Chinese electric vehicle startup Xpeng Motors has fully acquired Foshan-based carmaker Guangdong Foday Automobile Company for 16 million yuan ($2.27 million), in a move to get its own license for manufacturing cars.

China has rolled out tight restrictions on the production of electric vehicles, making it difficult for smaller players to obtain permits. The regulations were put in place to ensure the safety and quality of electric vehicles sold in domestic and international markets.

Before the acquisition, Xpeng outsourced production of its first model G3 at Haima Automobile's plant in Central China's Henan province.

According to a statement released by Xpeng, its partnerships with Haima will remain unchanged. Xpeng will still need to go through a host of processes, including obtaining government approvals and completing procedures, before it can start making its own vehicles. The startup signed an agreement with the Zhaoqing city government in Guangdong province to establish a plant, investing 10 billion yuan in 2017.

The plant completed construction last year and has the production capacity of 100,000 units annually. But Xpeng doesn't have the qualifications to produce vehicles. In February, Xpeng established Zhaoqing Xpeng New Energy Investment Company with a registered capital of 100 million yuan.

An insider quoted by Beijing Business Today said the new company was set up for the acquisition. Xpeng said in a statement that it aims to improve its supply chain management and grant it manufacturing capabilities for future products.

Xpeng will launch its second model P7 this year, which has a range of more than 700 kilometers. It is expected to be put into production at the Zhaoqing plant and begin delivery to customers in the second quarter of this year.

After acquiring Foday and getting the necessary qualifications, P7's production can be pushed forward on schedule, the insider said.

Last year, Xpeng sold 16,700 vehicles, ranking third among Chinese electric vehicle startups after Nio and WM Motor.

Foday, established in 2001, can produce 500,000 car bodies and 100,000 vehicles annually. The company has three models on sales, who sold less than 500 units monthly last year.

Foday's former chairman Ye Qing said in a letter to staff that the company has seen a sharp decline since the first half of 2019 and that its business is facing great challenges.

Similar to Xpeng, WM Motor has acquired Dalian-based automaker Huanghai with 1.18 billion yuan in 2017. Byton acquired FAW subsidiary Huali in September 2018. And CHJ Automotive, owner of the electric car brand Leading Ideal, acquired Chongqing Lifan Automobile in December 2018 to strengthen its production capabilities.

Other electric car startups still need to outsource production at established carmakers. Nio, the most renowned electric car startup in China, partners with State-owned JAC Motors in Anhui province to produce vehicles.

The startup announced last month it received a strategic investment of more than 10 billion yuan from Hefei city government. Industry insiders said that Chinese authorities support startups to outsource production, which makes full use of existing capacities.

Once the brand starts selling more cars, it should build its own plant to control efficiency, cost and quality. These elements, as well as technology and products, are important for strong competition.