NIO sparks a battery swap "land grab" movement

As various car companies intensify their efforts in hybrid or supercharging technologies, the battle in each segmented market continues, while the field of battery swapping also sees ongoing covert conflicts.

On June 13th, NIO's first batch of fourth-generation battery swapping stations officially commenced operations. Compared to the previous generation, the new stations are 22% faster, allowing for a battery swap to be completed within 3 minutes. This is now very close to the refueling experience of traditional fuel vehicles.

Another major highlight of NIO's fourth-generation battery swapping stations is that they support multi-brand shared battery swapping. Over the past six months, with the participation of automakers such as FAW and Geely, the NIO "Battery Swap Alliance" has been continuously expanding. The launch of the fourth-generation stations marks the beginning of NIO's further expansion and solidification of the "Battery Swap Alliance".

Outside of NIO's battery swap alliance, CATL has reached cooperation agreements with multiple partners in the battery swapping projects. Various "Battery Swap Alliances" have taken shape, accelerating their industrial layout.

From skepticism about battery swapping to eager participation, despite many unresolved issues surrounding battery swapping stations, undoubtedly, a "land grab" in the energy transition process has already begun.

Heating Up

The battery swapping track in China once attracted attention due to small-scale trials by companies like Changan and Geely, but soon quieted down; CATL had previously launched the EVOGO brand for the passenger car sector in early 2022 and introduced a comprehensive battery swapping solution, but it has yet to grow into its "second growth curve".

Since the end of last year, the battery swapping track has clearly heated up.

Guangzhou Auto Group, Changan Automobile, Geely Holding, and 8 other car companies, as well as energy and power companies such as Sinopec, CNOOC, and State Grid, have signed cooperation agreements with NIO on battery swapping business; CATL has also signed agreements with partners such as Didi and GAC Aion this year, accelerating its battery swapping layout.

The launch of NIO's fourth-generation battery swapping stations has fueled this trend. Compared to the previous three generations, the fourth-generation stations have significantly improved battery swapping efficiency and service capabilities, while the construction cost per station has further decreased.

At the launch ceremony on June 13th, the Leador L60 and NIO ET7 both completed a series of actions including reversing into the station, battery swapping, and vehicle self-inspection in about two and a half minutes, saving 1 minute compared to the third-generation stations.

The number of battery slots has also increased from 21 in the third-generation stations to 23 in the fourth-generation stations. Overall, the daily service frequency per station has increased from 408 in the previous generation to 408.

With the support of 4 vehicle-grade intelligent driving chips, the entire station's computing power has reached 1016 TOPS, coupled with 6 ultra-wide-angle LiDARs and 4 vehicle-grade 8-megapixel cameras, making the battery swapping station more intelligent.

Yang Chao, Vice President of NIO Energy Assistant, revealed that with these sensors and computing power, NIO's battery swapping stations can support autonomous battery swapping while the owner is buying a bottle of water, allowing the vehicle to automatically queue, swap batteries, and find a parking space after swapping. The autonomous battery swapping function is planned to be opened in the second half of 2024.

Regarding the construction cost per station, Yang Chao stated that the construction cost of the first-generation battery swapping stations was around 3 million RMB, while the cost for the fourth-generation stations is less than 1.5 million RMB At the same time, the fourth-generation station has a wider range of support for vehicle models. It can serve NIO models scheduled for launch next year, as well as support the Leador brand. Next, it will also be able to serve users who join NIO's battery swapping strategic partners.

Of course, serving the NIO "Battery Swap Alliance" is a relatively longer-term goal, and the direct beneficiaries are still the Leador brand, which is closely related to NIO's overall sales volume.

Li Bin, Chairman of NIO, has stated that Leador will be able to share more than 1,000 battery swap stations of NIO's third generation and beyond, starting from the delivery. Nomura Securities believes that the battery swap model may bring significant assistance to the Leador brand. The brand's positioning in the price range requires models to have no shortcomings in terms of space, energy supplementation, and price. In the past, pure electric models did not have a strong position in this niche market due to energy supplementation time issues.

