Sales Decline and Indirect Price Reduction Does NIO’s Battery Swap Strategy Have a Future?

Will NIO's battery swap strategy survive with sales decline and indirect price reduction?

As the three most well-known new forces in the domestic automobile industry, NIO, XPeng, and Li Auto have gradually established their foothold after experiencing a fierce competition in the early stage of the domestic new energy brand. In order to further their development, the three car companies have chosen three different and representative routes, namely NIO’s battery swapping, XPeng’s intelligent driving, and Li Auto’s range-extending driving mode. Today, after years of testing, the three companies have already pulled apart. Li Auto, which was previously underestimated, is now far ahead of the other two in terms of both sales and revenue, while NIO, which was once favored by many people, has gradually fallen behind.

NIO

NIO is a domestic new energy vehicle brand that was the first to introduce a battery swapping model. Its battery swapping technology and network construction have always been ahead of its peers, providing users with a convenient way to replenish energy. However, recently, NIO announced the cancellation of the free battery swapping rights for new car buyers and reduced the prices of all models by 30,000 yuan. This move has attracted attention from both the market and users. In many people’s eyes, NIO’s move may be a response to the decline in sales and competitive pressure. Many people also began to ridicule Li Bin’s previous statement about not reducing prices.

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Although NIO officials are unwilling to call this price change a price reduction, but rather see it as compensation for new car owners after adjusting their rights. However, it is undeniable that the new ES6, which NIO had high hopes for, does not seem to have immediately reflected in sales performance, and whether this price reduction is for the purpose of improving sales or optimizing costs and profit structure remains unclear. Can NIO’s battery swapping model maintain its advantage and attractiveness in the future? These issues may all be related to the opportunities and challenges that NIO may face after choosing the ALL IN battery swapping model.

NIO reduces prices of all models by 30,000 yuan

In 2017, NIO Power, NIO’s battery swapping technology, was released to promote the development of new energy vehicles through its charging and swapping network. In 2018, NIO built its first battery swapping station in Beijing and began offering free battery swapping services to users. As of 2019, NIO has over 100 battery swapping stations covering major cities and highways across China. In August 2020, the recommended national standard for electric vehicle battery swapping safety requirements (GB/T) was passed through review. The development of this standard will provide guidance for the healthy and safe development of the battery swapping electric vehicle industry, led by BAIC New Energy, NIO, and China Automotive Technology and Research Center.

Despite the high cost of building battery swapping stations, NIO has persisted in investing in this area. As of May 15th this year, NIO has built over 1,400 battery swapping stations, including 374 high-speed battery swapping stations. It has also built 2,580 charging stations, 15,312 charging piles, and has access to over 700,000 third-party charging piles nationwide. Furthermore, NIO plans to build another 1,000 battery swapping stations this year, with 90% being third-generation stations that are more efficient.

NIO’s 1,400th battery swapping station is completed

As the number of battery swapping stations increases, the proportion of NIO car owners choosing to swap batteries is gradually increasing. In February 2021, the number of battery swaps by NIO users exceeded the number of charges for the first time. On July 4th, 2021, with the completion of a battery swap for an ES8 vehicle at the NIO swapping station in Shanghai Hongqiao VEG Microgrid Creative Park, the cumulative number of NIO battery swaps reached 10 million. As of May this year, the cumulative number of NIO battery swaps has exceeded 22 million. Currently, 56.3% of NIO users’ power replenishment comes from battery swapping. With NIO’s continuous efforts, people seem to be gradually accepting this more convenient new experience of battery swapping.

Compared to the normal charging mode, the biggest advantage of the battery swapping mode lies in efficiency. NIO’s battery swapping mode provides users with a fast, convenient, safe, and environmentally friendly way to replenish energy, solving users’ concerns about range and charging time. According to NIO, the newly launched third-generation stations use a brand-new three-position collaborative operation mechanism, which can shorten the swapping time by 20%. Users only need about 4 minutes to complete a battery swapping service at the third-generation station, even faster than refueling at a gas station.

NIO’s battery swapping enables electric vehicles to have a replenishment mode that is close to that of fuel vehicles, providing a much better experience than charging for electric vehicle users. If the advantages are not very apparent in daily use with the gradual popularization of supercharging, the time and efficiency advantages brought by NIO’s battery swapping on the highway during holidays will be more obvious. When others are queuing up for charging stations, NIO owners can efficiently and quickly swap batteries, which is sure to attract the envy of many other electric vehicle owners. The fast and convenient battery swapping experience has also become an important benefit for NIO owners, as well as a magic weapon to support its high premium.

