The question of why NIO is not making a profit has become a constant topic in China’s automotive discourse, providing fodder for various discussions. In short, countless words can be condensed into a universally applicable cliché: “Spending too much, plate too large, and sales too few.”
However, if one were to identify the most significant source of losses, the phrase “battery-swapping system” is likely to be the common denominator. The 2,300 battery-swapping stations spread across the country and parts of Europe, along with the dozen or so batteries stored within, have become, in the eyes of many, NIO’s most serious source of losses. Media and key opinion leaders (KOLs) often calculate and emphasize the financial drain, especially on NIO’s founder, Chairman, and CEO, Li Bin, pointing out how much money NIO loses each month due to the battery-swapping stations and the batteries inside them.
However, on November 21, there were signs that the battery-swapping system, NIO’s most significant “burden,” might finally be on the verge of being shed. This morning, Changan Automobile and NIO reached a cooperation agreement on the battery-swapping business. According to the official statement, the two parties will collaborate on establishing battery-swapping standards, building and sharing the battery-swapping network, developing battery-swapping vehicle models, and establishing an efficient battery asset management mechanism.
In essence, NIO’s battery-swapping system is finally going to be open to the public. The enormous “burden” will no longer be solely shouldered by NIO itself.
Why Changan and Deep Blue?
To understand why these two companies are collaborating, let’s delve into the specifics of their cooperation. The article analyzes each of the four mentioned aspects of their collaboration.
Firstly, pushing for the establishment of battery-swapping standards. In 2020, the National Energy Administration issued a series of standards for the battery-swapping industry, including NIO’s leadership in the formulation of standards such as 10435-2020 “General Technical Requirements for Locking Mechanisms of Battery Boxes for Electric Vehicle Rapid Battery Replacement,” 10436-2020 “General Technical Requirements for Cooling Interfaces of Battery Boxes for Electric Vehicle Rapid Battery Replacement,” and 33025-2020 “General Requirements for Battery Boxes for Electric Vehicle Rapid Battery Replacement.”
However, Li Bin himself has acknowledged that a significant challenge in the promotion of NIO’s battery-swapping system and standards is that other automakers need to design their chassis around the size and specifications of the battery pack.
Changan’s involvement is likely to help address this challenge. As a subsidiary of the large state-owned enterprise, China South Industries Group Corporation, “Changan” has accumulated considerable influence in government relations, industry, and market, surpassing NIO in various aspects. Regarding battery-swapping standards, Changan has the potential and motivation to join forces with NIO to become rule makers in the field.
Secondly, the construction and sharing of the battery-swapping network. If Changan’s vehicle brands under its umbrella want to share NIO’s battery-swapping system, they will have to contribute financially to the construction and operation costs of NIO Power. Currently, there are around 1,000 third-generation battery-swapping stations available for other brands to share, leaving room for new entrants.
Moreover, the “establishment of an efficient battery asset management mechanism” is crucial. Since the batteries stored in the battery-swapping stations, as well as those using the Battery-as-a-Service (BaaS) model, are not owned by the vehicle owners, a corresponding asset management company needs to be established.
Next, the collaboration on the development of battery-swapping vehicle models. The landing of Changan’s vehicle brands into the battery-swapping system is likely to focus on Deep Blue Motors.
Why is this said? Analysis should not overlook the executives from both sides who attended the signing ceremony. From NIO, besides Li Bin, co-founder, President, and “Chongqing compatriot” Qin Lihong, and Shen Fei, Senior Vice President in charge of NIO Power’s energy system business, were present. On the Changan side, apart from Changan Automobile Chairman and Party Secretary Zhu Huarong, Group President Wang Jun and Vice President Wang Hui attended the signing ceremony.
Crucially, Deep Blue Motors’ General Manager Deng Chenghao also appeared in the event photo.
As a new energy vehicle brand launched by Changan and renamed from “Changan Deep Blue” to “Deep Blue Motors” starting this year, the company’s two flagship models, the mid-sized new energy sedan SL03 with a guide price of 14.59-20.69 million yuan (excluding the 699,900 yuan hydrogen version with minimal sales), sold less than 35,000 units in the past six months. This figure significantly lags behind Tesla’s Model 3, which has a higher guide price, smaller dimensions, and is purely electric, not hybrid. Even the mid-sized new energy SUV Deep Blue S7, which the group had high hopes for, sold less than NIO ES6, despite its guide price being half of ES6.
Looking at it this way, these two “price butchers” with nearly full value for money have not demonstrated the combat effectiveness expected by the group. According to the plan, Deep Blue Motors will release one sedan and three SUVs next, each larger than the existing products. However, for Deep Blue Motors, which has not established sufficient influence in terms of sales and brand, the challenge is how to make these four models with a starting price likely exceeding 200,000 and even 250,000 yuan gain market recognition.
