SHANGHAI (Reuters) - China electric vehicle maker Nio has struck a deal with larger rival BYD to source batteries for an EV brand priced at a lower range that aims to compete with Tesla, three sources with direct knowledge of the matter said.

The agreement marks a win for BYD, which has been looking to expand its revenue beyond EV sales under its own brand. It also shows the impact of unrelenting competition over the price of new EVs in China's market, and batteries, the largest single cost in a new vehicle.

Nio, which launched as a start-up a decade ago, had intended to produce batteries in-house but abandoned those plans in December as it shifted its focus to cutting costs to reverse losses.

Nio on Monday confirmed its new brand would be named "Onvo" in English and "Ledao" in Chinese as it unveiled a website for the car. Nio, which has been aimed at the premium EV market in competition with the likes of Mercedes, has said it expects the new Onvo L60 to compete with the Tesla Model Y.

Nio currently buys most of its batteries from industry-leader CATL.

BYD will join CATL to supply a smaller battery pack for one version of the new Onvo EV, two of the people said. Another Chinese battery maker, CALB, already a Nio supplier, will supply the brand with a larger battery pack of 85 kilowatt hours, one of the people said.

When contacted by Reuters, Nio said the information was "inaccurate" and did not elaborate. CALB declined to comment while CATL and BYD did not respond to requests for comment.

Reuters was not able to identify the size of Onvo battery contracts between Nio and the battery suppliers or any details related to expected sales or production.

Chinese EV buyers have been more willing than car buyers in other markets to opt for lower-range batteries in exchange for lower cost, in part because of the availability of battery swapping stations of the kind run by Nio and charging locations.

BYD, through its battery unit FinDreams Battery, already supplies some batteries to Tesla's Berlin plant and state-owned Chinese automakers including FAW.

Most BYD batteries go to its own EVs. According to battery industrial information provider Gaogong Industrial Institute, BYD only sold 5% of the batteries it produced in 2023 to external clients.

BYD has been renovating production lines for battery packs to supply Onvo at its plant in Wuwei in eastern Anhui province, one of the people said.

($1 = 7.2163 Chinese yuan)