When it comes to competitive advantages in the EV industry, few have the potential of NIO.
NIO (NIO 0.27%), a leading Chinese electric vehicle (EV) manufacturer, is putting a smile on investors’ faces as the company is hitting two birds with one stone. The company is succeeding where rivals have failed, and at the same time it’s creating a valuable competitive advantage in the world’s largest electric vehicle market, China. Let’s dive into NIO’s recent battery swap milestone, and why it’s so important for investors going forward.
Over 50 million served
There’s no question NIO leads the EV industry in battery swap technology and execution, but the question is how valuable is this now, and more importantly how valuable can this differentiator become? NIO’s battery swap technology continues to gain traction in China and has tallied 50 million cumulative battery swaps while also providing evidence its consumers prefer the option to standard charging.
To better understand the momentum NIO’s battery swapping is gaining, consider the following statistics. It took NIO four years to reach 10 million swaps, and only nine additional months to double that amount. In October 2023 NIO topped 30 million total swaps, and less than 10 months later the automaker is celebrating over 50 million swaps.
It’s an impressive feat considering EV juggernauts such as Tesla have explored the technology and since abandoned it. Here’s the kicker, and a critical one at that: NIO is seeing evidence that its EV consumers prefer battery swaps to traditional charging. NIO announced that near 60% of the energy sent to NIO vehicles is coming from battery swaps. Further, NIO estimates that its battery swap technology has saved its EV drivers a total of $2.85 billion compared to similar gasoline models, roughly $5,050 per NIO owner.
Can’t beat ’em, join ’em
Since late 2023 at least five automakers — Changan, Geely, Chery, JAC, and Lotus — have partnered with NIO for developing battery swap standards to expand the network in China. This is a huge step for NIO because its battery swap technology would heavily benefit from a standardized battery.
Even better for NIO investors is that there are a couple of potential catalysts for the business. First, NIO pointed out that the growth of new energy vehicles means roughly 20 million batteries will be reaching the end of their eight-year warranty period between 2025 and 2032, which would come with a big battery price tag that could persuade consumers to lease batteries with battery swapping technology instead.
Second, NIO believes that its battery swap stations are about two years ahead of market demand with only about one-fifth of battery swap stations breaking even. However, with another 1,000 battery swap installations planned this year, adding to its total of roughly 2,400 currently, it could become more of a mainstream option in China, especially as more partnerships and standards are developed over time.
What it all means
NIO’s ambitious battery swap strategy could end up paying off huge for long-term investors. Currently the industry is in a dire race to reduce the cost of EVs to help stoke demand, but NIO is one of few EV makers that could develop a serious competitive advantage with its battery swap locations and battery-as-a-subscription type service. While NIO doesn’t break out specific battery swap revenues, during the first quarter of 2024 its “other sales,” not including vehicle sales, generated over 15% of total revenues.
This could be the beginning of NIO’s competitive edge that is currently scarce in the EV industry, and investors should take note.
Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.