Clearly, if the pure electric versions of these four models can share NIO’s battery-swapping system, it will become a new selling point. In the current and future technological conditions, the convenience of NIO’s battery-swapping stations covering major cities and highways nationwide can be a crucial indicator for establishing the premium of new cars.
After all, in the current landscape where the functions and experiences of intelligent driving and intelligent cabins are increasingly similar, all automakers need to find their exclusive selling points and concepts. For Deep Blue Motors, the next question is when the first new car that can share NIO Power’s battery-swapping system will be produced.
Recognition from Peers Is Crucial for NIO
From the perspectives of Deep Blue and Changan, joining NIO’s battery-swapping system is undoubtedly helpful in obtaining technology, products, and business benefits. From the author’s perspective, NIO’s value gained from this cooperation is likely to be higher than that of the other party.
For a long time, NIO has been a leader in innovation in China’s automotive industry in terms of business and service models. From Battery-as-a-Service (BaaS) battery leasing to the self-built NIO Power energy service system; from adhering to a high-profile brand and model positioning to equipping all models with lidar sensors… this company seems to have been running blindly on the road of “not being understood by the outside world.”
Admittedly, most NIO owners, like the author, would acknowledge that their driving, recharging, and service experiences are indeed much better than those of other companies. However, the problem is that this positive evaluation is challenging to be recognized by people outside the owner community and become a consensus.
“You are not a leader just because you say you are. After all, you are not leading from afar.”
This lack of understanding significantly weakens NIO’s competitiveness in the automotive market. Compared to the “luxury” of Mercedes-Benz, the “sportiness” of BMW, the “intelligence” of Huawei’s Wanjie, and the “value for money” of Ideal, NIO’s high-end brand label is not firmly established. The selling points of NIO Power and car services, which require a deep experience to be perceived and recognized, cannot be felt unless one is a car owner and their family.
From this perspective, having traditional and mainstream car brands like Changan willing to join the battery-swapping model, especially joining NIO Power’s battery-swapping system, is crucial for NIO’s brand image and social recognition. After all, when there are more players on the track, more spectators will be attracted to the game and, consequently, buy tickets to enter. The questioning voices about the value of battery swapping will naturally dissipate.
In fact, a similar story recently occurred in China’s automotive industry. As more models announced the inclusion of urban navigation-assisted driving, users’ perceptions of this advanced driving function evolved from initial “no sensation” to curiosity and ultimately became a buying reference. In this regard, Huawei, which has consistently invested heavily in intelligent driving, achieved success with the new Wanjie M7. It is reported that more than 60% of users who ordered this car chose to purchase the intelligent driving version with lidar.
Who would have thought that this car, with a monthly delivery volume exceeding 3,000 units, achieved such success?
Therefore, for NIO, relying solely on its efforts to build the battery-swapping system into its exclusive product and technological moat is not enough to build user awareness at the consumer level and establish brand and product premiums. Today’s Chinese new energy vehicle users are no longer the “geeks” willing to order new products and technologies five years ago but are conservative and seek reliability. Compared to cool new technology, they prefer to pay for stable products that are recognized by people around them.
Therefore, Changan, a well-known “national team” car manufacturer in the eyes of consumers, willing to join NIO Power’s battery-swapping system is particularly important.
Of course, the high-profile announcement by the two companies does not mean that there are no variables in future cooperation. It’s worth noting that as early as 2018, NIO and Changan announced their intention to form a strong alliance at the group level to jointly create an electric vehicle brand. However, for some unknown reasons, there has been no follow-up from the company. The final result was the joint venture Avita, created by Changan, Huawei, and CATL.
More importantly, the two parties did not announce the production time for Deep Blue’s first new car that could share NIO Power’s battery-swapping system.
Therefore, for NIO, whether the battery-swapping system, this “burden,” can transform into a stronger brand premium and source of income, it’s best to maintain a cautiously optimistic attitude.
Closing Remarks:
Regarding NIO’s recent sales and performance outlook, the author maintains a somewhat conservative attitude. After all, as a pure electric vehicle company with a starting price of over 300,000 yuan for most models, NIO is not necessarily in a advantageous position in the current price war in the Chinese automotive market.
NIO’s original intention at its founding was to fill the ecological niche left by luxury brands such as BBA that did not switch from internal combustion engines to new energy vehicles in a timely manner. However, if the economic environment has declined to the point where BBA owners have downgraded their car purchase budgets or temporarily abandoned plans to replace their cars, NIO’s survival space will also be compressed.
However, the company’s innovation in research and development, business models, and brand aspects is undoubtedly a unique and necessary presence in today’s Chinese automotive market, which predominantly emphasizes “value for money.”
Therefore, having a traditional and mainstream automotive brand like Changan directly recognizing NIO’s model and technology is literally a timely boost for the latter.