Electric vehicle maker Nio Inc. ( NIO ) shares are ticking higher after it reportedly received the green light to build a third factory in China, a significant development that brings its total approved production capacity to nearly 1 million vehicles annually.

This new capacity places Nio close to Tesla Inc. ( TSLA ) , whose Shanghai facility can produce 1.1 million vehicles per year, reported Reuters.

The new factory, with an annual capacity of 600,000 units, marks a notable achievement for Nio amid cautious approval trends from China’s state planners since 2022.

The company’s expansion comes amid overcapacity concerns and slowing demand. Nio has begun construction on the third plant, named F3, in Huainan city, Anhui province, which will primarily manufacture vehicles for Nio’s new budget brand, per the report.

Reuters noted that Nio has confirmed the construction of the F3 plant, stating it will initially have a capacity of 100,000 units on a single-shift basis. This expansion aims to meet the increasing demand for both Nio and Onvo vehicles, including newly launched models.

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The approval for new EV production capacity in China comes amid global concerns about overcapacity in the industry, often attributed to state-led subsidies.

While Chinese officials have issued overcapacity warnings in the past, Beijing recently declared such assertions as baseless, emphasizing the competitiveness of China’s EV production system.

Nio’s founder and CEO, William Li, also defended the industry, arguing that foreign brands are the ones struggling with overcapacity due to declining market shares.

In May, Nio introduced the Onvo brand, launching the Onvo L60 SUV at a starting price of 219,900 yuan ($30,300), below Tesla’s Model Y price in China.

The move to introduce more affordable models aims to expand Nio’s customer base amid intense price competition. The company has also had to cut its workforce and delay long-term projects to maintain financial performance.

Price Action: NIO shares are trading higher by 1.73% at $5.30 in premarket at the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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