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Why does JAC plan to buy NIO’s plant assets? Here are possible explanations

JAC’s plan to buy NIO’s assets may be to deepen its interest connection with NIO and solidify their vehicle OEM production relationship, industry watchers say.

NIO‘s (NYSE: NIO) vehicle manufacturing partner, Anhui Jianghuai Automobile Group Corp (JAC), sparked much curiosity yesterday when it announced it would acquire some of the electric vehicle (EV) maker’s plant-related construction-in-progress assets.

A spokesperson for NIO did not respond to CnEVPost’s request for comment. NIO’s response was also unavailable in the Chinese media community, but some possible explanations are interesting to watch.

The announcement implies that NIO will sell the plant it built to JAC, The Economic Observer reported Thursday evening, citing CMB International analyst Bai Yiyang.

The reason JAC plans to buy NIO’s assets is probably to deepen its interest connection with NIO and solidify their vehicle OEM production relationship, Bai said.

JAC chose to release its sincerity with real money, which is a new olive branch that it has extended, the analyst said.

From JAC’s perspective, it is a revenue-generating and stable business to OEM for NIO as its sales continue to grow, the report noted.

JAC said in an exchange announcement yesterday that it plans to acquire some of the assets held by NIO Anhui in construction-in-progress and equipment installation projects for an estimated transaction price of RMB 1.704 billion ($244 million).

The automaker said the move is based on a long-term strategic partnership it has established with NIO for the purpose of jointly promoting cooperation in new energy vehicle (NEV) manufacturing.

The asset acquisition will not affect JAC’s normal production and operations, and if the transaction goes smoothly, it will be beneficial for it to deepen its strategic cooperation with NIO, the company said.

Notably, for NIO, it is not short of money at the moment. It had RMB 51.4 billion in cash and cash equivalents, restricted cash, short-term investments and long-term time deposits at the end of the third quarter.

Shanghai Securities News cited unnamed auto industry analysts in a report today saying NIO is already a first-tier player among China’s new car makers, and JAC hopes to continue to support it with this move.

While some of NIO’s headquarters functions are in Shanghai, production is in Hefei, the source noted.

JAC’s move, which represents its investment in NIO, will strengthen cooperation between the two in Hefei and is expected to strengthen vehicle capacity utilization, the source said.

Similar views were expressed by an industry source cited by Beijing Business Today.

JAC used more than RMB 1.7 billion to acquire some of NIO Anhui’s assets, perhaps to strengthen the tie-up and help the latter’s development, the source quoted in the report said yesterday.

JAC’s own growth has not been good in recent years, so its partnership with NIO is important, the Beijing Business Today report said, adding that as NIO’s deliveries grow, JAC could also gain more benefits.

In the first three quarters of 2022, JAC’s revenue was RMB 27.5 billion, down 10.36 percent from a year earlier, its earnings report showed. It had a net loss of RMB 784 million in the first three quarters.

At the end of the third quarter, JAC’s cash and cash equivalents balance was RMB 9.9 billion.

NIO was founded on November 25, 2014, and saw its eighth-anniversary last month.

In April 2016, it signed a manufacturing cooperation framework agreement with JAC. The agreement expired at the end of March 2021.

Under the arrangement between the two at the time, NIO licensed JAC the use of its trademarks and technology for the production of its models. Both parties initially confirmed production and sales plans of 50,000 units/year at the time and agreed to make production forecasts for the coming year each year.

In the second half of 2017, the JAC-NIO Hefei advanced manufacturing base built by JAC for NIO went into production.

In December 2017, NIO launched its first production vehicle, the ES8, and its delivery started in June 2018.

On March 27, 2021, Jianglai Advanced Manufacturing Technology (Anhui) Co, a joint venture between JAC and NIO, was established, with the two holding 49 percent and 51 percent of the shares respectively. On March 14 of this year, NIO increased its shareholding to 50 percent.

In May 2021, NIO, JAC and Jianglai renewed their production agreement, under which JAC will continue to produce vehicles for NIO from May 2021 to May 2024.

On December 12 of this year, NIO saw its 300,000th production vehicle roll off the production line, an ET5 sedan from its plant in NeoPark.

JAC also celebrated the occasion with an article stating that NIO’s 300,000th vehicle rolled off the production line was another important milestone in the deepening and comprehensive development of their partnership.

This article was first published by Phate Zhang on CnEVPost, a website focusing on new energy vehicle news from China.

CnEVPost is a website focused on the coverage of the new energy vehicle industry in China. As with our original intent for CnTechPost, there are a lot of interesting things happening in the Chinese EV industry every day, but they are not covered by the mainstream English language media. We're here to keep track of what's happening in the Chinese EV industry and strive to be the first to publish what we see in English.