Now, with the launch of the fourth-generation station, Leador's advantage in energy supplementation is even stronger. Li Bin also mentioned at this year's first-quarter financial report meeting that the construction of battery swap stations has significantly boosted car sales, and future deployments of battery swap stations will be more adjusted based on their role in promoting sales.

This is also one of the considerations for the first fourth-generation battery swap station of NIO to be launched at Huadi Plaza in Liwan, Guangzhou. After densely building battery swap stations in the Yangtze River Delta, NIO will continue to exert efforts in other regions, stimulating sales through improving the energy supplementation network.

According to NIO's plan, it aims to build 1,000 fourth-generation battery swap stations by the end of 2024.

Breaking the Deadlock

The high investment in infrastructure construction such as battery swap stations, the lack of proportional investment returns, and the questionable profitability have made the battery swap model widely doubted in the industry. NIO has also been criticized by the market for this, believing that it has dragged down NIO's overall financial performance and is one of the factors contributing to NIO's delayed profitability.

Now, NIO hopes to break this deadlock.

While policy supports the "battery swap model," by continuously expanding the circle of battery swap friends and accelerating technological innovation in battery swap stations, NIO aims to become a "preacher" and leader in the battery swap track. With the development of energy businesses such as battery swapping, this business is expected to become an important source of revenue for NIO beyond car sales.

In the fourth quarter of last year, "energy solutions" together with accessory sales accounted for 9.7% of NIO's revenue. Li Bin hopes that revenue from the energy system will account for around 20% of NIO's overall revenue.

Automotive analyst Zhu Yulong analyzed that NIO's ability to maintain its differentiation advantage in pure electric vehicles is mainly related to this infrastructure of battery swapping. Of course, the current return on investment is a bit low.

Shen Fei, Senior Vice President of NIO Energy, revealed that the breakeven point for a battery swap station is 60 swaps per day. At this point, including service fees, electricity costs, and other expenses, can cover the operating and depreciation costs of the battery swap station. Currently, 20% of NIO's stations can exceed the breakeven point.

This means that NIO needs enough users to use its battery swap stations. This is also the reason why NIO needs more partners to join the "Battery Swap Alliance." From their cooperation agreements, it can be seen that the scope of cooperation includes the formulation of battery swap standards, the joint construction of battery swap networks, and so on. If successful, issues such as standardization and high construction costs that have hindered the development of the battery swap industry in the past will gradually be resolved as cooperation progresses By then, NIO's 7-year technical accumulation in battery swapping can also be shared externally, and its energy business revenue, gross profit margin, etc. will also improve with the implementation of cooperation.

The potential of battery swapping stations goes beyond this. As energy storage devices, battery swapping stations can assist in peak shaving and frequency regulation of the power grid, becoming an important component of grid dispatch; V2G (vehicle-to-grid) is also being piloted in many places, allowing vehicles, charging stations, and the power grid to integrate and develop together, participating in scenarios such as virtual power plants and aggregated transactions.

According to institutions such as CICC, policies are helping to accelerate the landing of the battery swapping industry, including battery swapping station operators, battery banks, and other segments of the battery swapping industry, with the overall market size expected to exceed RMB 200 billion by 2025.

Battery swapping stations are no longer just serving vehicle owners unidirectionally, but can play a greater role in the future power grid network. With a sufficient number of battery swapping station companies, they can also become energy operation service providers in the future.

In late May, NIO Power received a strategic investment of RMB 1.5 billion from institutions such as Wuhan Guanchuang Fund. Li Bin also stated that NIO Power will have independent financing plans in the future and will continue to open up financing.

With the influx of partners and capital, NIO's battery swapping business is transitioning from heavy to light. Currently, there are already dozens of battery swapping stations built and held by partners that have entered the NIO network and are operated by NIO.

In the process of transitioning from traditional to new energy sources, this will also be a very exciting story. From the current industrial layout of various car companies, it can be seen that future car companies will no longer be limited to vehicle manufacturing, but will focus on software technology, platform licensing, energy operation, and other areas. The boundaries between traditional car companies and suppliers are being broken, and a new industry ecosystem is taking shape.

This is also China's new approach to reshaping the industry chain and driving the development of the global automotive industry after gaining an advantage in the new energy vehicle industry