Nio, a Chinese electric vehicle manufacturer, has reached an agreement with competitor BYD to procure batteries for a new brand of EVs, as per Reuters. Moreover, these cars will be cheaper and compete with Tesla.

This deal is a significant achievement for BYD, which has been seeking to diversify its revenue beyond its own brand of EVs. It also highlights the intense competition in China’s EV market, particularly regarding the pricing of new electric vehicles and the role batteries play in their overall cost.

Initially, Nio had plans to develop batteries internally but abandoned this strategy in December, opting to prioritize cost reduction to mitigate financial losses.

On Monday, Nio officially announced the name of its new brand as “Onvo” in English and “Ledao” in Chinese. While the company has targeted the premium EV market, it hopes the new Onvo L60 will challenge the Tesla Model Y.

Nio acquires most of its batteries from CATL, a leading company in the industry. BYD will now work alongside CATL to provide a smaller battery pack for the new Onvo EV. Another Chinese battery manufacturer, CALB, which is already a supplier for Nio, will provide the brand with a larger 85-kilowatt-hour battery pack.

When approached by media sources for comment, Nio dismissed the information as “inaccurate” without giving further details. CALB didn’t comment, while CATL and BYD did not reply.

Details regarding the battery size contracts between Nio and its battery suppliers and any specifics related to anticipated sales or production, remain undisclosed.

Chinese electric car buyers are more open to choosing smaller batteries for their vehicles to save money. That’s partly due to the availability of battery swapping stations, such as those operated by Nio, and charging facilities.

BYD, through its battery division FinDreams Battery, provides batteries to Tesla’s Berlin factory and Chinese state-owned automakers like FAW. 

Although BYD uses most of the batteries in its own electric vehicles, only 5% of the batteries it made in 2023 were sold to outside clients, as reported by the battery industry information provider Gaogong Industrial Institute. 

BYD has been updating its production lines for battery packs to supply Onvo at its facility in Wuwei, located in the eastern Anhui province.