NIO Takes On Tesla and Aims to Disrupt the Global Fast Charging Market with Its Latest Battery Swap Technology

Subscribe To Download This Insight

By Dylan Khoo | 2Q 2023 | IN-6908

Chinese Electric Vehicle (EV) manufacturer NIO has grand ambitions of global expansion with its unique battery swapping technology that can give a car a fresh fully-charged battery in under 3 minutes. But NIO has struggled with heavy financial losses in its growth phase and must increase the usage rate of its swap stations to survive into adulthood.

Registered users can unlock up to five pieces of premium content each month.

Log in or register to unlock this Insight.


NIO Demonstrates Its Latest Battery Swap Station


On March 28, NIO demonstrated its Power Swap Station (PSS) 3.0 in Haikou, Hainan. The PSS is a battery swap station that mechanically removes an Electric Vehicle (EV) battery and replaces it with a different, fully-charged one. Battery swapping is somewhat of a panacea for all of the key issues with EVs: it slashes the amount of time needed to fill up a battery, alleviates concerns around replacing old batteries due to the ease of the exchange process, and reduces initial purchase price as the car and battery costs can be decoupled through a Battery-as-a-Service (BaaS) model.

There are myriad other benefits on top of this. Batteries can be temporarily upgraded from 75 Kilowatt Hours (kWh) to 100 kWh for longer trips, or even NIO’s upcoming 150 kWh solid-state battery. NIO’s PSS uses less land than would be needed to serve the same number of cars with charge points, taking up around five parking spaces. The large reserve of batteries in a PSS smooths the power draw for charging, reducing peak power demands. They could also be used to provide grid services, a concept tested by NIO in China; a single PSS 3.0 would have at least 1.5 Megawatt Hours (MWh) of battery capacity, which could form part of a potent Virtual Power Plant (VPP).

The newest generation of the Chinese EV manufacturer’s swap stations can store 21 battery packs, up from 13 in PSS 2.0, and can change a car’s battery in just 2 minutes and 30 seconds, 20% faster than its predecessor. This will allow the station to change a maximum of 408 batteries per day, an improvement over the 312 possible in the last generation.

NIO currently operates 1,326 swap stations, which it aims to increase to 2,300 worldwide by the end of 2023. Just 13 of its PSSs are outside of China, in Germany, Sweden, Denmark, Norway, and the Netherlands. All of these, however, opened in 2022 as part of the Original Equipment Manufacturer’s (OEMs) aggressive push into the European market, which it plans to follow up on with a launch in the United Kingdom in late 2023 with grand ambitions of 1,000 PSSs outside of China by 2025 in 25 different countries, including the United States.

NIO also seeks to double last year’s sales figures by delivering 250,000 vehicles in 2023, which is an ambitious target that is unlikely to be reached, but only expects 10,000 of these to be sold in Europe as the brand focuses on building a reputation and the infrastructure needed. To boost sales figures, NIO will rely on the ET5, a mid-sized sedan that will compete head on with the Tesla Model 3. Production for the ET5 began in September 2022, and it has quickly become NIO’s most popular model: in February, 6,500 units were delivered, accounting for just over half of all of NIO’s sales. This made it the 10th best-selling new energy sedan in China, and the top-ranking Battery Electric Vehicle (BEV) in the premium sedan segment.

The Only Player in Battery Swapping


Battery swapping has been convincingly proven to be viable for two-wheelers, pioneered by Taiwanese scooter manufacturer Gogoro with a competing service provided by Gachaco, a collaboration between Honda, Kawasaki, Suzuki, and Yamaha. There is also the Swappable Batteries Motorcycle Consortium working to standardize the technology and define a common vehicle interface, which counts major two-wheeler, battery, and equipment manufacturers among its members. In the world of cars, however, NIO stands alone in whole-heartedly backing battery swapping, a technology long since trialed and abandoned by others. Israeli battery swapping startup Better Place collapsed in 2013 due to a lack of sales, high investment costs, and a lack of uptake from OEMs, with Renault its only partner. Tesla gave up on battery swapping due to customer preference and the difficulty of integrating a removable battery with disparate electronic architectures, instead investing in its Supercharger network.

Standardization is a key issue for battery swapping: if this were to become a mainstream solution, it would require mass adoption of NIO’s technology, different swap stations for different automakers, or for OEMs and battery suppliers to coordinate on a single, completely interoperable battery architecture—an unlikely prospect. There is also the massive Capital Expenditure (CAPEX) required to install thousands of these stations, estimated at around US$500,000 per PSS at current scales, and the risks of underused assets from having hundreds of batteries sitting at stations that may not be seeing enough customers to make them worthwhile. The growing network of public Direct Current (DC) chargers also threatens this business model; PSS 3.0 can service 17 cars per hour, but 9 250 kW chargers could bring vehicles to 80% charge at the same rate, while being accessible to vehicles from all manufacturers.

NIO delivered 122,500 vehicles in 2022, a 34% increase from the 91,500 it shipped in the year prior, but it also saw its losses balloon to US$2.1 billion from US$630 million in the year prior, giving a net profit margin of -29.3%. NIO’s gross margin of 10.4% in 2022 is behind some of its competitors, such as Volkswagen (VW) with 18.7%, Great Wall Motor with 19.4%, or Tesla with 25.6%, prohibiting the automaker from participating in the ongoing price war in China.

