Nio’s (NYSE:NIO) second-generation phone has successfully completed development and is now entering the production phase, CEO William Li revealed at a Nio vehicle gathering over the weekend. NIO stock is up 1.5% today.

Nio launched its first phone last September, priced between $890 and $1,030 based on storage and RAM. The main focus of the device is its connectivity features, allowing a user to, for example, use the device as a key and control the vehicle temperature.

At the gathering, Li noted that Nio would release one phone every year. Based on the last release, the second-gen Nio phone could be released in a few months.

NIO Stock: CEO William Li Comments on Second Generation Nio Phone

Last week, CNEVPost reported that Nio had begun giving away first-gen phones for free for purchasers of its 2024 vehicles. The offer ends at the end of this month and is a bid to increase the chance of vehicle sales in light of price wars and steep competition.

Meanwhile, some NIO investors have questioned Nio’s entrance into the mobile device market, arguing that it isn’t the best use of capital allocation. Nio is also unprofitable and reported a 2023 net loss of $2.981 billion, along with declining vehicle and gross margins. Furthermore, the electric vehicle (EV) company has a slim to none chance of competing with the dominant smartphone makers.

However, Li sees the Nio phone as a “defensive strategy” against its competitors.

“If a potential customer asks a salesperson in a store: Huawei’s cars can connect with phones, can yours do that? How do you think our Fellow should answer?” said Li.

Specific details of the second-gen Nio phone are still scarce. The first-gen phone was equipped with an Android-based operating system powered by a Qualcomm (NASDAQ:QCOM) Snapdragon processor. It also had an action button that allowed its users to access over 30 vehicle control functions.

Based on Li’s comments, the Nio phone should be seen as complementary to Nio’s vehicles, giving it an edge and a hedge over its competitors. It’s not exactly clear how many first-gen phones have been sold.

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.