Battery Swapping – The Best BEV Business Model

Battery Swapping – The Best BEV Business Model

Battery swapping and the supply of “Batteries as a Service” (BaaS) is a superior way to build vehicle brand value, says Schwartz Advisors Derek Kaufman.

The conventional wisdom associated with battery electric vehicles is that battery range plays a big role in vehicle brand equity. A BEV with a 400-mile range is more valuable than one with a 250-mile range. In this blog, I would like to suggest that battery swapping and the supply of “Batteries as a Service” (BaaS) is a superior way to build vehicle brand value. It is, in my opinion, the best BEV business model for OEMs and vehicle owners alike. I’ll tell you the tale of two BEVs to explain why.

BEV 1 is today’s typical battery-electric vehicle.

It has between 250 and 350 miles of range and is mostly used in town and commuting to and from work. In addition, It is charged 80% of the time at the vehicle owner’s home on a slow charge.

However, it is beginning to see more public charger use with a combination of Level 2 and Level 3 DC fast chargers – the length of charge and quality of power varies widely. With the ad hoc nature of charging that places stress on the grid in peak demand periods, 10 to 30 percent of public chargers are out of service at any given time.

As a result, the vehicle’s battery degrades just a little each time it is cycled from full charge to empty and recharged – batteries are thought to last 10 years and over 200,000 miles, but degradation to the 80% performance level has been seen in some battery brands at the six-year mark of vehicle age.

So, what about servicing the battery? Most battery packs are bespoke designs specific to the vehicle make and model – new “cell to pack” designs glue individual cells across the entire floor of the vehicle, which complicates battery service if removal is required.

When buying a BEV today, the battery’s cost contributes 30 to 40% of the new vehicle’s purchase price. Batteries are warranted for long periods as an incentive to buy the BEV, but those costs are passed on in the price of the car.

So, when you go to sell your used BEV, you are selling a degraded battery that lowers the car’s value. In addition, the battery’s high weight makes OEMs reduce the number of BEVs shipped to dealers.

BEV 2 is an electric vehicle from Chinese automaker NIO that utilizes a battery swap. Here’s how it works.

Similar to BEV 1, the vehicle has between 250 and 350 miles of range and is mostly used in town and for work commuting.

However, it is charged by running the car through a NIO battery swap station. In under five minutes, a robot arm removes the used battery modules and replaces them with new, charged ones. NIO’s module battery designs are standardized and work on all NIO vehicle models, which means any NIO vehicle can utilize one of these stations.

The NIO battery swap station also monitors charge times and grid load to optimize grid demand. If battery swap stations are full, NIO BEVs can also be charged with DC fast chargers from the company.

Unlike BEV1, the NIO BEV is purchased without a battery is 30 to 40% less expensive than other BEVs. That’s because the battery is leased or paid for on a “pay as you go” basis – no need for warranty coverage. That means that when it is time to sell your used car, you are not selling a degraded battery. Therefore, the resale value is higher.

NIO can also ship full loads of their BEVs because they do not have the battery weight penalty. At the same time, the company enjoys the recurring revenue of the battery lease program and is also in more in control of the uptime of the swap stations.

While NIO is pioneering the swap concept, companies like Ample and CATL are also joining the game. NIO is running over 1,400 swapping stations in China today, and they have partnered with Shell Oil to put stations in Europe. Each station can do over 400 swaps per day. Since its formation in 2014, NIO has done over 28 million swaps. It’s fun to start my day by going to their real-time tracker to watch swaps in action.

Ample in Palo Alto, Calif., has an innovative take on the concept – they have simplified the station design to reduce installation costs, and they are white labeling the work so vehicle OEMs can brand the stations. Fisker, Nissan, Stellantis and five other OEMs are working with them on swapping right now, and the investment community has noticed. Ample has reached unicorn status with a valuation of over $1 billion with notable investors including Royal Dutch Shell, Repsol, Eneos, Banco Santander and most recently, Blackstone. Ample has also partnered with Uber to offer battery-swapping services to Uber drivers in California, with plans to expand the partnership to Europe. It also is entering the Japanese market in partnership with Eneos.

And now the Big Kahuna is getting in – CATL – the largest BEV battery producer in the world has partnered with EVOGO to build its own swapping network. The company is taking the concept into trucking as well.

People will argue that the infrastructure costs of placing swap stations are prohibitive and will limit the swap station concept to urban areas. Guess what? Most BEV cars are already limited to urban areas, and I see Ample and CATL targeting shared vehicle fleets as their first applications in city centers. Beyond OE dealerships, I see gas stations, car washes and quick lube facilities as ripe territories for battery-swapping expansion.

This series is presented by Schwartz Advisors. For more information click here.

You May Also Like

Coopetition – The Future of OE Dealerships and IAM Shops

Managing Partner Derek Kaufman says it’s time to work with competitors to satisfy the same customer.

Coopetition - The Future of OE Dealerships and IAM Shops

Cooperation–the process of working together to the same end

Competition–the contest between organizations that provide similar products or services or that target the same audience

Coopetition–working with your competitors to satisfy the same customer

Independent shops have always worked with local OE dealerships to service their customers’ cars. When aftermarket parts are not available, only OE parts apply. When independent shops lack the diagnostic capability to solve a problem, sometimes the OE dealer does. IAM shops working on ADAS calibration or embedded software challenges can benefit from OE Dealer service and diagnostic equipment.

Long-Term BEV Predictions Should Dismiss Short-Term ‘Noise’

Managing Partner Derek Kaufman emphasizes that Schwartz Advisors tries to filter out both the hype and hysteria in its forecasts.

Why the Grid Can Handle BEVs

The major utility-centric hub and spoke grid system is morphing into a more distributed power network.

SchwartzReport_ Kaufman5 1400x700
Strategies for Navigating the Aftermarket M&A Landscape

Rick Schwartz shares what factors are attracting investors to the aftermarket and how economic factors influence M&A frequency.

The Emerging Circular Aftermarket

Disruption in the aftermarket is coming from radical sustainability and the formation of a circular aftermarket.

Other Posts
Consolidation Trends in the Commercial Vehicle Aftermarket

Brian Cruickshank, partner at Schwartz Advisors, shares why investors are increasingly eyeing this side of the industry.

What to Know Before Selling Your Business in the Aftermarket

Managing Partner Keith Zar digs into the pivotal areas business owners in the aftermarket need to evaluate before selling.

RIP Alfa Romeo: Charting out the Future of ICE Powertrains

Alfa Romeo recently announced that its 2023 Tonale plug-in hybrid crossover will be the last to have a gasoline engine.

Auto Parts Distribution Consolidation: Where Are We Headed?

Schwartz Advisors’ Mike Buzzard delves into factors driving auto parts distribution consolidation today.