Electric vehicle startup NIO Inc, which is emerging as one of Tesla’s biggest competitors in China, plans to produce its own electric vehicle batteries as a way to boost profitability and competitiveness in the growing EV segment.

NIO’s plans were shared by company Chairman William Li on a call with analysts on Thursday.

NIO plans to manufacture in-house developed high-voltage battery packs to better compete with Tesla in its home market, as well as in Europe, which is NIO’s first overseas market outside of China.

NIO plans to start producing the more powerful 800-volt battery packs in the second half of 2024. Most electric vehicles come with 400-volt batteries. However 800-volt batteries can accept higher charging rates for rapid charging in as little as 15 minutes. These higher voltage battery packs are also used in the Porsche Taycan electric sedan.

The batteries produced by NIO will be used in a new mass-market vehicle the company aims to launch in the second half of 2024. The new more affordable NIO EV is expected to be priced around 200,000 to 300,000 yuan (US$30,000-$45,000), according to Li.

Electric automakers like NIO are dealing with the rising costs of raw materials which makes the batteries more expensive. By producing its own batteries in-house, NIO hopes to avoid its profit margins being further squeezed by rising prices, as well as reduce its reliance on suppliers that are also producing batteries for other automakers.

As reported by Reuters, NIO said battery costs would have risen in the second quarter after the renewal in April of an agreement with its sole battery supplier Contemporary Amperex Technology Co Ltd (CATL).

CATL is the world’s biggest supplier of batteries to the auto industry. The company is also Tesla’s battery supplier in China.

In 2021, CATL’s lithium-ion battery sales were 133.4 GWh, an 184.8% jump year-on-year. The company’s power battery system sales reached 116.7 GWh, up 162.5% year-on-year.

120 GWh is enough to power around 1.2 million electric vehicles.

In April, CATL reported that its net income for 2021 more than doubled to 15.93 billion yuan ($2.47 billion), easily beating analyst estimates of 13.51 billion yuan ($2.1 billion). However the battery maker scrapped its dividend and reported weaker profitability at its battery systems division due to surging raw-materials costs, including for lithium.

CATL said lithium inflation has led to “great pressure on costs,” adding that it’s signing long-term supply agreements and striking mining deals to protect supplies. AS a result, many automakers are switching to either nickel-cobalt-aluminum (NCA) or nickel-manganese-cobalt (NMC) batteries for their electric vehicles because of their higher energy density, which translates to longer range.

NIO’s vehicles are uniquely designed, as the batteries can be removed at one of the automaker’s battery swap stations called “NIO Power”. The entire swap process takes about 10 minutes. It offers a faster alternative of plugging in to charge, but also helps address the lack of convenient EV charging infrastructure across China.

NIO is also in talks to license its electric vehicle battery swapping technology to rival automakers.

Another way that NIO makes its electric vehicles more affordable is by offering a first-of its kind battery subscription plan in the industry. The automaker launched the “Battery-as-a-Service” (“BaaS”) monthly subscription plan in August 2020.

The BaaS model allows owners to pay a monthly fee for the battery that’s separate from the vehicle’s purchase price. The subscription service is designed to offset the cost of the battery pack, which is the most expensive component of any electric vehicle, adding thousands of dollars to the sticker price.

Under the BaaS model, if a customer decides to purchase a NIO electric vehicle and subscribe to use the 70kWh battery pack under the BaaS model, the purchase price drops by 70,000 yuan ($10,450). Customers then pay a monthly fee of 980 yuan ($146) for the battery pack itself.

NIO also offers customers the option of upgrading to a bigger battery after purchase for a small monthly fee. The company announced the new “battery exchange program” in Dec 2021.

NIO customers with the standard 70 or 75 kWh battery pack in their vehicles can upgrade to a more powerful and longer range 100 kWh battery by paying an additional 880 yuan (US$140) a month. The 100 kWh battery pack has a NEDC range of 615 km (382 miles) and is available as an option on NIO vehicles.

In May, NIO reached cumulative deliveries of 200,000 vehicles, which was a significant milestone for the company. NIo launched its first vehicle, the ES8 SUV, just four years ago. As a result of rising EV sales, NIO is becoming a serious competitor to Tesla in China. By producing its batteries in-house, the company can also improve its vehicle margins to better compete with Tesla in its home country.

Read more: Tesla Rival NIO Plans to Produce its Own EV Battery Packs to Improve Profitability