Not everything is as dire as these figures may make it seem, however. Vehicle margins dropped to 13.7% from 20.1% due to increased inventory provisions, depreciation on production facilities, increased battery costs per unit, and losses on commitments to models that are expected to be supplanted by newer models using Technology Platform 2.0 (NT 2.0). NT 2.0 will offer more powerful Advanced Driver-Assistance Systems (ADAS) capabilities and an updated cockpit experience. NIO also saw Research and Development (R&D) costs grow by US$850 million and selling, general, and administrative expenses by US$448 million, attributed to an increase in marketing activities and service network expansion as the OEM expands across China and into Europe. All Chinese EV startups are currently losing money, but NIO is the only one that has been investing in swap stations, which are income-generating assets that encourage sales of new vehicles and become more valuable as more cars are sold.

NIO's Unique Technology Opens New Opportunities


For NIO to steer back to financial stability, it must make use of its battery swap stations and increase its usage rate to recuperate the steep installation costs. In practice, PSSs are not running at maximum capacity and are only seeing an average of 45 swaps per day. Analysis from Chinese investment bank CICC found that this is insufficient, with 100 swaps per day the breakeven point and 160 swaps a day giving a good annual profit of 21% with a 7-year payback period. Assuming that the number of swaps per vehicle remains constant, with NIO’s target of 4,000 swap stations by 2025, this would require a fleet of 2.1 million vehicles to break even or 3.3 million to achieve “good profits.” This is clearly impossible for an OEM that has delivered 122,500 cars in 2022 and 310,000 in its history.

To make this mass construction of swap stations viable, NIO’s best option is to license its battery pack technology and open its swap stations to partners. NIO is building a new factory in Anhui for a new brand launching in 2024 that will target the European market under the codename “Firefly,” and NIO manufactures swap stations at a plant in Hungary, but it has no public plans to open a vehicle factory in Europe. This creates an opportunity for an OEM with an established European production base to adopt NIO’s swappable battery pack technology in its own vehicles, such as Geely. The flexibility afforded by a BaaS model with upgradable battery capacity would be particularly attractive for the Geely brand Lynk & Co that is focused on a Vehicle-as-a-Service (VaaS) model. Geely made plans in 2021 to establish its own swapping network under the E-Energee brand, which failed to materialize. A partnership with NIO would require less risk and capital than setting up a separate network, while providing clear benefits that align with the Lynk & Co value proposition.

A licensing network is probably in NIO’s plans; there were reports in April 2022 that NIO was in talks with other OEMs around licensing and this may be something that its PSSs are built in mind with. Though its vehicles are equipped with a vast suite of 33 sensors and four NVIDIA Drive Orin chips for self-driving, PSS 3.0 has two Light Detection and Ranging (LiDAR) sensors and DRIVE Orin chips to assist with autonomously parking the car inside the station, which could be also used for a partner’s vehicles without the same self-driving capabilities.

This could turn the lack of standardization in swappable car batteries from a hinderance into an opportunity for NIO to control and coordinate an ecosystem. Under this model, NIO would own and operate the PSSs and the batteries within them, and could generate revenue either from licensing access to other OEMs or by directly charging drivers using cars from these other OEMs.

As with all vehicle refueling infrastructure, achieving a high density is critical for battery swap stations. When drivers can be confident that there will be a PSS on any highway or in any city that they happen to be driving through, they become more useful and attractive to prospective customers. For this reason, NIO should restrict its expansion to China and select European countries. NIO has, thus far, built most of its PSSs in the densely populated eastern half of China in large metropolises and along major arterial expressways, and should replicate this in the densest parts of Europe where the most EVs are on the roads, particularly Germany and the Benelux states. NIO should not enter the North American market; its large size with scattered population centers will make it unviable to achieve a critical mass of swap stations, while protectionist American policies will hamper vehicle sales.

NIO is also well suited to tap into the robotaxi ridesharing market. Mobileye is using NIO ES8 Sport Utility Vehicles (SUVs) in its first Level 4 self-driving trials in Munich and Detroit, as part of a strategic collaboration under which Mobileye provides self-driving system designs and NIO takes on the automotive-grade engineering, mass production, and integration into its vehicles. NIO’s battery swapping system provides unique benefits to a driverless taxi business. Swapping happens automatically without human intervention and the ability to store and charge 21 batteries simultaneously means that vehicles can be quickly serviced and turned around during busy periods. Furthermore, the smaller form factor of a PSS compared to an equivalent station of charge points means they can be located closer to where demand is in busy urban areas; having a small number of refueling facilities with a higher capacity in better locations makes route planning for an autonomous fleet easier.

This, along with the advanced self-driving sensors and computing capabilities built into its vehicles, puts NIO in a good position to sell its vehicles to companies like SIXT and Moovit, which have plans to operate robotaxi fleets. This is an achievable prospect, and an area NIO should focus on to enter new markets and secure orders, which will help to get more NIO cars on the road and increase the usage rate of its battery swap stations.



Companies Mentioned