China’s Nio bets on battery swapping in Tesla challenge

Chinese electric vehicle maker Nio is betting that battery swapping will play a critical role in its challenge to Tesla in the world’s biggest car market, even after its US rival shunned the expensive technology.

Battery swapping allows drivers to rapidly exchange their depleted battery for a fully charged one at specially-equipped service stations. In April, New York-listed Nio partnered with state-run oil group Sinopec as part of plans to more than double its network of such stations across China to 500 this year.

Nio also plans to open battery-swapping stations in Norway this year as part of its expansion into Europe.

“Lots of our users tell us that battery swapping was the reason they chose this car,” Shen Fei, Nio’s vice-president for power management, told the Financial Times, adding that many drivers in Chinese cities lack access to home-based electric vehicle charging. “Battery swapping is already core to our competitiveness.”

Nio is one of several Chinese automakers trying to challenge Tesla’s leading position in the country’s high-end electric vehicle market. The US group has been under pressure in China recently after its bungled handling of a high-profile customer protest turned into a publicity nightmare.

China, the largest market for battery-powered and hybrid vehicles, is an outlier in an industry that has focused on developing infrastructure to support charging at home and at stations.

Geely, China’s biggest private automaker by sales, plans to build 100 swapping stations in the southern city of Chongqing this year before rolling out facilities in other parts of the country.

Beijing New Energy Vehicles, a subsidiary of state-owned automaker Baic Motors, is targeting electric taxi fleets and operates 121 swapping stations.

Global interest in battery swapping has faded in recent years, partly due to high costs. Tesla ended a two-year trial of its own swapping system in 2015 after tepid customer uptake.

The technology has benefited from Beijing’s strong support. Last year, the government made battery swapping a requirement for receiving subsidies on electric vehicles priced at Rmb300,000 or above, in a move that benefited Nio.

Whether or not it’s the end game for the industry, Chinese automakers want to win now

An appeal of battery swapping for drivers is that it lowers upfront costs. Nio launched a subscription option for batteries last year that allows customers to buy cars without a power pack, cutting about $10,000 from the purchase price.

However, some analysts remain unconvinced, pointing to the high costs of building stations. They argue that fast charging systems developed by Tesla and others are more efficient once overall running costs and the potential to charge multiple cars simultaneously are taken into account, despite being slower than battery swapping.

Whether Nio and others can make battery swapping profitable depends on utilisation of stations and driving down operating costs through automation, said Edison Yu, an analyst at Deutsche Bank.

Nio, which was founded in 2014, has previously struggled to build battery swapping infrastructure. A cash flow crisis in 2019 meant that it fell far behind early targets of 1,100 swapping stations by 2020. The group revived its expansion efforts after securing a $989m state-backed investment early last year.

Shen, the Nio executive, believes battery swapping will help Chinese carmakers open up an advantage over their foreign competitors, which are unlikely to adopt the technology. “Whether or not it’s the end game for the industry, Chinese automakers want to win now,” he said.