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NIO can do batteries as a service because it has always offered battery swapping technology.
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Electric-vehicle maker
NIO
announced on Thursday the formation of a battery-asset company. The Chinese manufacturer wants to separate the ownership of the car from the ownership of the battery.
It is a novel idea. Providing batteries as a service, as NIO (ticker: NIO) puts it, has two main advantages. First, it lowers the price of the vehicle. The battery pack can cost anywhere between $5,000 and $15,000, based on size and available data on battery pricing.
A NIO ES6 with 300 miles of range can start at about $50,000. Without the battery the SUV would probably cost about $40,000, according to Nio’s news release. Of course, the car still needs a battery.
NIO’s idea is for the battery company—called Wuhan Weineng Battery Asset Company—to own the batteries and essentially lease them. Investors might say: So what? Well, the classic EV conundrum is that the car costs more than a comparable internal-combustion-engine car, but the electricity to run it is less expensive than gasoline. Under the leasing scenario, the car would now be cost competitive and the battery service would approximate gasoline costs.
The monthly fee for the NIO battery will be 980 yuan, or about $140. NIO said the fee includes six battery swaps a month. Accounting for variables, that is roughly up to 1,500 miles of driving range.
The second big reason battery as a service makes sense is, as batteries improve, EV drivers can upgrade. They aren’t stuck with the same battery back over the life of the vehicle.
NIO can do batteries as a service because it has always offered battery swapping technology. Battery pack swaps were originally thought of as a range-anxiety fix and to help with the speed of charging. Drivers can simply pull into an “EV filling station,” get a fully charged battery and drive away in minutes.
“As of today, NIO has deployed 143 battery swap stations across 64 cities in China, and completed over 800,000 battery swaps for our users,” CEO William Bin Li said in the company’s news release. “The advantages of our chargeable, swappable and upgradable battery swap technologies will continue to enhance competitiveness of NIO products.”
The new battery-leasing company will be 25% owned by NIO and include
Contemporary Amperex Technology Co,
or CATL, (300750.China) as a partner. CATL is a major supplier of EV batteries, along with peers such as
Panasonic
(6752.Japan) and
LG Chem
(051910.Korea).
NIO stock wasn’t moving on the news. Shares were down 1.9% near midday Thursday. Investors might have expected the announcement. They might not be happy with the terms laid out. More likely the stock wasn’t up because it has already done great in 2020.
NIO share are up 244% this year, far better than comparable returns of the
S&P 500
and
Dow Jones Industrial Average
and traditional auto maker stocks.
General Motors
(GM) and
Ford Motor
(F) for instance, are down 21% and 26% year to date, respectively.
EV stocks Barron’s tracks are up about 250% year to date. And more companies, such as
Li Auto
(LI), have come to market in 2020, raising billions in the process.
Write to Al Root at [email protected]
