in the highly competitive Chinese EV market. By increasing its production capacity and launching more affordable models, Nio aims to attract a broader customer base and enhance its market share.
The decision to build a third factory also reflects Nio’s confidence in the continued growth of the EV market, despite concerns about overcapacity. As Nio navigates these challenges, its strategic focus on affordable models and expanding production capacity will be key to its success in the coming years.
Nio’s approval to build a third factory marks a significant step in its growth trajectory. The company’s efforts to address market demand and expand its production capabilities demonstrate its commitment to becoming a major player in the global EV market.