NIO battery swapping station

Battery swapping can also effectively improve the residual value of vehicles. For ordinary electric vehicles, the biggest factor affecting their second-hand prices is the battery’s cycle life, and the battery’s wear and tear is likely to increase as the mileage of the vehicle increases. Battery swapping is currently still an expensive thing, which will undoubtedly affect the second-hand price of the vehicle. However, NIO owners who use battery swapping do not need to worry too much about this issue because the cost of battery wear and tear has been transferred to the enterprise side. Even if the vehicle has a long mileage, swapping batteries can keep the vehicle battery in a healthy range without worrying about the need to replace the battery in the future and incur additional costs.

The battery swapping model can provide NIO with various flexible car purchase and use solutions, such as the BaaS (Battery as a Service) battery separation mode, equity upgrade packages, and car usage equity transfer, which can further reduce the price of vehicles and allow users to choose appropriate prices and services according to their needs. In addition, through BaaS and various value-added services, it can bring a stable cash flow in the future and is also a good supplement to corporate revenue.

Although NIO’s battery swapping model has a certain degree of recognition and influence among users and the market, it also faces many challenges and problems.

First of all, the biggest problem is still the cost issue, which is also the main reason why many people are not optimistic about NIO’s battery swapping model. NIO needs to invest a lot of funds and manpower to build and maintain battery swapping stations and battery packs, and these costs have not been completely passed on to users, which affects NIO’s profitability. From NIO’s published financial reports, it can be found that its full-year loss in 2022 reached as high as 14.4 billion yuan, and it still had a loss of 4.74 billion yuan in the first quarter of this year, and the profitability is not optimistic. Even though NIO is still increasing the construction of battery swapping stations, its coverage is still mainly in second-tier cities and along highways, which also limits the possibility of NIO expanding to third- and fourth-tier cities. This is not good news for the future launch of lower-positioned Alpine models.

NIO’s net loss was about 4.74 billion yuan in the first quarter of this year

Secondly, the popularity of the battery swapping model is relatively low. Currently, only a few brands such as NIO and BAIC New Energy have adopted the battery swapping model, while other mainstream new energy vehicle brands still rely mainly on charging, resulting in poor compatibility and interoperability of the battery swapping model. Although battery swapping is NIO’s moat, it also restricts NIO itself. As a business model, only by increasing the audience scale can better achieve profitability. However, the number of vehicles that support battery swapping is few, and even for the same type of vehicle that supports battery swapping, it is difficult to unify the specifications and standards between different brands, which also means that NIO’s battery swapping stations can only provide services to its own vehicle models.

On the other hand, replacing the battery does not mean that the vehicle cannot be recharged again. NIO can also supplement energy through fast charging. Most of the time, people do not have high requirements for the energy supplement time, and charging is also less expensive than battery replacement. Moreover, NIO has cancelled the policy of free battery replacement for new vehicle owners, and future owners will have to pay for battery replacement, which may further affect their willingness to replace the battery.

NIO, which can also be recharged

Secondly, the battery replacement mode will cause certain obstacles to the technological updates of the vehicle. In order to be compatible with battery replacement, the batteries of NIO vehicles are designed to be removable, which makes it difficult to make the battery pack smaller, let alone the battery-chassis integration technology that more and more automakers are choosing nowadays. The removable battery design also takes up some space in the vehicle, and the ground clearance of NIO models will be higher than other brands of the same level, thereby affecting the space inside the vehicle. In order to ensure compatibility with older models, NIO has also been subject to many limitations in its technological updates. At least it is difficult to make significant changes to the volume of the new battery module that will be launched in the future.

Finally, the development of supercharging also has an impact on the battery replacement mode. The core competitiveness of battery replacement is speed. However, as more and more automakers begin to launch vehicles that support 800V supercharging, the charging experience of electric vehicles has also improved significantly compared to before. Nowadays, the range that can be achieved with 15 minutes of supercharging on some models is already comparable to NIO’s battery replacement, although the time is still longer than battery replacement, the gap has narrowed significantly compared to before. Once supercharging becomes popular in the future, the high premium brought by NIO’s fast battery replacement may be difficult to be recognized by consumers.

NIO’s price reduction and equity reduction can be considered killing two birds with one stone. On the one hand, by reducing prices, they can further attract consumers and increase gradually declining sales, so as not to completely fall behind in the development of new energy. On the other hand, cancelling free battery replacement can supplement the high cost of the battery replacement model through charging new car owners, and increase the potential cash flow scale in the future.

Since NIO decided to adopt the battery-swapping model, people who approve and disapprove of it have already started debating online. As of now, whether the battery-swapping model has a future or not is not as significant for NIO, because when it comes to choosing to continue expanding the number of battery-swapping stations, they already have limited options. However, for NIO at present, how to increase sales again and gradually reduce losses may be a more pressing issue to address.

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