Shares of Nio (NYSE:NIO) stock are in full focus today following a Reuters report that revealed the Chinese electric vehicle (EV) company plans on building a battery plant with an annual capacity of 40 gigawatt hours (GWh). This amount of energy will be able to power 400,000 long-range EVs. The publication cited two sources familiar with the matter. The sources also disclosed that the plant will build “big cylindrical cells” that will allow Nio to compete with the likes of Tesla (NASDAQ:TSLA).
This plant will help Nio reduce its reliance on battery maker Contemporary Amperex Technology (CATL). The company is currently Nio’s “sole supplier of batteries for cars and battery swapping stations.”
Nio Plans on Building a 40 GWh Battery Plant
Rectangular (or prismatic) batteries are currently the norm in the EV industry. However, cylindrical batteries have attracted attention in recent years due to their alleged improvements in energy density. Tesla has embraced cylindrical batteries, with plans to expand its $6.2 billion plant with the capacity to create 100 GWh 4680 cylindrical battery cells. These batteries are expected to provide more range and cost less compared to 2170 cylindrical battery cells.
Nio has yet to turn a profitable quarter, on the other hand. Batteries are known to be the most expensive component in an EV, so lower battery costs should help Nio achieve profitability. At the same time, Nio may incur heightened facility and maintenance costs in the short term due to establishing the plant.
Meanwhile, shareholders of NIO have had quite a disappointing 2023 so far. NIO stock is in the red year-to-date (YTD), led by a disappointing January deliveries number. In that month, Nio delivered 8,506 vehicles. At the same time, other Chinese EV companies reported low delivery figures as well. This was attributable to the Lunar New Year holiday and the expiration of purchase subsidies in December.
Furthermore, Nio serviced more than 1 million power swaps between Jan. 13 and Jan. 31. More than 300,000 of these swaps were serviced on the highway through power swap stations.
Now, all eyes are on Nio to report its February delivery numbers. These numbers may be revealed when the company reports its fourth-quarter earnings on March 1 before the market open.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.