(Yicai Global) Oct. 27 -- Making power packs for their own electric vehicles is a given for automakers, Nio’s founder and chairman said after the Chinese EV startup formed a separate battery development unit last week.

“It’s a normal strategy for carmakers to produce batteries,” William Li told Yicai Global in an interview yesterday.

The Shanghai-based automaker set up Nio Battery Technology Anhui on Oct. 21. Li, 48, is also chair of the wholly-owned subsidiary, which has registered capital of CNY2 billion (USD279 million) and a business scope that includes battery production.

Battery supply is the key bottleneck for Nio’s business development, Li said on earnings conference call in March last year. This year it has been making strides into the field. Apart from Nio Battery Technology, it set up a dedicated research and development facility in Shanghai in May. The center, which has 31 labs, will pilot lithium battery and battery pack production lines, as well as produce samples to explore mass production.

Tesla, BYD, and Great Wall Motor also have their own battery projects. GAC Group and Volkswagen Group have also announced plans to build battery production capacity.

Li noted on a first-quarter earnings call in June that in the long term Nio will adopt a ‘self-making plus sourcing’ strategy for batteries, which will help boost product competitiveness and gross profit margins. “Investment and R&D are also our focus,” he said at the time.

Another reason for Nio to establish its own battery arm has been the increase in power pack prices since the second half of last year, which has driven up costs and weighed on gross profits at new energy vehicle makers.

NEV manufacturers are not happy about having to share a large slice of their profits with battery makers, Yu Qingjiao, secretary general of the Zhongguancun New Battery Technology Innovation Alliance and director of the China Battery 100 Association, told Yicai Global.

There is also a risk that carmakers lose pricing power if their battery supplier carves out a big market share, making it too influential, Yu added.

All or Nio’s cars currently use power packs supplied by Contemporary Amperex Technology and it was CATL’s second-largest customer after Tesla last year, according to data from Starting Point Research Institute.

Editors: Tang Shihua, Futura Costaglione