The pitch for battery-swap stations is simple: It can take more than an hour to fully charge common electric vehicles, but swapping in a new battery only takes five minutes.
Yet battery-swapping has never become a mainstream charging method, even as EV adoption has grown significantly over the past decade. Israeli startup Better Place first popularized the idea globally in 2007, and it went bankrupt in 2013. Tesla flirted with the idea the same year Better Place went bankrupt before soon abandoning it for Supercharger stations.
But the idea has taken off in China recently, thanks to a few prominent EV companies’ investments. Companies such as Nio and Aulton New Energy have built 1,400 battery-swap stations nationwide and plan to grow the number to 26,000 by 2025. They hope battery-swap tech can give them an edge in the increasingly fierce domestic competition for EV supremacy. The technological revival is also partly motivated by policy incentives, as the Chinese government started to offer subsidies specific to battery-swap EV models.
Riding on the rapid growth of China’s EV industry, what were once fringe, costly ideas have come back to life. And as they grow, some Chinese companies are also thinking of taking the battery-swap solution global.
The revival of battery-swap technology
As of February, there were more than 1,400 battery-swap stations in China, more than double the number a year ago. Beijing, with 265 stations, has the highest concentration of swapping stations. Most of the existing stations are operated by two companies: Nio, the breakout domestic EV startup, and Aulton New Energy, whose founder first started stepping into the battery-swap field in 2001.
But as the industry starts to attract more market interest, formidable competitors are jumping into the race. In April 2021, Sinopec Group, China’s state-owned petroleum giant and the world’s fifth-most profitable company, announced it planned to build 5,000 battery-swap stations. In January, Contemporary Amperex Technology (CATL), a Chinese company that manufactures one-third of all EV batteries in the world, launched a modular battery-swap service in 10 Chinese cities. Collectively, all of these Chinese companies have pledged to build as many as 26,000 stations by 2025, according to a report by Bloomberg.
Nio, which has been building these stations since 2018, is betting this new charging technology will eclipse other domestic EV brands or even the industry leader Tesla. “As a startup, it needs [brand] differentiation, and it has chosen battery swap as the difference,” said Xing Lei, an auto industry analyst and former chief editor at the Beijing-based China Auto Review. “What battery swap means to Nio is what Supercharger means to Tesla.”
These battery-swap stations look like sleek boxes you can pull a car into. Each station takes up the space of about three parking spaces and hosts five to 13 batteries. They are usually placed in gas stations or public parking lots. The company has even coined a term, 电区房, meaning properties within a two-mile radius of a Nio battery-swap station, referencing 学区房, the popular tendency of buying property close to a good public school.
While having a fully charged battery in five minutes sounds great, the reality is more complicated. Waiting in line (because a station can only charge one vehicle at a time) and waiting for a full battery (if all the ones in the station are charging) can extend the total time at the station, making it not quite as efficient as popping into a gas station.
Over the years, Nio has developed the idea into a sophisticated system named “battery-as-a-service.” Today, its customers can buy a Nio model without a battery at nearly 70% of the regular price. Instead, by paying about $230 per month, the car owner can swap in a new, rented battery six times a month. While the program does significantly reduce the initial purchase price, it’s hard to calculate whether owning a battery would be less expensive in the long run. Pair that up with the fact car owners may plan to sell their car in a few years, and it becomes a math problem not everyone can solve.
The profitability is a math problem for EV companies, too, as constructing one station can cost between $230,000 and $630,000, according to Chinese website Sohu. And the batteries — now assets of the company instead of the customers — are often not used enough to warrant the depreciation. That makes battery swapping an ambitious, cash-burning bet for now.
Still, reducing the barriers to entry for people to buy EVs will be absolutely vital for getting them adopted more widely. The International Energy Agency reported that EV sales doubled last year compared to 2020, but they still account for just 9% of all vehicle sales worldwide. Speeding up EV adoption is absolutely vital to the world meeting its climate goals, though. Transportation emissions account for roughly 15% of all carbon pollution globally and the world needs to get a grip on that chunk of emissions through EVs and other means.
Why in China?
Conditions in China are in many ways more favorable than in the U.S. for battery-swap tech. The high urban population density in China means many people live in high-rise apartments and need to compete for the limited supply of EV chargers near their homes. If access to charging can’t be guaranteed, then swapping batteries is a useful alternative.
But like all rising industries in China, battery swapping also has the government standing behind it. In April 2020, China’s central government decided that, while direct subsidies for EVs were being phased out, models that support battery swap will remain eligible for subsidies for a longer period “to encourage the development of new business models.” In July 2020, a high-level official at China’s Ministry of Industry and Information Technology summarized six advantages of battery swapping, from lowering costs to improving battery charging safety, an important endorsement of the technology.
The lack of a unified vision
The EV charging landscape in China is still the Wild West. Even outside of the debate about whether traditional charging and battery swapping is the future, there is still disagreement about how to create a battery-swap system within the industry itself as different companies pull in different directions instead of a unified one.
As rapidly as battery swapping might grow in China, few people expect it to replace traditional charging as the dominant EV solution. Currently, there are more than 1.2 million public charging stations in China, 1,000 times more than battery-swap stations. Charging stations are cheaper, asset-light and more flexible.
Teld New Energy, China’s largest charging station company, has been openly opposed to the battery-swapping business. “The battery-swap model will only serve as a supplement to the charging station model, so battery swap won’t substantially impact Teld,” the company told investors in an earnings call.
The battery-swap players also have different visions for the industry. Nio’s stations can only be used by its own vehicles, which only represent around 2% of all EVs in China. CATL says its modular battery is compatible with 80% of global platform-based vehicle models, but ultimately it’s the EV companies’ decision to take up the offer or not. Aulton’s stations are more designed for fleets of electric taxis and buses, which have a consistent need for fast charging, but the enterprise nature of the company makes it less known to the public.
The lack of a unified vision — and with it, the lack of interchangeable EV batteries — is one of the biggest problems facing the industry now. It’s what prevents battery-swap stations from becoming the gas station of a new era. “You wouldn't want a gasoline station which was a GM gasoline station, and another one that was a Ford gasoline station. That would be really annoying for the customer,” Henrik Fisker, founder of American EV company Fisker Inc., said on a podcast.
Last November, China’s national standards-making body released a charging safety standard, the first for the battery-swap field. It only determined the minimum number of times a battery can be safely swapped in its lifetime, but even that minor regulation could be the first step for different EV companies to coordinate their designs in the future.
While most Chinese companies are still looking inward for the future of battery swap, Nio is taking it overseas. In its plan to build 4,000 battery-swap stations by 2025, 1,000 will be outside China. In January, it launched its first overseas battery swap station in Norway, the country that has become the harbinger of Nio’s international strategy. Nio has also reportedly been eyeballing a U.S. expansion, which could be an interesting test to see whether the technology abandoned by Tesla can make it stateside.